OPPENHEIMER
Developing Markets Fund
Prospectus dated November 15, 1996
Oppenheimer Developing Markets Fund is a mutual fund that aggressively seeks
capital appreciation as its investment objective. The receipt of income is an
incidental consideration in the selection of the Fund's portfolio securities. In
seeking its objective, the Fund invests primarily in equity securities of
issuers in emerging markets throughout the world. The Fund emphasizes
investments in "growth-type" companies in industry sectors that the portfolio
managers believe have appreciation possibilities. The Fund may also use
"hedging" instruments to try to reduce the risks of market and currency
fluctuations that affect the value of the securities the Fund holds.
Some of the Fund's investment techniques may be considered speculative.
Foreign investing involves special risks that do not affect investments in
domestic issuers, such as currency fluctuations. Investments in emerging markets
can be very volatile. These techniques may increase the risks of investing in
the Fund and the Fund's operating costs. You should carefully review the risks
associated with an investment in the Fund. See "Investment Objective and
Policies" and "Investment Risks" for more information about the types of
securities the Fund invests in and the risks of investing in the Fund.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it for
future reference. You can find more detailed information about the Fund in the
November 15, 1996 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
(logo) OppenheimerFunds
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other agency, and
involve investment risks, including the possible loss of the principal amount
invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
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SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
3 Expenses
6 A Brief Overview of the Fund
7 Investment Objective and Policies
10 Investment Risks
13 Investment Techniques and Strategies
20 How the Fund is Managed
22 Performance of the Fund
ABOUT YOUR ACCOUNT
24 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
37 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
39 How to Sell Shares
By Mail
By Telephone
41 How to Exchange Shares
42 Shareholder Account Rules and Policies
44 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Arrangements
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ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you will bear indirectly.
o Shareholder Transaction Expenses are charges you pay when you buy or
sell shares of the Fund. See "About Your Account," starting on page 24, for an
explanation of how and when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge on Purchases
(as a % of offering price) 5.75% None None
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a
% of the lower of the original
offering price or redemption proceeds) None(1) 5% in the 1st 1% if redeemed
year, declining within 12
to 1% in the 6th months of
year and purchase(2)
eliminated
thereafter(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested
Dividends None None None
- ---------------------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption Fee None None None
- -----------------
<FN>
(1) If you invest $1 million or more ($500,000 or more for purchases by
"Retirement Plans" as defined in "Class A contingent Deferred Sales Charge" on
page 29) in Class A shares, you may have to pay a sales charge of up to 1% if
you sell your shares within 18 calendar months from the end of the calendar
month during which you purchased those shares. See "How to Buy Shares - Buying
Class A Shares," below.
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(2) For more information on contingent deferred sales charges, see "How to Buy
Shares-Buying Class B Shares" and "Buying Class C Shares" below.
[/FN]
</TABLE>
o Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the Fund
pays management fees to its investment advisor, OppenheimerFunds, Inc. (which is
referred to in this Prospectus as the "Manager"). The rates of the Manager's
fees are set forth in "How the Fund is Managed," below. The Fund has other
regular expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds its portfolio securities, audit fees and legal expenses.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A Class B Class C
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Management Fees 1.00% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------
12b-1 Distribution Plan Fees 0.25% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------
Other Expenses 0.57% 0.57% 0.57%
- -----------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses 1.82% 2.57% 2.57%
</TABLE>
The 12b-1 Plan Fees for Class A shares are service fees. The maximum
fee is 0.25% of average net assets of that class. For Class B and Class C
shares, the 12b-1 Distribution Plan Fees are service fees (the maximum fee is
0.25% of average net assets of the respective class) and the asset-based sales
charge of 0.75%. These plans are described in greater detail in "How to Buy
Shares." Because the Fund is a new fund and has no operating history, the rates
for the management fee and the 12b-1 fees are the maximum rates that can be
charged. "Other Expenses" in the table above are estimates based on the
Manager's projections of those expenses in the Fund's first year of operations.
The actual expenses for each class of shares in future years may be
more or less than the numbers in the table, depending on a number of factors,
including changes in the actual value of the Fund's assets represented by each
class of shares.
o Examples. To try to show the effect of these estimated
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expenses on an investment over time, we have created the hypothetical examples
shown below. Assume that you make a $1,000 investment in each class of shares of
the Fund, that the Fund's annual return is 5%, and that its operating expenses
for each class are the ones shown in the Annual Fund Operating Expenses table
above. If you were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of 1 and 3 years:
1 year 3 years
- ----------------------------------------------------------------------------
Class A Shares $75 $111
- ----------------------------------------------------------------------------
Class B Shares $76 $110
- ----------------------------------------------------------------------------
Class C Shares $36 $80
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years
- ---------------------------------------------------------------------------
Class A Shares $75 $111
- ---------------------------------------------------------------------------
Class B Shares $26 $80
- ---------------------------------------------------------------------------
Class C Shares $26 $80
In the first example, expenses include the Class A initial sales charge
and the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charge, but Class B
and Class C expenses do not include contingent deferred sales charges. Because
of the effect of the asset-based sales charge and contingent deferred sales
charge imposed on Class B and Class C shares, long-term holders of Class B and
Class C shares could pay the economic equivalent of more than the maximum
front-end sales charge allowed under applicable regulations. For Class B
shareholders, the automatic conversion of Class B shares to Class A Shares is
designed to minimize the likelihood that this will occur. See "How to Buy Shares
- - Buying Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment returns of
the Fund, which may be more or less than the amounts shown.
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A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to sell or exchange
shares.
o What Is The Fund's Investment Objective? The Fund
aggressively seeks capital appreciation as its investment
objective. The receipt of income is an incidental consideration in
the selection of the Fund's portfolio securities.
o What Does the Fund Invest In? In seeking its objective, the Fund
invests primarily in equity securities of issuers in emerging markets throughout
the world. Investments in debt securities may be made (as described in
"Investment Policies and Strategies") in what the Manager perceives to be normal
market conditions and without limitation as a temporary defensive measure or for
liquidity purposes in what the Manager perceives to be uncertain market
conditions (as described in "Investment Techniques and Strategies"). The Fund
may also use hedging instruments and certain derivative investments to try to
manage investment risks. These investments are more fully explained in
"Investment Objective and Policies," starting on page 7.
o Who Manages the Fund? The Fund's investment advisor is
OppenheimerFunds, Inc., which (including a subsidiary) as of September 30, 1996,
manages investment company portfolios having over $55 billion in assets. The
Manager is paid an advisory fee by the Fund, based on its net assets. The Fund's
portfolio managers, who are primarily responsible for the day-to-day management
of the Fund's portfolio, are Frank Jennings and Rajeev Bhaman. Messrs. Jennings
and Bhaman are Vice Presidents of the Manger. Prior to joining the Manger, Mr.
Jennings was the Managing Director of Global Equities at Mitchell Hutchins Asset
Management, Inc., a subsidiary of PaineWebber, Inc. Prior to that, Mr. Jennings
was a global funds manager for AIG Global Investors. Prior to joining the
Manager, Mr. Bhaman was Vice President for Asian Equities of Barclays de Zoete
Wedd Inc. The Fund's Board of Trustees, which is elected by shareholders,
oversees the investment advisor and the portfolio managers. See "How the Fund is
Managed," starting on page 20 for more information about the Manager and its
fees.
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o How Risky is the Fund? All investments carry risks to some degree. It
is important to remember that the Fund is an aggressive capital appreciation
fund designed for long-term investors for a portion of their investments and is
not designed for investors seeking income or conservation of capital. The Fund's
investments are subject to changes in their value as a result of many factors
such as changes in general stock market movements or the change in value of
particular stocks because of an event affecting the issuer. The Fund's
investments in foreign securities are subject to additional risks associated
with investing abroad, such as the effect of currency rate changes on stock
values, and to the special risks of investing in emerging markets. These changes
affect the value of the Fund's investments and its price per share. The Fund may
borrow up to 33 1/3% of the value of its total assets in the aggregate from
banks on an unsecured basis. A portion of such borrowed funds may be used to
purchase additional portfolio securities. Leveraging, or the purchase of
securities with borrowed funds, is a speculative investment technique.
In the Oppenheimer funds spectrum, the Fund is expected to be
significantly more volatile than stock funds that do not invest aggressively for
capital appreciation or in emerging markets. The fact that the Fund is a new
fund with no operating history is also a factor to consider. While the Manager
tries to reduce some risks by diversifying investments, by carefully researching
securities before they are purchased for the portfolio, and in some cases by
using hedging techniques, there is no guarantee of success in achieving the
Fund's objective, and your shares may be worth more or less than their original
cost when you redeem them. See "Investment Risks" starting on page 10 for a more
complete discussion of the Fund's investment risks.
o How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic Investment
Plan under AccountLink. See "How to Buy Shares" beginning on page 24 for more
details.
o Will I Pay a Sales Charge to Buy Shares? The Fund has three classes
of shares. Each class has the same investment portfolio but different expenses.
Class A shares are offered with a front-end sales charge, starting at 5.75%, and
reduced for larger purchases. Class B and Class C shares are offered without a
front-end sales charge, but may be subject to a contingent deferred sales charge
if redeemed within 6 years or 12 months, respectively, of
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purchase. There is also an annual asset-based sales charge on Class B and Class
C shares. Please review "How to Buy Shares" starting on page 24 for more
details, including a discussion about factors you and your financial advisor
should consider in determining which class may be appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. See "How to Sell Shares" on page 39. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to Exchange Shares" on
page 41.
o How Can I Tell How the Fund Performed? The Fund measures its
performance by quoting its average annual total returns and cumulative total
returns, which measure historical performance. Those returns can be compared to
the returns (over similar periods) of other funds. Of course, other funds may
have different objectives, investments and levels of risk. The Fund's
performance can also be compared to that of a broad based market index. Please
remember that past performance does not guarantee future results.
Investment Objective and Policies
Objective. The Fund aggressively seeks capital appreciation as its
investment objective.
Investment Policies and Strategies. In seeking its objective, the Fund invests
primarily in equity securities of issuers in emerging markets throughout the
world. For purposes of the Fund's operations such markets will consist of all
countries determined by the Manager to have developing or emerging economies and
markets ("Developing Markets"). The Fund may invest in the following types of
equity securities: common stock, preferred stock, rights and warrants to acquire
such securities and substantially similar forms of equity with comparable risk
characteristics, including equity securities convertible into common stock.
These securities may be listed on securities exchanges, traded in various
over-the-counter markets, or may have no organized trading market. The Fund may
invest in securities of smaller, less well-known companies as well as those of
large, well-known companies (if they are "growth-type" companies, as described
below). The selection of securities is made, among other things, on the basis of
the Manager's view of a security's potential for capital appreciation. The
receipt of current income is an incidental consideration in the selection of
portfolio securities. A portion of the Fund's assets may be
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invested in other types of securities for liquidity purposes.
Under normal market conditions the Fund will invest at least 65% of its
total assets in equity securities of issuers whose principal activities are
located in at least three different Developing Markets. While the Fund intends
to invest primarily in equity securities of such issuers, the Fund may invest up
to 35% of its total assets in any combination of (i) debt securities of
government or corporate issuers in Developing Markets; (ii) equity and debt
securities of issuers in developed countries, including the United States; and
(iii) cash and money market instruments. The Fund may invest in debt securities,
whether issued by domestic or foreign issuers, which are rated below investment
grade by Moody's Investors Service, Inc., Standard & Poor's Corporation, Fitch
Investors Service, Inc., Duff & Phelps, Inc. or another nationally recognized
statistical rating organization ("NRSRO") or in unrated securities, which in the
opinion of the Manager, are of comparable quality. Such investments in
below-investment grade debt securities must be in the aggregate less than 35% of
the Fund's net assets. The Fund may, but is not required to, invest up to 100%
of its assets in foreign securities.
The Manager determines where an issuer's principal activities are
located by considering, among other things, such factors as its country of
organization, the principal trading market for its securities, the source of its
revenues and the location of its assets. The issuer's principal activities
generally may be deemed by the Manager to be located in a particular country if:
(a) the security is issued or guaranteed by the government of that country or
any of its agencies, authorities or instrumentalities; (b) the issuer is
organized under the laws of, and maintains a principal office in, that country;
(c) the issuer has its principal securities trading market in that country; (d)
the issuer derives 50% or more of its total revenues (alone or on a consolidated
basis) from goods sold or services performed in that country; or (e) the issuer
has 50% or more of its assets in that country.
o Can the Fund's Investment Objective and Policies Change? The Fund's
investment objective is a fundamental policy, and, as such, may not be changed
without shareholder approval. The Fund's investment policies and techniques are
not "fundamental" unless this Prospectus or the Statement of Additional
Information says that a particular policy or technique is "fundamental."
Fundamental policies are those that cannot be changed without
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the approval of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act of 1940 ("Investment Company
Act") to be a particular percentage of outstanding voting shares (and this term
is explained in the Statement of Additional Information). The Fund's Board of
Trustees may change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this Prospectus.
o Foreign Securities. "Foreign Securities" selected by the Fund include
equity securities issued by companies organized under the laws of a foreign
country, and debt securities (such as convertible debentures or bonds) issued or
guaranteed by foreign companies or by foreign governments or their agencies.
Foreign Securities also include securities that are traded primarily on a
foreign securities exchange or over-the-counter market, as well as securities of
companies that the Manager determines derive a significant portion of their
revenue or profits from foreign business, investments or sales or have a
significant portion of their assets abroad. Foreign Securities may include
securities of foreign issuers represented in the U.S. markets by American
Depository Receipts (ADRs) or other similar arrangements.
o Developing Markets. For purposes of the Fund's operations, Developing
Markets will consist of all countries determined by the Manager, from time to
time, to have developing or emerging economies and markets. These countries
generally include every country in the world except the United States, Canada,
Japan, Australia, New Zealand and most countries located in Western Europe.
The Fund intends to focus its investments in those Developing Markets
which the Manager believes may have strongly developing economies now or in the
future and in which the markets are believed by the Manager to be becoming more
sophisticated. For purposes of the Fund's policy of investing under normal
market conditions at least 65% of its total assets in equity securities of
issuers whose principal activities are located in at least three different
Developing Markets, the Fund will consider investment in the following
Developing Markets among others:
Algeria
Argentina
Bangladesh
Bolivia
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Botswana
Brazil
Chile
China
Colombia
Costa Rica
Cyprus
Czech Republic
Ecuador
Egypt
Ghana
Guyana
Hong Kong
Hungary
India
Indonesia
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Iran
Israel
Jamaica
Jordan
Kenya
Lebanon
Malaysia
Mauritius
Mexico
Morocco
Myanmar
Nigeria
Pakistan
Paraguay
Peru
Philippines
Poland
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Portugal
Republic of
Slovakia
Russia
Singapore
South Korea
Sri Lanka
Swaziland
Taiwan
Thailand
Tanzania
Turkey
Uruguay
Vietnam
Zimbabwe
Although the Manager currently considers each of the above- listed
countries eligible for investment, the Fund may not be invested in all such
markets at all times. Moreover, investing in some of those markets currently may
not be considered by the Manager to be desirable or feasible, due to, among
other things, the lack of adequate custody arrangements for the Fund's assets,
overly burdensome repatriation and other restrictions, the lack of organized and
liquid securities markets, unacceptable political risks or for other reasons. In
addition to the above-listed countries which are eligible for investment, the
Manager may make investments in issuers in Developing Markets not specifically
listed above where investing may become desirable subsequent to the date of this
Prospectus.
o Growth-Type Companies. These are companies that the Manager believes
are entering into a growth cycle in their business, with the expectation that
their stock may increase in value. Growth companies may include larger,
established companies that the Manager believes are entering a growth phase,
whether because of the development of new products or markets, improved sales,
technological developments, or for other reasons. Growth companies may also
include companies that the Manager believes may generate or apply new
technologies, new or improved distribution techniques, or new services,
companies that own or develop natural resources, companies that may benefit from
changing consumer demands or lifestyles, companies with projected earnings
growth in excess of the average. They may also include newer companies that the
Manager believes may be in new or developing industries, or which are developing
new products or services, or expanding into
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new markets for their products. In either case, growth-type companies have what
the Manager believes to be favorable prospects for the long term. Newer
growth-type companies normally incur losses or retain all or a large part of
their earnings for research, development and investment in capital assets.
Therefore, they tend not to emphasize the payment of dividends. Since the
receipt of income is an incidental consideration in the selection of portfolio
securities, the absence of dividend history is not a negative factor in the
assessment of securities under consideration.
In selecting stocks for investment, the Manager looks for companies
with, among other things, capable management, sound financial and accounting
policies and successful product development and marketing relative to other
companies, as well as other factors.
o Portfolio Turnover. A change in the securities held by the Fund is
known as "portfolio turnover." The Fund ordinarily does not engage in short-term
trading to try to achieve its objective. As a result, the Fund's portfolio
turnover is not expected to be more than 100% each year.
Portfolio turnover affects brokerage costs, dealer markups and other
transaction costs, and results in the Fund's realization of capital gains or
losses for tax purposes. It may also affect the Fund's ability to qualify as a
"regulated investment company" under the Internal Revenue Code for tax
deductions for dividends and capital gains distributions the Fund pays to
shareholders. The Fund intends to qualify as a regulated investment company in
its current fiscal year, although it reserves the right not to qualify.
Investment Risks
All investments carry risks to some degree, whether they are risks that market
prices of the investment will fluctuate (this is known as "market risk") or that
the underlying issuer will experience financial difficulties and may default on
its obligation under a fixed-income investment to pay interest and repay
principal (this is referred to as "credit risk"). These general investment risks
and the special risks of certain types of investments that the Fund may hold are
described below. They affect the value of the Fund's investments, its investment
performance and the prices of its shares. These risks collectively form the risk
profile of the Fund.
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Because of the types of securities the Fund invests in and the
investing techniques the Fund uses, the Fund is designed for investors who are
investing for the long term. It is not intended for investors who are seeking
assured income or preservation of capital. While the Manager tries to reduce
risks by diversifying investments, by carefully researching securities before
they are purchased and, in some cases by using hedging techniques, changes in
overall market prices can occur at any time. There is no assurance that the Fund
will achieve its investment objective. When you redeem your shares, they may be
worth more or less than what you paid for them.
o Equity Investment Risks. Because the Fund normally invests most, or a
substantial portion, of its assets in equity securities, the value of the Fund's
portfolio will be affected by changes in the stock markets. At times, these
markets can be volatile, and stock prices can change substantially. This market
risk will affect the Fund's net asset values per share, which will fluctuate as
the values of the Fund's portfolio securities change. Not all stock prices
change uniformly or at the same time, not all stock markets move in the same
direction at the same time, and other factors can affect a particular stock's
price (for example, poor earnings reports by an issuer, loss of major customers,
major litigation against an issuer, or changes in government regulations
affecting an industry). Not all of these factors can be predicted.
The Fund attempts to limit certain market risks by diversifying its
investments, that is, by not holding a substantial amount of the stock of any
one company and by not investing too great a percentage of the Fund's assets in
any one country. In addition, the Fund does not concentrate its investments in
any one industry or group of industries.
o Foreign Securities Risks. The Fund may invest up to 100% of its
assets in foreign securities. Transactions involving foreign equity or debt
securities or foreign currencies, and transactions entered into in foreign
countries, involve significant considerations and risks not typically associated
with investing in U.S. markets. These include, among other things, changes in
currency rates, exchange control regulations, governmental administration or
economic or monetary policy (in the U.S. or abroad) or circumstances in dealings
between nations. Costs may be incurred in connection with conversions between
various currencies. Special considerations may also include more limited
information about foreign issuers, higher brokerage and custody costs,
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different or less stringent accounting standards and less developed trading
markets. Foreign securities markets may also be less liquid, more volatile and
less subject to government supervision than in the U.S. Investments in foreign
countries are affected by other factors including the risk of expropriation,
confiscatory taxation and potential difficulties in enforcing contractual
obligations and may be subject to extended settlement periods. More information
about the risks and potential rewards of investing in foreign securities is
contained in the Statement of Additional Information.
o Special Risks of Developing Market Investments. The risks of
investing in foreign securities are intensified in the case of investments in
Developing Markets. In general, Developing Markets may offer special investment
opportunities because their securities markets, industries and capital structure
are growing rapidly, but investments in these countries involve special material
risks not present in mature foreign markets (such as England, Germany and Japan,
for example). Settlement of securities trades may be subject to extended delays,
so that the Fund may not receive securities purchased or the proceeds of sales
of securities on a timely basis. Developing Markets generally have smaller, less
developed trading markets and exchanges, which may result in a lack of liquidity
(so that the Fund may not be able to dispose of those securities rapidly and at
a reasonable price) and greater volatility, which can materially affect the
value of the securities held by the Fund, and therefore its net asset value per
share. Developing Market countries may have relatively unstable governments,
present the risk of nationalization of businesses or prohibitions of
repatriation of assets. The economies of Developing Market countries may be
predominantly based on only a few industries and may be highly vulnerable to
changes in local or global trade conditions. There may also be less developed
legal and accounting systems and less protection of property rights than more
developed countries. In addition, in some Developing Market countries, general
and/or industry specific restrictions on foreign ownership may preclude the Fund
from acquiring desirable securities.
o Special Risks of Lower-Grade Securities. The Fund can invest in
domestic and foreign debt obligations, including high-yield, below-investment
grade debt securities (including both rated and unrated securities). Such
investments in the aggregate must comprise less than 35% of the value of the
Fund's net assets. These "lower-grade" securities are commonly know as "junk
bonds."
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The Fund will not invest in debt securities, whether issued by domestic or
foreign issuers, which have a rating by a NRSRO of less than C or in deb
securities which are in default at the time of purchase. All corporate debt
securities (whether foreign or domestic) are subject to some degree of credit
risk. High yield, lower-grade securities, whether rated or unrated, often have
speculative characteristics and special risks that make them riskier investments
than investment grade securities. There may be less of a market for them and
therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
make the payments of interest due on the bonds. The issuer's low
creditworthiness may increase the potential for its insolvency. For foreign
lower- grade debt securities, these risks are in addition to the risks of
investing in foreign securities, described above. These risks mean that the Fund
may not achieve the expected income from lower-grade securities, and that the
Fund's net asset value per share may be affected by declines in value of these
securities.
o Special Risks of Derivative Investments. The Fund can invest in a
number of different kinds of derivative investments. In general, a "derivative
investment" is a specially designed investment whose performance in linked to
the performance of another investment or security, such as an option, future,
index, currency or commodity. The company issuing the instrument may fail to pay
the amount due on the maturity of the instrument. Also, the underlying
investment or security might not perform the way the Manager expected it to
perform. Markets, underlying securities and indices may move in a direction not
anticipated by the Manager. Performance of derivative investments may also be
influenced by interest rate and stock market changes in the U.S. and abroad. All
of this can mean that the Fund will realize less principal or income from the
investment than expected. Certain derivative investments held by the Fund may be
illiquid. See "Illiquid and Restricted Securities."
o Special Risks of Hedging Instruments. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different from what is required for normal portfolio management. If the Manager
uses hedging instruments at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for
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the future or option.
Options trading involves the payment of premiums, and options, futures
and forward contracts are subject to special tax rules that may affect the
amount, timing and character of the Fund's income and distributions. There are
also special risks in particular hedging strategies. For example, if a covered
call written by the Fund is exercised on a security that has increased in value,
the Fund will be required to sell the security at the call price and will not be
able to realize any profit if the investment has increased in value above the
call price. The use of Forward Contracts may reduce the gain that would
otherwise result from a change in the relationship between the U.S. dollar and a
foreign currency. These risks are described in greater detail in the Statement
of Additional Information.
Investment Techniques and Strategies
The Fund may also use the investment techniques and strategies described below.
These techniques involve certain risks. The Statement of Additional Information
contains more information about these practices, including limitations on their
use that may help to reduce some of the risks.
o Factors Considered in Selecting Foreign Securities. The Manager
presently intends to employ an investment strategy in selecting foreign
securities that considers the Manager's view of the effects of worldwide trends
on the growth of various business sectors. These trends or "global themes", in
the Manager's view, currently include telecommunications expansion, emerging
consumer markets, infrastructure development, natural resource use and
development, corporate restructuring, capital market development in foreign
countries, health care expansion, and global integration. These trends, which
may affect the growth of companies which have businesses in these sectors or
which are affected by their development, may suggest opportunities for investing
the Fund's assets. The Manager does not invest a fixed or specific amount of the
Fund's assets in any one sector, and these themes or this investment strategy
may change over time.
The Fund may also seek to take advantage of changes in the business
cycle by investing in companies that are believed by the Manager to be sensitive
to those changes as well as in "special situations" the Manager believes present
opportunities for capital growth. For example, when a country's economy is
expanding,
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companies in the financial services and consumer products industries may be in a
position to benefit from changes in the business cycle and may present long-term
growth opportunities.
When investing the Fund's assets, the Manager considers many factors,
including, among other things, the global themes discussed above, general
economic conditions and the trends in foreign stock markets. The Fund may try to
hedge against losses in the value of its portfolio of securities by using
hedging strategies and derivative investments described below.
o Foreign Debt Securities. The Fund may invest in debt securities of
foreign companies or governments, including Developing Market debt securities.
To the extent that the Fund does invest in debt securities, the Manager intends
to focus primarily on convertible debt securities, that is, securities that can
be converted into the issuer's common stock at the Fund's election. These
securities entitle the owner to receive interest until the security is redeemed
(or converted) or matures. On maturity the principal is repaid. The Manager
generally considers convertible securities to be "equity equivalents" because of
the conversion feature, and because the security's rating has less impact on the
investment decision than in the case of non-convertible securities. Capital
appreciation in debt securities in which the Fund invests may arise as a result
of favorable changes in relative foreign exchange rates or in relative interest
rate levels, the creditworthiness of issuers and/or in the convertibility of
such securities into equity securities.
Debt securities of government or corporate issuers in Developing
Markets often are rated below investment grade or are not rated by U.S. rating
agencies. Foreign debt securities are also subject to, among other things,
interest rate risk (the price of the security will tend to move down when
interest rates rise, and may go up when interest rates fall). They are also
subject to "credit risk" (the risk of the issuer's default). A discussion of the
risks associated with investments in lower-rated or unrated debt securities and
a description of rating categories of principal rating organizations are
contained in the Statement of Additional Information.
o Privatization Programs. The governments in some Developing
Markets have been engaged in programs of selling part or all of
their interests in government owned or controlled enterprises
("privatization programs"). The Manager believes that
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privatization programs may offer opportunities for significant capital
appreciation, and intends to consider investment of assets of the Fund in
privatization programs in what it considers to be appropriate circumstances. In
certain Developing Markets, the ability of foreign entities such as the Fund to
participate in privatization programs may be limited by local law and/or the
terms on which the Fund may be permitted to participate may be less advantageous
than those afforded local investors. There can be no assurance that these
governments will continue to sell enterprises currently owned or controlled by
them or that privatization programs will be successful.
o Domestic Securities. In general, the Fund does not expect that under
normal circumstances it will hold significant amounts of securities of U.S.
issuers. It can, however, under normal market conditions hold equity and debt
securities, including lower- rated and unrated debt securities, of U.S. issuers
as described above. However, when market conditions are believed by the Manager
to be unstable the Fund may invest without limit in U.S. Government securities
or high-quality U.S. short-term debt securities for temporary defensive
purposes, as discussed below in "Temporary Defensive Measures".
o Investment in Other Investment Companies. The Fund may be able to
invest in certain Developing Markets solely or primarily through governmentally
authorized investment vehicles or companies. The Fund generally may invest up to
10% of its total assets in the aggregate in shares of other investment companies
and up to 5% of its total assets in any one investment company, as long as each
investment does not represent more than 3% of the outstanding voting securities
of the acquired investment company. These limitations do not apply in the case
of investment company securities which may be purchased as part of a plan of
merger, consolidation, reorganization or acquisition. Investment in other
investment companies may involve the payment of substantial premiums above the
value of such investment companies' portfolio securities, and is subject to
limitations under the Investment Company Act and market availability. The Fund
does not intend to invest in such investment companies unless, in the judgment
of the Manager, the potential benefits of such investment justify the payment of
any applicable premiums or sales charge. As a shareholder in an investment
company, the Fund would bear its ratable share of that investment company's
expenses, including its advisory and administration fees. At the same time, the
Fund would continue to pay its own management fees and other expenses.
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o Temporary Defensive Measures. When market conditions are considered
by the Manager to be unstable, as a temporary defensive measure, the Fund may
invest without limit in cash (U.S. dollars and foreign currencies) and/or high
quality debt securities (securities issued by the U.S. Government or its
agencies or instrumentalities, securities issued by foreign governments, cash
equivalents and commercial paper in the top two rating categories of a
nationally-recognized securities rating organization such as Standard & Poor's
Corporation). It is expected that under such circumstances the Fund would
generally select short-term debt securities (which are securities maturing in
one year or less from date of purchase), since those securities usually may be
disposed of quickly and their prices tend not to be as volatile as the prices of
longer term debt securities.
o Loans of Portfolio Securities. To raise cash for liquidity purposes
and to earn income, the Fund may lend its portfolio securities, other than in
repurchase transactions, to brokers, dealers and other financial institutions.
The Fund must receive collateral for a loan. These loans are limited to not more
than 10% of the value of the Fund's total assets and are subject to the
conditions described in the Statement of Additional Information.
o Repurchase Agreements. To maintain liquidity to meet shareholder
redemption requests, to settle portfolio trades, or to earn income or for
defensive purposes, the Fund may enter into repurchase agreements. In a
repurchase transaction, the Fund buys a security and simultaneously sells it to
the seller for delivery at a future date. They are used primarily for cash
liquidity purposes.
Repurchase agreements must be fully collateralized. However, if the
seller fails to pay the resale price on the delivery date, the Fund may incur
costs in disposing of the collateral and may experience losses if there is any
delay in its ability to do so. The Fund will not enter into a repurchase
agreement that causes more than 10% of its net assets to be subject to
repurchase agreements having a maturity beyond seven days.
Foreign repurchase agreements present risks which are not
present in U.S. repurchase agreements. They may be denominated in
foreign currencies. Some counterparties in these transactions may
be less creditworthy than those in U.S. markets. Foreign
repurchase agreements may involve greater risk of loss if the
counterparty defaults.
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o When-Issued and Forward Commitment Securities. The Fund may purchase
securities on a "when-issued" basis and may purchase or sell such securities on
a "forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. The price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
When- issued and forward commitments may be sold prior to the settlement date,
but the Fund will purchase or sell when-issued securities and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. No income accrues on securities which have been
purchased pursuant to a forward commitment or on a when-issued basis prior to
delivery to the Fund. There may be a risk of loss if the value of the security
changes prior to the settlement date. If the Fund disposes of the right to
acquire a when-issued security prior to its acquisition or disposes of its right
to deliver or receive against a forward commitment, it may incur a gain or loss.
At the time the Fund enters into a transaction on a when-issued or forward
commitment basis, the Fund will identify with its Custodian certain assets,
which may be liquid assets of any type, including equity and debt securities of
any grade, equal to the value of the when-issued or forward commitment
securities and such assets will be marked to market daily.
o Borrowing for Leverage and Liquidity. The Fund may borrow money from
banks on an unsecured basis for temporary or emergency purposes, for liquidity
purposes to meet redemption requests from shareholders, or to buy portfolio
securities. The Fund's borrowings for investment purposes may not exceed 10% of
its total assets and the Fund's borrowings in the aggregate may not exceed 33
1/3% of the value of its total assets. Borrowing for investment purposes is a
speculative investment technique known as "leveraging". This investment
technique may subject the Fund to greater risks and costs, including the burden
of interest expense, an expense the Fund would not otherwise incur. The Fund can
borrow only if it maintains a 300% ratio of assets to borrowings at all times in
the manner set forth in the Investment Company Act. The Fund's ability to borrow
money from banks, subject to this requirement, is a fundamental policy.
o Warrants and Rights. Warrants basically are options to purchase stock
at set prices that are valid for a limited period of time. Rights are similar to
warrants but normally have a short duration and are distributed directly by the
issuer to its shareholders. The Fund may invest up to 5% of its net assets in
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warrants or rights. Included in that amount but, not to exceed 2% of the Fund's
net assets, are warrants whose underlying securities are not traded on principal
domestic or foreign exchanges. Warrants acquired by the Fund in units or
attached to securities are not subject to these restrictions. For further
details, see "Warrants and Rights" in the Statement of Additional Information.
o Special Situations. The Fund may invest in securities of companies
that the Manager believes are in "special situations" that may present
opportunities for capital appreciation. A "special situation" may be an event
such as a proposed merger, reorganization, or other unusual development that is
expected to occur and which may result in an increase in the value of a
company's securities, regardless of general business conditions or the movement
of prices in the securities market as a whole. There is a risk that the price of
the security may decline if the anticipated development fails to occur.
o Investing In Small, Unseasoned Companies. The Fund may invest in
securities of small, unseasoned companies. These are companies that have been in
operation less than three years, including the operations of any predecessors.
Securities of these companies may have limited liquidity (which means that the
Fund may have difficulty selling them at an acceptable price when it wants to)
and the price of these securities may be volatile. See "Investing in Small,
Unseasoned Companies" in the Statement of Additional Information for a further
discussion of the risks involved in such investments.
o Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933 in the United
States or under similar laws in foreign countries. Subject to the Board's
current restriction, which may change from time to time, the Fund will not
invest more than 15% of its net assets in illiquid or restricted securities. The
Fund's percentage limitation on these investments does not apply to certain
restricted securities that are eligible for resale to qualified institutional
purchasers. See "Restricted and Illiquid Securities" in the Statement of
Additional Information for further
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details. The Manager monitors holdings of illiquid securities on an ongoing
basis and at times the Fund may be required to sell some holdings to maintain
adequate liquidity.
o Hedging. As described below, the Fund may purchase and sell certain
kinds of futures contracts, put and call options, forward contracts, and options
on futures and broadly-based stock indices. These are all referred to as
"hedging instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on the use of them described below. The hedging
instruments the Fund may use are described below and in greater detail in "Other
Investment Techniques and Strategies" in the Statement of Additional
Information.
The Fund may buy and sell options, futures and forward contracts for a
number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or to
establish a position in the securities market as a temporary substitute for
purchasing individual securities. Some of these strategies, such as selling
futures, buying puts and writing covered calls, may, to a certain degree, hedge
the Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options, tend
to increase the Fund's exposure to the securities market. Forward contracts are
used to try to manage foreign currency risks on the Fund's foreign investments.
Foreign currency options may be used to try to protect against declines in the
dollar value of foreign securities the Fund owns, or to try to protect against
an increase in the dollar cost of buying foreign securities. Writing covered
call options may also provide income to the Fund for liquidity purposes.
o Futures. The Fund may buy and sell futures contracts that relate to
(1) broadly-based stock indices (these are referred to as Stock Index Futures)
or (2) foreign currencies (these are called Forward Contracts and are discussed
below).
o Put and Call Options. The Fund may buy and sell certain kinds of put
options (puts) and call options (calls). A call or put option may not be
purchased if the value of all of the Fund's put and call options would exceed 5%
of the Fund's total assets. Calls the Fund buys or sells must be traded on a
securities or commodities exchange, or be quoted by recognized dealers in those
options.
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The Fund may buy calls only on securities, broadly-based stock indices,
foreign currencies or Stock Index Futures, or to terminate its obligation on a
call the Fund previously wrote.
The Fund may write (that is, sell) call options, including call options
on futures contracts it owns. Each call the Fund writes must be "covered" while
it is outstanding. That means the Fund owns the investment on which the call was
written or the Fund owns and segregates liquid assets to satisfy its obligations
if the call is exercised. When the Fund writes a call, it receives cash (called
a premium). The call gives the buyer the ability to buy the security on which
the call was written from the Fund at the call price during the period in which
the call may be exercised. If the value of the investment does not rise above
the call price, it is likely that the call will lapse without being exercised,
while the Fund keeps the cash premium (and the security). After the Fund writes
a call, not more than 25% of the Fund's total assets may be subject to calls.
The Fund may purchase put options. Buying a put on a security gives the
Fund the right to sell the security at a set price to a seller of a put on that
security. The Fund can buy only those puts that relate to securities that the
Fund owns, broadly-based stock indices, foreign currencies or Stock Index
Futures. The Fund can buy a put on a Stock Index Future whether or not the Fund
owns the particular Stock Index Future in its portfolio.
The Fund may write puts on securities, broadly-based stock indices,
foreign currencies or Stock Index Futures in an amount up to 50% of its total
assets but only if those puts are covered by segregated liquid assets. In
writing puts, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price.
o Forward Contracts. Forward Contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to try to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and foreign currency. The Manager intends to limit the Fund's net
exposure under Forward Contracts in a particular foreign currency to the amount
of its assets denominated in that currency or denominated in a
closely-correlated currency.
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o Derivative Investments. In general, a "derivative investment" is a
specially designed investment. Its performance is linked to the performance of
another investment or security, such as an option, future, index, currency or
commodity. The Fund can invest in a number of different kinds of "derivative
investments." They are used in some cases for hedging purposes and in other
cases to seek total return. In the broadest sense, exchange-traded options and
futures contracts (discussed in "Hedging," above) may be considered "derivative
investments."
There are special risks in investing in derivative investments. The
company issuing the instrument may fail to pay the amount due on the maturity of
the instrument. Also, the underlying investment or security on which the
derivative is based might not perform the way the Manager expected it to
perform. The performance of derivative investments may also be influenced by
interest rate and stock market changes in the U.S. and abroad. All of this can
mean that the Fund may incur losses or realize less principal or income from the
investment than expected. Certain derivative investments held by the Fund may
trade in the over-the-counter market and may be illiquid. See "Illiquid and
Restricted Securities" for an explanation.
o Short Sales Against-the-Box. In a short sale, the seller does not own
the security that is sold, but normally borrows the security to fulfill its
delivery obligation. The seller later buys the security to repay the loan, in
the expectation that the price of the security will be lower when the purchase
is made, resulting in a gain. The Fund may not sell securities short except in
collateralized transactions referred to as "short sales against- the-box," where
the Fund owns an equivalent amount of the securities sold short. This technique
is primarily used for tax purposes. No more than 15% of the Fund's net assets
will be held as collateral for such short sales at any one time.
Other Investment Restrictions. The Fund has certain investment
restrictions that are fundamental policies. Under these
restrictions, the Fund cannot do any of the following:
o buy securities issued or guaranteed by any one issuer (except the
U.S. Government or any of its agencies or instrumentalities) if, with respect to
75% of its total assets, more than 5% of the Fund's total assets would be
invested in securities of that issuer, or the Fund would then own more than 10%
of that issuer's voting securities;
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o concentrate investments in any particular industry. Therefore the
Fund will not purchase the securities of companies in any one industry if,
thereafter, 25% or more of the value of the Fund's total assets would consist of
securities of companies in that industry.
Unless the prospectus states that a percentage restriction applies on
an ongoing basis, it applies only at the time the Fund makes an investment, and
the Fund need not sell securities to meet the percentage limits if the value of
the investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in May 1996 as a Massachusetts
business trust. The Fund is an open-end, diversified management investment
company, with an unlimited number of authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
periodically meet throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. The Trustees are elected
by shareholders of the Fund. The initial Board has been elected by the Manager
as sole initial shareholder. "Trustees and Officers of the Fund" in the
Statement of Additional Information names the Trustees and officers of the Fund
and provides more information about them. Although the Fund does not intend to
hold annual meetings, it may hold shareholder meetings from time to time on
important matters, and shareholders have the right to call a meeting to remove a
Trustee or to take other action described in the Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. The Board has done
so, and the Fund currently has three classes of shares, Class A, Class B and
Class C. All classes invest in the same investment portfolio. Each class has its
own dividends and distributions and pays certain expenses, which may be
different for the different classes. Each class may have a different net asset
value. Each share has one vote at shareholder meetings, with fractional shares
voting proportionally. Only
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shares of a particular class vote as a class on matters that affect that class
alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handling its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement which states the Manager's responsibilities. The
Agreement sets the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment advisor since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $55 billion as of
September 30, 1996, and with more than 3 million shareholder accounts. The
Manager is owned by Oppenheimer Acquisition Corp., a holding company that is
owned in part by senior officers of the Manager and controlled by Massachusetts
Mutual Life Insurance Company.
o Portfolio Managers. The Portfolio Managers of the Fund are
Frank Jennings and Rajeev Bhaman, who are employed by the Manager.
Messrs. Jennings and Bhaman are the persons principally responsible
for the day-to-day management of the Fund's portfolio. Mr.
Jennings has also served as an officer and portfolio manager for
other Oppenheimer funds, prior to which he was a Managing Director
of Global Equities at Mitchell Hutchins Asset Management Inc., a
subsidiary of PaineWebber, Inc. Prior to that, Mr. Jennings was a
global funds manager for AIG Global Investors. Prior to joining
the Manager, Mr. Bhaman was Vice President for Asian Equities of
Barclays de Zoete Wedd Inc.
o Fees and Expenses. Under the Investment Advisory Agreement the Fund
pays the Manager the following annual fees, which decline on additional assets
as the Fund grows: 1.00% of the first $250 million of average annual net assets,
.95% of the next $250 million, .90% of the next $500 million, and .85% of
average annual net assets in excess of $1 billion. The Fund's management fee is
higher than that paid by most other mutual funds, but is comparable to fees paid
by funds having similar investment objectives and policies. The higher fees
result from the fact that investing in equity securities of companies in
Developing Markets, which are not widely followed by professional analysts,
requires the Manager to invest additional time and incur added expense in
developing
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specialized resources, including research facilities.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal fees and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset value of
shares, and therefore are indirectly borne by shareholders through their
investment. More information about the Investment Advisory Agreement and the
other expenses paid by the Fund is contained in the Statement of Additional
Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected for the
Fund's portfolio transactions. When deciding which brokers to use, the Manager
is permitted by the Investment Advisory Agreement to consider whether brokers
have sold shares of the Fund or any other funds for which the Manager serves as
investment advisor.
o The Distributor. The Fund's shares are sold through dealers, brokers
and other financial institutions that have a sales agreement with
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the
Fund's Distributor. The Distributor also distributes the shares of other
Oppenheimer funds and is sub- distributor for funds managed by a subsidiary of
the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for the other Oppenheimer funds. Shareholders should direct
inquiries about their accounts to the Transfer Agent at the address and
toll-free number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total return"
and "average annual total return" to illustrate its performance. The performance
of each class of shares is shown separately, because the performance of each
class will usually be different as a result of the different kinds of expenses
each class bears. These returns measure the performance of a hypothetical
account in the Fund over various periods, and do not show the
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performance of each shareholder's account (which will vary if dividends are
received in cash, or shares are sold or purchased). The Fund's performance
information may help you see how well your Fund has done over time and to
compare it to other funds or market indices.
It is important to understand that the Fund's total returns represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but more
detailed information about how total returns are calculated is contained in the
Statement of Additional Information, which also contains information about other
ways to measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions, the composition
of the portfolio, expenses and which class of shares you purchase.
o Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted.
However, total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be less if
sales charges were deducted.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
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different expenses and will likely have different share prices.
o Class A Shares. If you buy Class A shares, you may pay an initial
sales charge on investments up to $1 million (up to $500,000 for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
page 29). If you purchase Class A shares as part of an investment of at least $1
million ($500,000 for Retirement Plans) in shares of one or more Oppenheimer
funds, you will not pay an initial sales charge, but if you sell any of those
shares within 18 months of buying them, you may pay a contingent deferred sales
charge. The amount of that sales charge will vary depending on the amount you
invested. Sales charge rates are described in "Buying Class A Shares" below.
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as described in "Buying
Class B Shares" below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1%, as
discussed in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial advisor. The Fund's operating costs that apply to a
class of shares and the effect of the different types of sales charges on your
investment will vary your investment results over time. The most important
factors are how much you plan to invest and how long you plan to hold your
investment. If your goals and objectives change over time and you plan to
purchase additional shares, you should re-evaluate those factors to see if you
should consider another class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the maximum
sales charge rates that apply to each class, considering the effect of the
annual asset-based sales
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charge on Class B and Class C shares (which, like all expenses, will affect your
investment return). For the sake of comparison, we have assumed that there is a
10% rate of appreciation in the investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary, based on the
Fund's actual investment returns and the operating expenses borne by the class
you invest in.
The factors discussed below are not intended to be investment advice or
recommendations, because each investor's financial considerations are different.
The discussion below of the factors to consider in purchasing a particular class
of shares assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
o How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you expect
to hold your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will also
depend on how much you plan to invest. For example, the reduced sales charges
available for larger purchases of Class A shares may, over time, offset the
effect of paying an initial sales charge on your investment (which reduces the
amount of your investment dollars used to buy shares for your account), compared
to the effect over time of higher class-based expenses on Class B or Class C
shares for which no initial sales charge is paid.
o Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six years), you
should probably consider purchasing Class A or Class C shares rather than Class
B shares, because of the effect of the Class B contingent deferred sales charge
if you redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in the
short-term. Class C shares might be the appropriate choice (especially for
investments of less than $100,000), because there is no initial sales charge on
Class C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then the more you invest and the more your investment horizon increases toward
six years, Class C shares might not be as advantageous as Class A shares. That
is because the annual asset-based sales charge on Class C shares will have a
greater impact on your account over the longer term than the reduced front-end
sales charge available for larger purchases of Class A shares. For example,
Class A might be more advantageous than Class C (as well as Class B) for
investments of more than $100,000 expected to be held for 5 or 6 years (or
more). For investments over $250,000 expected to be held 4 to 6 years (or more),
Class A shares may become more advantageous than Class C (and Class B). If
investing $500,000 or more, Class A may be more advantageous as your investment
horizon approaches 3 years or more.
For investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of C
shares from a single investor.
o Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to your
money for seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you plan to invest
more than $100,000 over the long term, Class A shares will likely be more
advantageous than Class B shares or C shares, as discussed above, because of the
effect of the expected lower expenses for Class A shares and the reduced initial
sales charges available for larger investments in Class A shares under the
Fund's Right of Accumulation.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time, using
the assumed annual performance return stated above. Therefore, these examples
should not be relied upon as rigid guidelines.
o Are There Differences in Account Features That Matter to You? Because
some account features may not be available to Class B or Class C shareholders,
or other features (such as Automatic Withdrawal Plans) might not be advisable
(because of the effect of the contingent deferred sales charge) for Class B or
Class C shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy. Additionally,
dividends payable to Class B and Class C shareholders will be reduced by the
additional expenses borne by those classes that are not borne by Class A, such
as the Class B and Class C
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<PAGE>
asset-based sales charges described below and in the Statement of Additional
Information. Share certificates are not available for Class B or Class C shares,
and if you are considering using your shares as collateral for a loan, that may
be a factor to consider.
o How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purposes of the Class B and Class C contingent deferred sales charges and
asset-based sales charges are the same as the purpose of the front-end sales
charge on sales of Class A shares: that is, to compensate the Distributor for
commissions it pays to dealers and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
o With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of as little as $25; and subsequent purchases of at least
$25 can be made by telephone through AccountLink.
o Under pension, profit-sharing and 401(k) plans and Individual
Retirement Accounts (IRAs), you can make an initial investment of as little as
$250 (if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
o There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other Oppenheimer funds (a list of
them appears in the Statement of Additional Information, or you can ask your
dealer or call the Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
o How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement with the
Distributor, directly through the Distributor, or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service.
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<PAGE>
The Distributor may appoint certain servicing agents as the Distributor's agent
to accept purchase (and redemption) orders. When you buy shares, be sure to
specify Class A, Class B, or Class C shares. If you do not choose, your
investment will be made in Class A shares.
o Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is appropriate for
you.
o Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House (ACH) member. You can
then transmit funds electronically to purchase shares, to have the Transfer
Agent send redemption proceeds, or to transmit dividends and distributions to
your bank account.
Shares are purchased for your account on the regular business day the
Distributor is instructed by you to initiate the ACH transfer to buy shares. You
can provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds PhoneLink,
also described below. You should request AccountLink privileges on the
application or dealer settlement instructions used to establish your account.
See "AccountLink" below for more details.
o Asset Builder Plans. You may purchase shares of the Fund (and up to
four other Oppenheimer funds) automatically each month from your account at a
bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of Additional
Information.
o At What Price Are Shares Sold? Shares are sold at the
public offering price based on the net asset value (and any initial
sales charge that applies) that is next determined after the
Distributor receives the purchase order in Denver, Colorado. In
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<PAGE>
most cases, to enable you to receive that day's offering price, the Distributor
or its designated agent must receive your order by the time of day The New York
Stock Exchange closes, which is normally 4:00 P.M., New York time, but may be
earlier on some days (all references to time in this Prospectus mean "New York
time"). The net asset value of each class of shares is determined as of that
time on each day The New York Stock Exchange is open (which is a "regular
business day").
If you buy shares through a dealer, the dealer must receive your order
by the close of The New York Stock Exchange, on a regular business day and
transmit it to the Distributor so that it is received before the Distributor's
close of business that day, which is normally 5:00 P.M. The Distributor may, in
its sole discretion, reject any purchase order for the Fund's shares.
Special Sales Charge Arrangements for Certain Persons. Appendix A to this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the Former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge Sales Charge Commission
as Percentage as Percentage as Percentage
Amount of of Offering of Amount of Offering
Purchase Price Invested Price
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
- --------------------------------------------------------------------------------------------------------------------------------
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
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<PAGE>
- ---------------------------------------------------------------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
- ---------------------
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
</TABLE>
o Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds in the following cases:
o Purchases aggregating $1 million or more.
o Purchases by a retirement plan qualified under sections 401(a) or
401(k) of the Internal Revenue Code, by a non-qualified deferred compensation
plan (not including Section 457 plans), employee benefit plan, group retirement
plan (see "How to Buy Shares - Retirement Plans" in the Statement of Additional
Information for further details, an employees's 403(b)(7) custodial plan
account, SEP IRA, SARSEP, or SIMPLE plan (all of these plans are collectively
referred to as "Retirement Plans"); that: (1) buys shares costing $500,000 or
more or (2) has, at the time of purchase, 100 or more eligible participants, or
(3) certifies that it projects to have annual plan purchases of $200,000 or
more.
o Purchases by an OppenheimerFunds Rollover IRA if the purchases are
made (1) through a broker, dealer, bank or registered investment advisor that
has made special arrangements with the Distributor for these purchases, or (2)
by a direct rollover of a distribution form a qualified retirement plan if the
administrator of that plan has made special arrangements with the Distributor
for these purchases.
The Distributor pays dealers of record commissions on those
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<PAGE>
purchases in an amount equal to (i) 1.0% for non-Retirement Plan accounts, and
(ii) for Retirement Plan accounts, 1.0% of the first $2.5 million, plus 0.50% of
the next $2.5 million, plus 0.25% of purchases over $5 million. That commission
will be paid only on those purchases that were not previously subject to a front
end sales charge and dealer commission. No sales commission will be paid to the
dealer, broker or financial institution on sales of Class A shares purchased
with the redemption proceeds of shares of a mutual fund offered as an investment
option in a Retirement Plan in which Oppenheimer funds are also offered as
investment option under a special arrangement with the Distributor if the
purchase occurs more than 30 days after the addition of the Oppenheimer funds as
an investment option to the Retirement Plan.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent deferred sales charge") may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares (not including shares purchased
by reinvestment of dividends or capital gains distributions) or (2) the original
offering price (which is the original net asset value) of the redeemed shares.
The Class A contingent deferred sales charge will not exceed the aggregate
amount of the commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales charge,
including shares purchased by reinvestment of dividends and capital gains, and
then will redeem other shares in the order that you purchased them. The Class A
contingent deferred sales charge is waived in certain cases described in
"Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's exchange privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 months of the end of the
calendar month of the purchase of the exchanged shares, the sales charge will
apply.
o Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have
established special arrangements with the Distributor for Asset
-38-
<PAGE>
Builder Plans for their clients. Through December 31, 1996, dealers whose sales
of Class A shares of Oppenheimer funds (other than money market funds) under
OppenheimerFunds-sponsored 403(b)(7) custodial plans exceed $5 million per year
(calculated per quarter), will receive monthly one-half of the Distributor's
retained commissions on those sales, and if those sales exceed $10 million per
year, those dealers will receive the Distributor's entire retained commission on
those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible to buy
Class A shares at reduced sales charge rates in one or more of the following
ways:
o Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together Class A and Class B shares you purchase for your individual accounts,
or jointly, or for trust or custodial accounts on behalf of your children who
are minors. A fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can also
include Class A and Class B shares of Oppenheimer funds you previously purchased
subject to an initial or contingent deferred sales charge to reduce the sales
charge rate for current purchases of Class A shares, provided that you still
hold your investment in one of the Oppenheimer funds. The value of those shares
will be based on the greater of the amount you paid for the shares or their
current value (at offering price). The Oppenheimer funds are listed in "Reduced
Sales Charges" in the Statement of Additional Information, or a list can be
obtained from the Distributor. The reduced sales charge will apply only to
current purchases and must be requested when you buy your shares.
o Letter of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A shares and Class B shares of the Fund and other Oppenheimer
funds during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of your intended
purchases of both Class A and Class B shares will determine the reduced sales
charge rate for the Class A shares purchased during that period. This can
include purchases made up to 90 days before the date of
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<PAGE>
the Letter. More information is contained in the Application and
in "Reduced Sales Charges" in the Statement of Additional
Information.
o Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not subject
to any Class A sales charges:
o the Manager or its affiliates;
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in "Reduced Sales Charges" in the
Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor children);
o dealers, brokers or registered investment advisors that have entered
into an agreement with the Distributor providing specifically for the use of
shares of the Fund in particular investment products or employee investment
plans made available to their clients (those clients may be charged the
transaction fee by their dealer, broker or advisor for the purchase or sale of
fund shares);
o (1) investment advisors and financial planners who charge an
advisory, consulting or other fee for their services and buy shares for their
own accounts or the accounts of their clients, (2) Retirement Plans and deferred
compensation plans and trusts used to fund those Plans (including, for example,
plans qualified or created under sections 401(a), 403(b) or 457 of the Internal
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<PAGE>
Revenue Code), and "rabbi trusts" that buy shares for their own accounts, in
each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of such investment advisors or financial
planners who buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account of their
investment advisor or financial planner on the books and records of the broker,
agent or financial intermediary with which the Distributor has made such special
arrangements (each of these investors may be charged a fee by the broker, agent
or financial intermediary for purchasing shares);
o directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts;
o any unit investment trust that has entered into an
appropriate agreement with the Distributor;
o a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that fund due to the termination of the Class B
and C TRAC-2000 program on November 24, 1995; or
o qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements are
consummated and share purchases commence by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its affiliates acts as
sponsor;
o shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
-41-
<PAGE>
(other than Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the past 12 months from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o shares purchased with the proceeds of maturing principal of units of
any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived if
shares that would otherwise be subject to the contingent deferred sales charge
are redeemed in the following cases:
o to make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time a purchase order is placed for Class A shares that
would otherwise be subject to the Class A contingent deferred sales charge, the
dealer agrees in writing to accept the dealer's portion of the commission
payable on the sale in installments of 1/18th of the commission per month (and
no further commission will be payable if the shares are redeemed within 18
months of purchase);
o for distributions from TRAC-2000 401(k) plan sponsored by the
Distributor due to the termination of the TRAC-2000 program.
o for distributions from Retirement Plans, deferred compensation plans
or other employee benefit plans for any of the following purposes: (1) following
the death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must occur after the
participant's account was established); (2) to return excess contributions; (3)
to return contributions made due to a mistake of fact; (4) hardship withdrawals,
as defined in the plan; (5) under a Qualified Domestic Relations Order, as
defined in the Internal
-42-
<PAGE>
Revenue Code; (6) to meet the minimum distribution requirements of the Internal
Revenue Code; (7) to establish "substantially equal periodic payments" as
described in Section 72(t) of the Internal Revenue Code; (8) for retirement
distributions or loans to participants or beneficiaries; (9) separation from
service; (10) participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manger or its subsidiary) offered as an
investment option in a Retirement Plan in which Oppenheimer funds are also
offered as investment options under a special arrangement with the Distributor;
or (11) plan termination or "in-service distributions", if the redemption
proceeds are rolled over directly to an OppenheimerFunds IRA.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares to reimburse the Distributor for a portion of its costs incurred in
connection with the personal service and maintenance of shareholder accounts
that hold Class A shares. Reimbursement is made quarterly at an annual rate that
may not exceed 0.25% of the average annual net assets of Class A shares of the
Fund. The Distributor uses all of those fees to compensate dealers, brokers,
banks and other financial institutions quarterly for providing personal service
and maintenance of accounts of their customers that hold Class A shares and to
reimburse itself (if the Fund's Board of Trustees authorizes such
reimbursements, which it has not done as yet) for its other expenditures under
the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. Payments are made by the
Distributor quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the service providers or
their customers. The payments under the Plan increase the annual expenses of
class A shares. For more details, See "Distribution and Service Plans" in the
Statement of Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
6 years of their purchase, a contingent deferred sales charge will be deducted
from the redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the
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<PAGE>
net asset value of the redeemed shares at the time of redemption or the original
offering price (which is the original net asset value). The contingent deferred
sales charge is not imposed on the amount of your account value represented by
an increase in net asset value over the initial purchase price. The Class B
contingent deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 6 years, and (3) shares held the longest during the 6-year period. The
contingent deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<TABLE>
<CAPTION>
Years Since Beginning of Contingent Deferred Sales Charge
Month in Which Purchase on Redemption in that Year
Order Was Accepted (As % of Amount Subject to Charge)
<S> <C>
- -------------------------------------------------------------------
0 - 1 5.0%
- -----------------------------------------------------------------
1 - 2 4.0%
- -------------------------------------------------------------------
2 - 3 3.0%
- ------------------------------------------------------------------
3 - 4 3.0%
- ------------------------------------------------------------------
4 - 5 2.0%
- -----------------------------------------------------------------
5 - 6 1.0%
- -------------------------------------------------------------------
6 and following None
- -----------------------------------------------------------------
</TABLE>
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the month in
which the purchase was made.
o Automatic Conversion of Class B Shares. 72 months after
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<PAGE>
you purchase Class B shares, those shares will automatically convert to Class A
shares. This conversion feature relieves Class B shareholders of the asset-based
sales charge that applies to Class B shares under the Class B Distribution and
Service Plan, described below. The conversion is based on the relative net asset
value of the two classes, and no sales load or other charge is imposed. When
Class B shares convert, any other Class B shares that were acquired by the
reinvestment of dividends and distributions on the converted shares will also
convert to Class A shares. The conversion feature is subject to the continued
availability of a tax ruling described in "Alternative Sales Arrangements -
Class A, Class B and Class C Shares" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed within
12 months of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). The contingent
deferred sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial purchase price.
The Class C contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related services to the
Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months, and (3) shares held the longest during the 12-month period.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
compensate the Distributor for its costs in distributing Class B and C shares
and servicing accounts. Under the Plans, the Fund pays the Distributor an annual
"asset-based sales charge" of 0.75% per year on Class B shares that are
outstanding for six years or less and on Class C shares. The Distributor also
receives a service fee of 0.25% per year under each Plan.
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<PAGE>
Under each Plan, both fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The asset-based sales charge and service
fees increase Class B and Class C expenses by up to 1.00% of the net assets per
year of the respective class per year.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the 0.25% service fees to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares have
been held for a year, the Distributor pays the service fees to dealers on a
quarterly basis.
The asset-based sales charge allows investors to buy Class B or C
shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class B and
Class C shares. Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor include paying
and financing the payment of sales commissions, service fees and other costs of
distributing and selling Class B and Class C shares.
The Distributor currently pays sales commissions of 3.75% of the
purchase price of Class B shares to dealers from its own resources at the time
of sale. Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales commissions of 0.75% of the
purchase price of Class C shares to dealers from its own resources at the time
of sale. Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is therefore
1.00% of the purchase price. The Distributor plans to pay the asset-based sales
charge as an ongoing commission to the dealer on Class C shares that have been
outstanding for a year or more.
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<PAGE>
The Distributor's actual expenses in selling Class B and C shares may
be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plans for Class B and C shares. If a Fund terminates either of its
Plans, the Board of Directors may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for distributing shares before the
Plan was terminated.
o Waivers of Class B and Class C Sales Charges. The Class B and Class C
contingent deferred sales charges will not be applied to shares purchased in
certain types of transactions nor will it apply to Class B and Class C shares
redeemed in certain circumstances as described below. The reasons for this
policy are in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemptions of shares in
the following cases, if the Transfer Agent is notified that these conditions
apply to the redemption:
o distributions to participants or beneficiaries from Retirement Plans,
if the distributions are made (a) under an Automatic Withdrawal Plan after the
participant reaches age 59-1/2, as long as the payments are no more than 10% of
the account value annually (measured from the date the Transfer Agent receives
the request), or (b) following the death or disability (as defined in the
Internal Revenue Code) of the participant or beneficiary (the death or
disability must have occurred after the account was established);
o redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is also the sole
beneficiary (the death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration);
o returns of excess contributions to Retirement Plans;
o distributions from retirement plans to make "substantially
equal periodic payments" as permitted in Section 72(t) of the Internal Revenue
Code that do not exceed 10% of the account value annually, measured from the
date the Transfer Agent receives the request;
o shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
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o distributions from OppenheimerFunds prototype 401(k) plans (1) for
hardship withdrawals; (2) under a Qualified Domestic Relations Order, as defined
in the Internal Revenue Code; (3) to meet minimum distribution requirements as
defined in the Internal Revenue Code; (4) to make "substantially equal periodic
payments" as described in Section 72(t) of the Internal Revenue Code; or (5) for
separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C shares
sold or issued in the following cases:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies
or separate accounts of insurance companies having an agreement
with the Manager or the Distributor for that purpose; and
o shares issued in plans of reorganization to which the Fund
is a party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send money
electronically between those accounts to perform a number of types of account
transactions. These include purchases of shares by telephone (either through a
service representative or by PhoneLink, described below), automatic investments
under Asset Builder Plans, and sending dividends and distributions or Automatic
Withdrawal Plan payments directly to your bank account. See the Application for
details or call the Transfer Agent for more information.
AccountLink privileges should be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can request
AccountLink privileges by sending signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder listed in
the registration on your account as well as to your dealer representative of
record unless and until the Transfer Agent receives written instructions
terminating or changing those privileges. After you establish AccountLink for
your account, any change of bank account information must be made by signature-
guaranteed instructions to the Transfer Agent signed by all shareholders who own
the account.
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o Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in amounts up
to $250,000 through a telephone representative, call the Distributor at
1-800-852-8457. The purchase payment will be debited from your bank account.
o PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number: 1-800-533-3310.
o Purchasing Shares. You may purchase shares in amounts up to $100,000
by phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these purchases.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. See "How to Exchange Shares," below, for
details.
o Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will
send the proceeds directly to your AccountLink bank account. See
"How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o Automatic Withdrawal Plans. If your Fund account is worth $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments of at
least $50 on a monthly, quarterly, semi-annual or annual basis. The checks may
be sent to you or sent automatically to your bank account on AccountLink. You
may even set up certain types of withdrawals of up to $1,500 per month by
telephone. You should consult the Application and Statement of Additional
Information for more details.
o Automatic Exchange Plans. You can authorize the Transfer
Agent to exchange automatically an amount you establish in advance
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for shares of up to five other Oppenheimer funds on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum
purchase for each Oppenheimer funds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies to Class A shares that you
purchased subject to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed them. This
privilege does not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your payment. See the Statement of
Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your retirement
plans. If you participate in a plan sponsored by your employer, the plan trustee
or administrator must make the purchase of shares for your retirement plan
account. The Distributor offers a number of different retirement plans that can
be used by individuals and employers:
o Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
o 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
o SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SAR/SEP-IRAs
o Pension and Profit-Sharing Plans for self-employed persons
and other employers
o 401(k) prototype retirement plans for businesses
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling (redeeming) some or
all of your shares on any regular business day. Your shares will be sold at the
next net asset value calculated after your order is received and accepted by the
Transfer Agent.
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<PAGE>
The Fund offers you a number of ways to sell your shares: in writing or by
telephone. You can also set up Automatic Withdrawal Plans to redeem shares on a
regular basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special situation,
such as due to the death of the owner, or from a retirement plan, please call
the Transfer Agent first, at 1-800-525-7048, for assistance.
o Retirement Accounts. To sell shares in an Oppenheimer funds
retirement account in your name, call the Transfer Agent for a distribution
request form. There are special income tax withholding requirements for
distributions from retirement plans and you must submit a withholding form with
your request to avoid delay. If your retirement plan account is held for you by
your employer, you must arrange for the distribution request to be sent by the
plan administrator or trustee. There are additional details in the Statement of
Additional Information.
o Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and must
include a signature guarantee in the following situations (there may be other
situations also requiring a signature guarantee):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of record
on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners (such
as an Executor)
o Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business, or as a fiduciary,
you must also include your title in the signature.
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<PAGE>
Selling Shares by Mail. Write a "letter of instructions" that
includes:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling o
The signatures of all registered owners exactly as the
account is registered, and
o Any special requirements or documents requested by the Transfer Agent
to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record may
also sell your shares by telephone. To receive the redemption price on a regular
business day, your call must be received by the Transfer Agent by the close of
The New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
o To redeem shares through a service representative, call 1-
800-852-8457.
o To redeem shares automatically on PhoneLink, call 1-800-
533-3310.
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.
o Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, in any 7-day period. The check must be
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payable to all owners of record of the shares and must be sent to the address on
the account statement. This service is not available within 30 days of changing
the address on an account.
o Telephone Redemptions Through AccountLink. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers. To
find out more information about this service, please contact your dealer or
broker. Brokers or dealers may charge for that service. See "Special
Arrangements for Repurchase of Shares from Dealers and Brokers" in the Statement
of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. To
exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale
in your state of residence.
o The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
o You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund you
purchase by exchange.
o Before exchanging into a fund, you should obtain and read
its prospectus.
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example, you can
exchange Class A shares of this Fund only for Class A shares of another fund. At
present, Oppenheimer Money Market Fund, Inc., offers only one class of shares,
which are considered to be Class A shares for this purpose. In some cases, sales
charges may be imposed on exchange transactions. See "How to
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<PAGE>
Exchange Shares" in the Statement of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
o Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800- 852-8457 or by using
PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
list can change from time to time.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that is in proper form by the
close of The New York Stock Exchange that day, which is normally 4:00 P.M., but
may be earlier on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to seven days if it determines it
would be disadvantaged by a same-day transfer of the proceeds to buy shares. For
example, the receipt of multiple exchange requests from a dealer in a
"market-timing" strategy might require the sale of portfolio securities at a
time or price disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
o For tax purposes, exchanges of shares involve a redemption
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<PAGE>
of the shares of the fund you own and a purchase of shares of the other fund,
which may result in a capital gain or loss. For more information about taxes
affecting exchanges, See "How to Exchange Shares" in the Statement of Additional
Information.
o If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
The Distributor has entered into agreements with certain dealers and
investment advisors permitting them to exchange their clients' shares by
telephone. These privileges are limited under those agreements and the
Distributor has the right to reject or suspend those privileges. As a result,
those exchanges may be subject to notice requirements, delays and other
limitations that do not apply to shareholders who exchange their shares directly
by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange (which is normally 4:00 p.m. but may
be earlier on some days) on each day the Exchange is open by dividing the value
of the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset value. In
general, securities values are based on market value. There are special
procedures for valuing illiquid and restricted securities and obligations for
which market values cannot be readily obtained. These procedures are described
more completely in the Statement of Additional Information.
o The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may be
suspended by the Board of Trustees at any time the Board believes it is in the
Fund's best interest to do so.
o Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless and
until the Transfer Agent receives cancellation instructions from an owner of the
account.
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o The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent during
periods of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
o Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time to
time, the Transfer Agent in its discretion may waive certain of the requirements
for redemptions stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.
o The redemption price for shares will vary from day to day because the
values of the securities in the Fund's portfolio fluctuate, and the redemption
price, which is the net asset value per share, will normally be different for
Class A, Class B and Class C shares. Therefore, the redemption value of your
shares may be more or less than their original cost.
o Payment for redeemed shares is made ordinarily in cash and forwarded
by check or through AccountLink (as elected by the shareholder under the
redemption procedures described above) within 7 days after the Transfer Agent
receives redemption instructions in proper form, except under unusual
circumstances determined by the Securities and Exchange Commission delaying or
suspending such payments. For accounts registered in the name of a
broker/dealer, payment will be forwarded within 3 business days. The Transfer
Agent may delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has cleared. That
delay may be as much as 10 days
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from the date the shares were purchased. That delay may be avoided if you
purchase shares by certified check or arrange with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase payment
has cleared.
o Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $500 for reasons other than the fact that the
market value of shares has dropped, and in some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
o Under unusual circumstances, shares of the Fund may be redeemed "in
kind", which means that the redemption proceeds will be paid with securities
from the Fund's portfolio. See "How to Sell Shares" in the Statement of
Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate
of 31% from taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a certified Social Security or
Employer Identification Number when you sign your application, or if you violate
Internal Revenue Service regulations on tax reporting of income.
o The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be avoided
by redeeming your Fund shares directly through the Transfer Agent. Under the
circumstances described in "How To Buy Shares," you may be subject to a
contingent deferred sales charge when redeeming certain Class A, Class B and
Class C shares.
o To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048 to ask
that copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A,
Class B and Class C shares from net investment income, if any, on
an annual basis and normally pays those dividends to shareholders
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in December, but the Board of Trustees can change that date. The Board may also
cause the Fund to declare dividends after the close of the Fund's fiscal year
(which ends August 31st). Because the Fund does not have an objective of seeking
current income, the amounts of dividends it pays, if any, will likely be small.
Dividends paid on Class A shares will generally be higher than for Class B or
Class C shares because expenses allocable to Class B and Class C shares will
generally be higher than for Class A shares. There is no fixed dividend rate and
there can be no assurance that the Fund will pay any dividends.
Capital Gains. The Fund may make distributions annually in December out of any
net short-term or long-term capital gains, and the Fund may make supplemental
distributions of capital gains following the end of its fiscal year. Long-term
capital gains will be separately identified in the tax information the Fund
sends you after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund will pay any
capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are
reinvested. For other accounts, you have four options:
o Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
o Reinvest Long-Term Capital Gains Only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
o Receive All Distributions in Cash. You can elect to
receive a check for all dividends and long-term capital gains
distributions or have them sent to your bank on AccountLink.
o Reinvest Your Distributions in Another Oppenheimer Fund
Account. You can reinvest all distributions in another Oppenheimer
fund account you have established.
Taxes. If your account is not a tax-deferred retirement account, you should be
aware of the following tax implications of investing in the Fund. Long-term
capital gains are taxable as long-term capital gains when distributed to
shareholders. It does not matter how long you held your shares. Dividends paid
from short-term capital gains and net investment income are taxable as ordinary
income. These dividends and distributions are subject to federal
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income tax and may be subject to state or local taxes. Your distributions are
taxable when paid, whether you reinvest them in additional shares or take them
in cash. Every year the Fund will send you and the IRS a statement showing the
amount of all taxable distributions you received in the previous year.
When more than 50% of its assets are invested in foreign securities at
the end of any fiscal year, the Fund may elect that Section 853 of the Internal
Revenue Code will apply to it to permit shareholders to take a credit (or a
deduction) on their own federal income tax returns for foreign taxes paid by the
Fund. "Dividends, Capital Gains and Taxes" in the Statement of Additional
Information contains further information about this tax provision.
o "Buying a Dividend". When a fund goes ex-dividend, its share price is
reduced by the amount of the distribution. If you buy shares on or just before
the ex-dividend date, or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then receive a
portion of the price back as a taxable dividend or capital gain.
o Taxes on Transactions. Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. Generally speaking, a capital gain
or loss is the difference between the price you paid for the shares and the
price you received when you sold them.
o Returns of Capital. In certain cases distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders. A non-taxable return
of capital may reduce your tax basis in your Fund shares.
This information is only a summary of certain Federal tax information
about your investment. More information is contained in the Statement of
Additional Information. In addition you should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax situation.
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APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares of the Fund described elsewhere in this Prospectus
are modified as described below for those shareholders of (i) Quest for Value
Fund, Inc., Quest for Value Growth and Income Fund, Quest for Value Opportunity
Fund, Quest for Value Small Capitalization Fund and Quest for Value Global
Equity Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became the
investment advisor to those funds, and (ii) Quest for Value U.S. Government
Income Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for Value
National Tax-Exempt Fund and Quest for Value California Tax- Exempt Fund when
those funds merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the Oppenheimer funds
that was one of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for Value Funds
into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
o Reduced Class A Initial Sales Charge Rates for Certain
Former Quest Shareholders
o Purchases by Groups, Associations and Certain Qualified Retirement
Plans. The following table sets forth the initial sales charge rates for Class A
shares purchased by a "Qualified Retirement Plan" through a single broker,
dealer or financial institution, or by members of "Associations" formed for any
purpose other than the purchase of securities if that Qualified Retirement Plan
or that Association purchased shares of any of the Former Quest for Value Funds
or received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995. For this purpose only, a "Qualified Retirement Plan" includes
any 401(k) plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a single
employer.
-1-
<PAGE>
<TABLE>
<CAPTION>
Front-End Front-End
Sales Sales Commission
Charge Charge as
Number of as a as a Percentage
Eligible Percentage Percentage of
Employees of Offering of Amount Offering
or Members Price Invested Price
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
For purchases by Qualified Retirement plans and Associations having 50
or more eligible employees or members, there is no initial sales charge on
purchases of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described beginning on page 29 of this
Prospectus.
Purchases made under this arrangement qualify for the lower of the
sales charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge rate
that applies under the Rights of Accumulation described above in the Prospectus.
In addition, purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they qualified to
purchase shares of any of the Former Quest For Value Funds by virtue of
projected contributions or investments of $1 million or more each year.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations, or as eligible employees in Qualified Retirement Plans
also may purchase shares for their individual or custodial accounts at these
reduced sales charge rates, upon request to the Fund's Distributor.
o Special Class A Contingent Deferred Sales Charge Rates. Class A
shares of the Fund purchased by exchange of shares of other Oppenheimer funds
that were acquired as a result of the merger of Former Quest for Value Funds
into those Oppenheimer funds, and which shares were subject to a Class A
contingent deferred sales charge prior to November 24, 1995 will be subject to a
contingent deferred sales charge at the following rates: if they are redeemed
within 18 months of the end of the calendar month in which they were purchased,
at a rate equal to 1.0% if the redemption occurs
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within 12 months of their initial purchase and at a rate of 0.50 of 1.0% if the
redemption occurs in the subsequent six months. Class A shares of any of the
Former Quest for Value Funds purchased without an initial sales charge on or
before November 22, 1995 will continue to be subject to the applicable
contingent deferred sales charge in effect as of that date as set forth in the
then-current prospectus for such fund.
o Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares of the Fund purchased by the following investors are not subject to any
Class A initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of
Funds on February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the following investors
who were shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is or was
not permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the Employee Retirement
Income Security Act of 1974 and regulations adopted under that law.
o Participants in Qualified Retirement Plans that purchased shares of
any of the Former Quest For Value Funds pursuant to a special "strategic
alliance" with the distributor of those funds. The Fund's Distributor will pay a
commission to the dealer for purchases of Fund shares as described above in
"Class A Contingent Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
o Waivers for Redemptions of Shares Purchased Prior to March
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6, 1995. In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, Class B or Class C shares of the Fund
acquired by exchange from an Oppenheimer fund that was a Former Quest for Value
Fund or into which a former Quest for Value Fund merged, if those shares were
purchased prior to March 6, 1995: in connection with (i) distributions to
participants or beneficiaries of plans qualified under Section 401(a) of the
Internal Revenue Code or from custodial accounts under Section 403(b)(7) of the
Code, Individual Retirement Accounts, deferred compensation plans under Section
457 of the Code, and other employee benefit plans, and returns of excess
contributions made to each type of plan, (ii) withdrawals under an automatic
withdrawal plan holding only either Class B or Class C shares if the annual
withdrawal does not exceed 10% of the initial value of the account, and (iii)
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum value of such
accounts.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of the Fund acquired by exchange from an Oppenheimer fund that was a
Former Quest For Value Fund or into which such fund merged, if those shares were
purchased on or after March 6, 1995, but prior to November 24, 1995: (1)
distributions to participants or beneficiaries from Individual Retirement
Accounts under Section 408(a) of the Internal Revenue Code or retirement plans
under Section 401(a), 401(k), 403(b) and 457 of the Code, if those distributions
are made either (a) to an individual participant as a result of separation from
service or (b) following the death or disability (as defined in the Code) of the
participant or beneficiary; (2) returns of excess contributions to such
retirement plans; (3) redemptions other than from retirement plans following the
death or disability of the shareholder(s) (as evidenced by a determination of
total disability by the U.S. Social Security Administration); (4) withdrawals
under an automatic withdrawal plan (but only for Class B or C shares) where the
annual withdrawals do not exceed 10% of the initial value of the account; and
(5) liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum account value. A
shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Fund described in this section if within 90 days after that
redemption,
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the proceeds are invested in the same Class of shares in this Fund or another
Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value Fund to Quest for
Value prototype 401(k) plans that were maintained on the TRAC-2000 recordkeeping
system and that were transferred to an OppenheimerFunds prototype 401(k) plan
shall be eligible for an additional one-time payment by the Distributor of 1% of
the value of the plan assets transferred, but that payment may not exceed $5,000
as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value Fund to
Quest for Value prototype 401(k) plans that were maintained on the TRAC-2000
recordkeeping system and (i) the shares held by those plans were exchanged for
Class A shares, or (ii) the plan assets were transferred to an OppenheimerFunds
prototype 401(k) plan, shall be eligible for an additional one-time payment by
the Distributor of 1% of the value of the plan assets transferred, but that
payment may not exceed $5,000.
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<PAGE>
Oppenheimer Developing Markets Fund
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representations must not be relied upon as having
been authorized by the Fund, OppenheimerFunds, Inc., OppenheimerFunds
Distributor, Inc. or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such an
offer in such state.
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<PAGE>
Oppenheimer Developing Markets Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 15, 1996
This Statement of Additional Information of Oppenheimer Developing
Markets Fund is not a Prospectus. This document contains additional information
about the Fund and supplements information in the Prospectus dated November 15,
1996. It should be read together with the Prospectus, which may be obtained by
writing to the Fund's Transfer Agent, OppenheimerFunds Services at P.O. Box
5270, Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above.
Contents
Page
About the Fund
Investment Objective and Policies............................................2
Investment Policies and Strategies.........................................2
Other Investment Techniques and Strategies.................................9
Other Investment Restrictions.............................................19
How the Fund is Managed.....................................................20
Organization and History..................................................20
Trustees and Officers of the Fund.........................................21
The Manager and Its Affiliates............................................26
Brokerage Policies of the Fund..............................................27
Performance of the Fund.....................................................29
Distribution and Service Plans..............................................31
About Your Account
How to Buy Shares...........................................................33
How to Sell Shares..........................................................42
How to Exchange Shares......................................................46
Dividends, Capital Gains and Taxes..........................................48
Additional Information About the Fund.......................................49
Financial Information About the Fund
Independent Auditors' Report................................................50
Financial Statements .......................................................51
Appendices
Appendix A: Corporate Industry Classifications.............................A-1
Appendix B: Description of Ratings.........................................B-1
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<PAGE>
About the Fund
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies of the
Fund are described in the Prospectus. Set forth below is supplemental
information about those policies and the types of securities in which the Fund
may invest, as well as the strategies the Fund may use to try to achieve its
objective. Capitalized terms used in this Statement of Additional Information
have the same meanings as those terms have in the Prospectus.
In selecting securities for the Fund's portfolio, including the
securities of issuers in Developing Markets, the Fund's investment advisor,
OppenheimerFunds, Inc. (the "Manager"), evaluates the merits of securities
primarily through the exercise of its own investment analysis. These analyses
may include, among other things, evaluation of the strength of management and
the history of the issuer's operations, the soundness of the issuer's financial
and accounting policies and the issuer's financial condition, the issuer's
pending product developments and developments by competitors, the effect of
general market and economic conditions on the issuer's business and the
prospects for the industry of which the issuer is a part, and legislative
proposals which might affect the issuer. In addition, the Manager will
ordinarily look for one of the following characteristics: an above-average
earnings growth per share; high return on invested capital; effective research
and product development, pricing flexibility and general operating
characteristics which will enable the issuer to compete successfully in its
intended markets.
The Fund intends to spread its investments (invest risk) among at least
three Developing Markets under normal market conditions. In determining an
appropriate distribution of investments among the various countries and
geographic regions in which the Fund may invest, the Manager generally considers
the following factors: prospects for relative economic growth, the balance of
payments, anticipated levels of inflation, governmental policies influencing
business conditions, the outlook for currency relationships and the range of
individual investment opportunities available to international investors among
the various counties and geographic regions. The percentage of the Fund's assets
invested in particular Developing Markets will vary from time to time based on
the Manager's assessment of these factors, the appreciation possibilities of
particular issuers and social and political factors that may affect specific
markets.
The portion of the Fund's assets allocated to securities selected for
capital appreciation and the investment techniques used will depend upon the
judgment of the Fund's Manager as to the future movement of the equity
securities markets. If the Manager believes that economic conditions favor a
rising market, the Fund will emphasize securities and investment methods
selected for high capital growth. If the Manager believes that a market decline
is likely, defensive securities and investment methods may be emphasized.
Current income is an incidental consideration in the selection of
portfolio securities for the Fund. The fact that a security has a low yield or
does not pay current income will not be an adverse factor in selecting
securities to try to achieve the Fund's investment objective of capital
appreciation unless the Manager believes that the lack of yield might adversely
affect appreciation possibilities.
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<PAGE>
o Investing in Securities of Growth-Type Companies. The Fund emphasizes
securities of "growth-type" companies. Such issuers typically are those, the
goods or services of which appear to have relatively favorable long-term
prospects for increasing demand for their products, or increasing earnings
prospects, or ones which develop new products, services or markets and normally
retain a relatively large part of their earnings for research, development and
investment in capital assets. They may include companies in the natural
resources fields or those developing industrial applications for new scientific
knowledge having potential for technological innovation, such as information
technology, biochemistry, communications, environmental products, oceanography,
business services and new consumer products. Growth-type companies may include
relatively new businesses as well as larger mature businesses that the Manager
believes are entering a growth phase because of the development of new products,
businesses, markets or other factors. Therefore, the Manager does not limit the
selection of investments in growth-type companies to issuers having a market
capitalization within a specific range.
o Investing in Small, Unseasoned Companies. Many of the securities
offering the capital appreciation sought by the Fund will involve investments in
certain growth-type companies which do not have a substantial operating history.
These companies may have limited product lines, markets or financial resources.
The securities of these small, unseasoned companies may have a limited trading
market, which may adversely affect the Fund's ability to sell them and can
reduce the price the Fund might be able to obtain for them. If other investors
holding the same securities as the Fund sell them when the Fund attempts to
dispose of its holdings, the Fund may receive lower prices than might otherwise
be obtained, because of the thinner market for such securities. Additionally,
investments in these companies tend to involve greater risks than investments in
larger more established companies, such as the risk that their securities may be
subject to more abrupt or erratic market movements.
o Foreign Securities. "Foreign securities" include equity and debt
securities of companies organized under the laws of countries other than the
United States and debt securities of foreign governments. These securities are
traded on foreign securities exchanges or in the foreign over-the-counter
markets. Securities of foreign issuers that are represented by American
Depository Receipts or similar depository arrangements and that are listed on a
U.S. securities exchange or traded in the U.S. over-the-counter markets are
considered "foreign securities" for the purpose of the Fund's investment
allocations, because they are subject to some of the special considerations and
risks, discussed below, that apply to foreign securities traded and held abroad,
typically because the issuer of the security is domiciled in a foreign country,
or has substantial assets or business operations in a foreign county, or its
securities are traded primarily on a foreign securities exchange.
Investing in foreign securities offers the Fund potential benefits not
available from investing in securities of domestic issuers, such as the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S. It may enable the Fund to take advantage of foreign stock
markets that do not move in a manner parallel to U.S. markets. If the Fund's
portfolio securities are held in foreign countries, the countries in which the
securities are held abroad and the sub-custodians holding them
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<PAGE>
must be approved by the Fund's Board of Trustees under applicable rules of the
Securities and Exchange Commission.
o Risks of Foreign Investing. Generally investing in foreign securities
involves special additional risks and considerations not typically associated
with investing in securities of issuers traded in the U.S. These include:
fluctuation in value of foreign portfolio investments due to changes in currency
rates and control regulations (e.g., currency blockage); transaction charges for
currency exchange; lack of public information about foreign issuers; lack of
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic issuers; less volume on foreign exchanges than on
U.S. exchanges, which affects the ability to dispose of a security; greater
volatility and less liquidity in some foreign markets, particularly emerging
markets, than in the U.S.; less governmental oversight and regulation of foreign
issuers, stock exchanges and brokers than in the U.S.; greater difficulties in
commencing lawsuits against foreign issuers; higher brokerage commission rates
than in the U.S.; increased risks of delays in settlement of portfolio
transactions or loss of certificates for portfolio securities; possibilities in
some countries of expropriation or nationalization of assets, confiscatory
taxation, political, financial or social instability or adverse diplomatic
developments; unfavorable differences between the U.S. economy and foreign
economies; and the effects of foreign taxes on income and capital gains. In the
past, U.S. Government policies have discouraged certain investments abroad by
U.S. investors, through taxation or other restrictions, and it is possible that
such restrictions could be re-imposed. Costs of transactions in foreign
securities are generally higher than for transactions in U.S. securities,
including higher custodial costs, which will increase the Fund's expenses over
those typically associated with funds that do not invest in foreign securities.
A number of current significant political demographic and economic
developments may affect investments in foreign securities and in securities of
companies with operations overseas. Such developments include dramatic political
changes in government and economic policies in several Eastern European
countries, Germany and the republics comprising the former Soviet Union, as well
as unification of the European Economic Community. The course of any of one or
more of these events and the effect on trade barriers, competition and markets
for consumer goods and services is uncertain. With roughly two-thirds of all
outstanding equity securities now traded outside of the United States, the
Fund's international scope enables it to attempt to take advantage of other
world markets and companies and seek to protect itself against declines in any
single economy.
o Special Risks of Investing in Developing Markets. The risks of
investing in foreign securities may be intensified in the case of investments
in Developing Markets. Included are the following:
(1) Settlement of Transactions. Settlement procedures in Developing
Markets may differ from those of more established securities markets. Securities
issued by Developing Market countries and by issuers located in those countries
may be subject to extended settlement periods. Delays in settlement could result
in temporary periods during which a portion of the Fund's assets is uninvested
and no return is earned on such assets. The inability of the Fund to make
intended purchases of securities due to settlement problems could cause the Fund
to miss investment opportunities. Inability to dispose of portfolio securities
due to settlement problems could result in losses to the
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<PAGE>
Fund due to subsequent declines in the value of the portfolio security, a
decrease in the level of liquidity of the Fund's portfolio or, if the Fund has
entered into a contract to sell the security, in possible liability to the
purchaser.
(2) Price Volatility. Securities prices in Developing Markets may be
significantly more volatile than is the case in more developed nations of the
world. In particular, countries with emerging markets may have relatively
unstable governments, present the risk of nationalization of businesses,
restrictions on foreign ownership or prohibitions of repatriation of assets, and
may have less protection of property rights than more developed countries. The
economies of countries in Developing Markets may be predominantly based on only
a few industries and, as such, may be highly vulnerable to changes in local or
global trade conditions.
(3) Less Developed Markets. Developing Market countries may have less
well-developed securities markets and exchanges, and consequently lower trading
volume, than the securities markets of more developed countries. These markets
may be unable to respond effectively to increases in trading volume and, thus,
prompt liquidation of substantial portfolio holdings may be difficult at times.
As a result, these markets may be substantially less liquid than those of more
developed countries and the securities of issuers located in these markets may
have limited marketability.
(4) Governmental Restrictions. In certain Developing Markets,
governmental approval for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors may be required. In
addition, if a deterioration occurs in a Developing Market's balance of payments
or for other reasons, a country could impose temporary restrictions on foreign
capital remittances. The Fund could be adversely affected by a delay in
obtaining a grant of, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as the application to the Fund of any
restrictions on investments.
o Convertible Securities. While convertible securities are a form of
debt security in many cases, their conversion feature (allowing conversion into
equity securities) causes them to be regarded more as "equity equivalents." As a
result, the rating assigned to the security has less impact on the Manager's
investment decision with respect to convertible securities than in the case of
non-convertible fixed-income securities. To determine whether convertible
securities should be regarded as "equity equivalents," the Manager examines the
following factors: (1) whether, at the option of the investor, the convertible
security can be exchanged for a fixed number of shares of common stock of the
issuer, (2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis (considering the
effect of converting the convertible securities), and (3) the extent to which
the convertible security may be a defensive "equity substitute," providing the
ability to participate in any appreciation in the price of the issuer's common
stock.
o Lower-Rated or Unrated Securities. The Fund may invest in
higher-yielding, lower- rated debt securities, commonly known as "junk bonds,"
because these securities generally offer higher income potential than investment
grade securities. As stated in the Prospectus, the Fund's investments in debt
securities which are rated in the lower rating categories and are also referred
to
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<PAGE>
as "lower-grade" securities, and in unrated debt securities which, in the
opinion of the Manager, are of comparable quality, must in the aggregate, be
less than 35% of the value of the Fund's net assets. "Lower-grade" debt
securities are those rated below "investment grade," which means they have a
rating lower than "Baa" by Moody's Investors Service, Inc. ("Moody's") or lower
than "BBB" by Standard & Poor's Corporation ("S&P") or similar ratings by other
rating organizations. See Appendix B for a description of Moody's and S&P rating
categories. The Fund will not invest in debt securities, whether issued by a
domestic or foreign issuer, which have a rating by a nationally recognized
statistical rating organization ("NRSRO") of less than C or in debt securities
which are in default at the time of purchase. While securities rated "Baa" by
Moody's or "BBB" by S&P are investment grade and are not regarded as "junk
bonds," those securities may be subject to greater market fluctuations and risks
of loss of income and principal than higher grade securities and may be
considered to have certain speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
for such securities to make principal and interest payments than is the case for
higher grade securities. Because most foreign debt securities are not rated, the
Fund's investments in such securities will be based primarily on the Manager's
credit analysis rather than reliance on published ratings.
Debt securities rated below investment grade are considered by the
NRSROs to be predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal and may involve major risk exposure to adverse
conditions. High-yield, lower-grade securities, whether rated or unrated, often
have speculative characteristics. Lower-grade securities have special risks that
make them riskier investments than investment grade securities. Such securities
are generally unsecured and are often subordinated to other creditors of the
issuer. To the extent that the Fund is required to seek recovery upon a default
in the payment of principal or interest on its portfolio holdings, it may incur
additional expenses and may have limited legal recourse in the event of a
default. The Fund may purchase debt securities which, although not rated by a
NRSRO have been determined by the Manager to be of comparable quality to rated
securities in which the Fund may invest. In the event that, due to a downgrade
of one or more debt securities, an amount in excess of 35% of the Fund's net
assets is held in securities rated below investment grade and comparable unrated
securities, the Manager will engage in an orderly disposition of such securities
to the extent necessary to reduce the Fund's holdings of these securities to
less than 35% of net assets or less.
Ratings of debt securities represent the NRSROs' opinions regarding
their quality, are not a guarantee of quality and may be reduced after a Fund
has acquired the security. The Manager would consider a reduction in the rating
of a security or default by the issuer in determining whether the Fund should
continue to hold security. The Fund is not obligated to dispose of securities
when issuers are in default or if the rating of the security is reduced. Credit
ratings attempt to evaluate the safety of principal and interest payments and do
not reflect an assessment of the volatility of the security's market value or
the liquidity of an investment in the security. Also, NRSROs may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's financial condition may be better or worse than the rating indicates.
See Appendix B for further information regarding S&P's and Moody's ratings.
Lower rated debt securities generally offer a higher current yield than
that available from higher grade issues, but they involve higher risks, in that
they are especially subject to adverse
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changes in general economic conditions and in the industries in which the
issuers are engaged, to changes in the financial condition of the issuers and to
price fluctuation in response to changes in interest rates. During periods of
economic downturn or rising interest rates, highly leveraged issuers may
experience financial stress, which could adversely affect their ability to make
payments of principal and interest and increase the possibility of default. In
addition, such issuers may not have more traditional methods of financing
available to them, and may be unable to repay debt at maturity by refinancing.
The risk of loss due to default by such issuers is significantly greater because
such securities frequently are unsecured and subordinated to the prior payment
of senior indebtedness.
The market for lower rated securities has expanded rapidly in recent
years, and its growth paralleled a long economic expansion. In the past, the
prices of many lower rated debt securities declined substantially, reflecting an
expectation that many issuers of such securities might experience financial
difficulties. As a result, the yields on lower rated debt securities rose
dramatically, However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or default. There can be no
assurance that such declines will not recur. The market for lower rated debt
securities generally is thinner and less active than that for higher quality
securities, which may limit the Fund's ability to sell such securities at fair
value in response to changes in the economy or the financial markets. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower rated securities,
especially in a thinly traded market.
Although the Manager will attempt to minimize the speculative risks
associated with the investments in such securities through diversification,
credit analysis and attention to current trends in interest rates and other
factors, investors should carefully review the objectives and policies of the
Fund and consider their ability to assume the investment risks involved before
making an investment in the Fund.
These risks mean that the Fund may not achieve the expected income from
lower-grade securities, and that the Fund's net asset value per share may be
affected by declines in value of these securities.
o When-Issued and Forward Commitment Securities. The Fund may purchase
securities on a "when-issued" basis and may purchase or sell such securities on
a "forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. The price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. At the time the Funds enter into a
transaction on a when-issued or forward commitment basis, the Fund will identify
with its Custodian certain assets, which may consist of liquid assets of any
type, including equity and debt securities of any grade, at least equal to the
value of the when-issued or forward commitment securities and will such assets
be market to marked daily. When-issued and forward commitments may be sold prior
to the settlement date, but the Fund will purchase or sell when-issued
securities and forward commitments only with the intention of actually receiving
or delivering the securities, as the case may be. During the period between
commitment by the Fund and settlement (which shall not exceed 120 days), no
payment is made for the securities purchased by the purchaser and no
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<PAGE>
interest accrues to the purchaser from the transaction. Such securities are
subject to market fluctuation; the value at delivery may be less than the
purchase price. If the Fund disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it may incur a gain or loss.
o Warrants and Rights. Warrants basically are options to purchase
equity securities at specified prices valid for a specific period of time. Their
prices do not necessarily move in a manner parallel to the prices of the
underlying securities. The price paid for a warrant will be lost unless the
warrant is exercised prior to expiration. Rights are similar to warrants, but
normally have a short duration and are distributed directly by the issuer to its
shareholders. Warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
o Illiquid and Restricted Securities. To enable the Fund to sell (in
the United States) restricted securities not registered under the Securities Act
of 1933, the Fund may have to cause those securities to be registered. The
expenses of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund, if such
registration is required before such securities may be sold publicly. When
registration must be arranged because the Fund wishes to sell the security, a
considerable period may elapse between the time the decision is made to sell the
securities and the time the Fund would be permitted to sell them. The Fund would
bear the risks of any downward price fluctuation during that period. The Fund
may also acquire, through private placements, securities having contractual
restrictions on their resale, which might limit the Fund's ability to dispose of
such securities and might lower the amount realizable upon the sale of such
securities.
The Fund has percentage limitations that apply to purchases of illiquid
securities, as stated in the Prospectus. Those percentage restrictions do not
limit purchases of restricted securities that are eligible for sale to qualified
institutional purchasers pursuant to Rule 144A under the Securities Act of 1933,
provided that those securities have been determined to be liquid by the Board of
Trustees of the Fund or by the Manager under Board-approved guidelines. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
o Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated redemptions, or
pending the investment of the proceeds from sales of Fund shares, or pending the
settlement of purchases of portfolio securities.
Under a repurchase agreement, the Fund acquires securities subject to
the seller's agreement to repurchase the securities as a specified time and
price. If the seller becomes subject to a proceeding under the bankruptcy laws
or its assets are otherwise subject to a stay order, the Fund's right to
liquidate the securities may be restricted (during which time the value of the
securities could decline). The Fund has adopted procedures intended to minimize
any such risk. For example, the Fund will enter into repurchase agreements only
with "approved vendors". An "approved vendor" is a commercial bank or the U.S.
branch of a foreign bank, or a broker-dealer which has been designated a primary
dealer in government securities, which must meet credit requirements set by
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the Fund's Board of Trustees from time to time under a repurchase agreement. The
resale price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the repurchase
agreement is in effect. The majority of these transactions run from day to day,
and delivery pursuant to the resale typically will occur within one to five days
of the purchase. Repurchase agreements are considered "loans" under the
Investment Company Act of 1940, as amended (the "Investment Company Act"),
collateralized by the underlying security. The Fund's repurchase agreements
require that at all times while the repurchase agreement is in effect, the value
of the collateral must equal or exceed the repurchase price to fully
collateralize the repayment obligation. Additionally, the Fund's Manager will
impose creditworthiness requirements to confirm that the vendor is financially
sound and will continuously monitor the collateral's value.
o Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the market value of the
loaned securities and must consist of cash, bank letters of credit, U.S.
government securities, or other cash equivalents in which the Fund is permitted
to invest. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. In a
portfolio securities lending transaction, the Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan as well as the interest on the collateral
securities, less any finder's , administrative or other fees the Fund pays in
connection with the loan. The Fund may share the interest it receives on the
collateral securities with the borrower as long as it realizes at least a
minimum amount of interest required by the lending guidelines established by its
Board of Trustees. The Fund will not lend its portfolio securities to any
officer, trustee, employee or affiliate of the Fund or its Manager. The terms of
the Fund's loans must meet certain tests under the Internal Revenue Code and
permit the Fund to reacquire loaned securities on five business days' notice or
in time to vote on any important matter.
o Borrowing For Liquidity and Leverage. From time to time, the Fund may
borrow from banks on an unsecured basis for temporary or emergency purposes, for
liquidity purposes in order to meet redemption requests from shareholders, or
for investment purposes in order to increase its ownership of securities. Such
borrowings are subject to the percentage limitations stated in the Prospectus.
Any such borrowings will be made only from banks, and pursuant to the
requirements of the Investment Company Act which provides that the Fund must
maintain a 300% ratio of assets to borrowings at all times.. If the value of the
Fund's assets, should fail to meet the 300% asset coverage requirement, the Fund
is required within three days to reduce its bank debt to the extent necessary to
meet that coverage requirement. To do so, the Fund may have to sell a portion of
its investments at a time when it would otherwise not want to sell the
securities. Interest on money the Fund borrows is an expense the Fund would not
otherwise incur, so that during periods of substantial borrowings, its expenses
may increase more than the expenses of funds that do not borrow.
Other Investment Techniques and Strategies
Hedging With Options and Futures Contracts. The Fund may use hedging
instruments for the purposes described in the Prospectus. When hedging to
attempt to protect against declines in the
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market value of the Fund's portfolio, or to permit the Fund to retain unrealized
gains in the value of portfolio securities which have appreciated, or to
facilitate selling securities for investment reasons, the Fund may: (i) sell
Futures, (ii) buy puts on such Futures or securities, or (iii) write covered
calls on securities or on Futures. When hedging to establish a position in the
equity securities markets as a temporary substitute for the purchase of
individual equity securities the Fund may: (i) buy Futures, or (ii) buy calls on
such Futures or securities held by it. Normally, the Fund would then purchase
the equity securities and terminate the hedging position.
The Fund's strategy of hedging with Futures and options on Futures will
be incidental to the Fund's investment activities in the underlying cash market.
In the future, the Fund may employ hedging instruments and strategies that are
not presently contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment objective, and are
legally permissible and disclosed in the Prospectus. Additional information
about the hedging instruments the Fund may use is provided below.
o Stock Index Futures. The Fund may buy and sell futures contracts
relating to a securities index ("Financial Futures"), including "Stock Index
Futures," a type of Financial Future for which the index used as the basis for
trading is a broadly-based stock index (including stocks that are not limited to
issuers in a particular industry or group of industries). A stock index assigns
relative values to the common stocks included in the index and fluctuates with
the changes in the market value of those stocks. Stock indices cannot be
purchased or sold directly. Financial Futures are contracts based on the future
value of the basket of securities that comprise the underlying index. The
contracts obligate the seller to deliver, and the purchaser to take, cash to
settle the futures transaction or to enter into an offsetting contract. No
physical delivery of the securities underlying the index is made on settling the
futures obligation. No monetary amount is paid or received by the Fund on the
purchase or sale of a Financial Future or Stock Index Future.
Upon entering into a Futures transaction, the Fund will be required to
deposit an initial margin payment, in cash or U.S. Treasury bills, with the
futures commission merchant (the "futures broker"). Initial margin payments will
be deposited with the Fund's Custodian in an account registered in the futures
broker's name; however, the futures broker can gain access to that account only
under certain specified conditions. As the Future is marked to market (that is,
its value on the Fund's books is changed) to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis.
At any time prior to the expiration of the Future, the Fund may elect
to close out its position by taking an opposite position, at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the Future for tax purposes. Although Financial Futures by their terms call
for settlement by the delivery of cash, in most cases the settlement obligation
is fulfilled without such delivery by entering into an offsetting transaction.
All Futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
o Writing Covered Calls. As described in the Prospectus, the Fund
may write covered calls. When the Fund writes a call on an investment, it
receives a premium and agrees to sell the
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callable investment to a purchaser of a corresponding call during the call
period (usually not more than 9 months) at a fixed exercise price (which may
differ from the market price of the underlying investment) regardless of market
price changes during the call period. To terminate its obligation on a call it
has written, the Fund may purchase a corresponding call in a "closing purchase
transaction." A profit or loss will be realized, depending upon whether the net
of the amount of option transaction costs and the premium received on the call
the Fund has written is more or less than the price of the call the Fund
subsequently purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying investment and the premium
received. Those profits are considered short-term capital gains for Federal
income tax purposes, as are premiums on lapsed calls, and when distributed by
the Fund are taxable as ordinary income. If the Fund could not effect a closing
purchase transaction due to the lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent dollar
value of deliverable securities or liquid assets. The Fund will segregate
additional liquid assets if the value of the escrowed assets drops below 100% of
the current value of the Future. In no circumstances would an exercise notice as
to a Future put the Fund in a short futures position.
The Fund's Custodian, or a securities depository acting for the
Custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written options that are traded on exchanges, or as to other acceptable
escrow securities, so that no margin will be required from the Fund for such
option transactions. OCC will release the securities covering a call on the
expiration of the call or when the Fund enters into a closing purchase
transaction. Call writing affects the Fund's turnover rate and the brokerage
commissions it pays. Commissions, normally higher than on general securities
transactions, are payable on writing or purchasing a call.
o Purchasing Puts and Calls. The Fund may purchase calls to protect
against the possibility that the Fund's portfolio will not participate in an
anticipated rise in the securities market. When the Fund purchases a call, it
pays a premium (other than in a closing purchase transaction) and, except as to
calls on stock indices, has the right to buy the underlying investment from a
seller of a corresponding call on the same investment during the call period at
a fixed exercise price. In purchasing a call, the Fund benefits only if the call
is sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price, transaction costs, and
the premium paid, and the call is exercised. If the call is not exercised or
sold (whether or not at a profit), it will become worthless at its expiration
date and the Fund will lose its premium payment and the right to purchase the
underlying investment. When the Fund purchases a call on a stock index, it pays
a premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund.
When the Fund purchases a put, it pays a premium and, except as to puts
on stock indices, has the right to sell the underlying investment to a seller of
a corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on an investment the Fund
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owns (a "protective put") enables the Fund to attempt to protect itself during
the put period against a decline in the value of the underlying investment below
the exercise price by selling the underlying investment at the exercise price to
a seller of a corresponding put. If the market price of the underlying
investment is equal to or above the exercise price and as a result the put is
not exercised or resold, the put will become worthless at its expiration and the
Fund will lose the premium payment and the right to sell the underlying
investment. However, the put may be sold prior to expiration (whether or not at
a profit).
Puts and calls on broadly-based stock indices or Stock Index Futures
are similar to puts and calls on securities or futures contracts except that all
settlements are in cash and gain or loss depends on changes in the index in
question (and thus on price movements in the stock market generally) rather than
on price movements of individual securities or futures contracts. When the Fund
buys a call on a stock index or Stock Index Future, it pays a premium. If the
Fund exercises the call during the call period, a seller of a corresponding call
on the same investment will pay the Fund an amount of cash to settle the call if
the closing level of the stock index or Future upon which the call is based is
greater than the exercise price of the call. That cash payment is equal to the
difference between the closing price of the call and the exercise price of the
call times a specified multiple (the "multiplier") which determines the total
dollar value for each point of difference. When the Fund buys a put on a stock
index or Stock Index Future, it pays a premium and has the right during the put
period to require a seller of a corresponding put, upon the Fund's exercise of
its put, to deliver cash to the Fund to settle the put if the closing level of
the stock index or Stock Index Future upon which the put is based is less than
the exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
When the Fund purchases a put on a stock index, or on a Stock Index
Future not owned by it, the put protects the Fund to the extent that the index
moves in a similar pattern to the securities the Fund holds. The Fund can either
resell the put or, in the case of a put on a Stock Index Future, buy the
underlying investment and sell it at the exercise price. The resale price of the
put will vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise price, and as a
result the put is not exercised, the put will become worthless on the expiration
date. In the event of a decline in price of the underlying investment, the Fund
could exercise or sell the put at a profit to attempt to offset some or all of
its loss on its portfolio securities.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put. The Fund will pay a brokerage commission each time it buys
or sells a call, put or an underlying investment in connection with the exercise
of a put or call. Those commissions may be higher than the commissions for
direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value of
the underlying
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investments and, consequently, put and call options offer large amounts of
leverage. The leverage offered by trading in options could result in the Fund's
net asset value being more sensitive to changes in the value of the underlying
investments.
o Options on Foreign Currencies. The Fund may write and purchase calls
on foreign currencies. The Fund may purchase and write puts and calls on foreign
currencies that are traded on a securities or commodities exchange or
over-the-counter markets or are quoted by major recognized dealers in such
options. It does so to protect against declines in the dollar value of foreign
securities and against increases in the dollar cost of foreign securities to be
acquired. If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of such securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If a decline in the dollar value of a foreign currency
is anticipated, the decline in value of portfolio securities denominated in that
currency may be partially offset by writing calls or purchasing puts on that
foreign currency. However, in the event of currency rate fluctuations adverse to
the Fund's position, it would lose the premium it paid and transactions costs.
A call written on a foreign currency by the Fund is covered if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration resulting from liquid assets
identified to its Custodian for that purpose) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by the Fund
on a foreign currency to provide a hedge against a decline due to an expected
adverse change in the exchange rate in the U.S. dollar value of a security which
the Fund owns or has the right to acquire and which is denominated in the
currency underlying the option. This is a cross-hedging strategy. In such
circumstances, the Fund collateralizes the option by identifying with its
Custodian certain assets, which may consist of liquid assets of any type,
including equity and debt securities of any grade in an amount not less than the
value of the underlying foreign currency in U.S. dollars. Such assets will be
marked-to- market daily.
o Forward Contracts. The Fund may enter into foreign currency exchange
contracts ("Forward Contracts"), which obligate the seller to deliver and the
purchaser to take a specific amount of foreign currency at a specific future
date for a fixed price. A Forward Contract involves bilateral obligations of one
party to purchase, and another party to sell, a specific currency at a future
date (which may be any fixed number of days from the date of the contract agreed
upon by the parties), at a price set at the time the contract is entered into.
These contracts are generally traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers.
The Fund may enter into a Forward Contract in order to "lock in" the U.S. dollar
price of a security denominated in a foreign currency which it has purchased or
sold but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
a foreign currency.
There is a risk that use of Forward Contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. Forward contracts include standardized foreign currency
futures contracts which are traded on exchanges and are
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subject to procedures and regulations applicable to other Futures. The Fund may
also enter into a forward contract to sell a foreign currency denominated in a
currency other than that in which the underlying security is denominated. This
is done in the expectation that there is a greater correlation between the
foreign currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign currency of
the underlying investment. This technique is referred to as "cross hedging." The
success of cross hedging is dependent on many factors, including the ability of
the Manager to correctly identify and monitor the correlation between foreign
currencies and the U.S. dollar. To the extent that the correlation is not
identical, the Fund may experience losses or gains on both the underlying
security and the cross currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund owns
or intends to acquire, but it does fix a rate of exchange in advance. In
addition, although Forward Contracts limit the risk of loss due to a decline in
the value of the hedged currencies, at the same time they limit any potential
gain that might result should the value of the currencies increase.
There is no limitation as to the percentage of the Fund's assets that
may be committed to foreign currency exchange contracts. The Fund does not enter
into such forward contracts or maintain a net exposure in such contracts to the
extent that the Fund would be obligated to deliver an amount of foreign currency
in excess of the value of the Fund's assets denominated in that currency, or
enter into a "cross hedge," unless it is denominated in a currency or currencies
that the Manager believes will have price movements that tend to correlate
closely with the currency in which the investment being hedged is denominated.
See "Tax Aspects of Covered Calls and Hedging Instruments" below for a
discussion of the tax treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when the Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction
("transaction hedge"). The Fund will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a substantial
decline against the U.S. dollar, it may enter into a forward sale contract to
sell an amount of that foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency, or when
the Fund believes that the U.S. dollar may suffer a substantial decline against
a foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount. In this situation the Fund
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may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Fund believes that the
U.S. dollar value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. dollar value of the currency
in which portfolio securities of the Fund are denominated ("cross hedge").
The Fund will identify with its Custodian certain assets, which may
consist of liquid assets
of any type, including equity and debt securities of any grade, having a value
equal to the aggregate amount of the Fund's net commitments under forward
contracts to cover its short positions. If the value of the securities
identified for this purpose declines, additional cash or securities will be
identified on a daily basis so that the value of the identified securities will
equal the amount of the Fund's net commitments with respect to such contracts.
As an alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price, or the Fund may purchase a
put option permitting the Fund to sell the amount of foreign currency subject to
a forward purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward Contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing.
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<PAGE>
Because Forward Contracts are usually entered into on a principal basis, no fees
or commissions are involved. Because such contracts are not traded on an
exchange, the Fund must evaluate the credit and performance risk of each
particular counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert all of its holdings of foreign currency deposits into
U.S. dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency conversion.
Foreign exchange dealers do not charge a fee for conversion, but they do seek to
realize a profit based on the difference between the prices at which they buy
and sell various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer.
o Regulatory Aspects of Hedging Instruments. The Fund is required to
operate within certain guidelines and restrictions with respect to its use of
Futures and options on Futures established by the Commodity Futures Trading
Commission ("CFTC"). In particular the Fund is exempted from registration with
the CFTC as a "commodity pool operator" if the Fund complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the
percentage of the Fund's assets that may be used for Futures margin and related
options premiums for a bona fide hedging position. However, under the Rule the
Fund must limit its aggregate initial Futures margin and related option premiums
to no more than 5% of the Fund's total assets for hedging strategies that are
not considered bona fide hedging strategies under the Rule. Under the Rule, the
Fund also must use short Futures and options on Futures positions solely for
"bona fide hedging purposes" within the meaning and intent of the applicable
provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of options that may
be written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
different exchanges or through one or more brokers. Thus the number of options
which the Fund may write or hold may be affected by options written or held by
other entities, including other investment companies having the same advisor as
the Fund (or an advisor that is an affiliate of the Fund's advisor). The
exchanges also impose position limits on Futures transactions. An exchange may
order the liquidation of positions found to be in violation of those limits and
may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the Fund
purchases a Future, the Fund will identify with its Custodian
certain assets which may, consist of liquid assets of any type, including equity
and debt securities of any grade in an amount at least equal to the market value
of the securities underlying such Future, less the margin deposit applicable to
it.
o Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That qualification
enables the Fund to "pass through" its income and realized capital gains to
shareholders without having to pay tax on them. This avoids a "double tax" on
that income and capital gains, since shareholders normally will be taxed on the
dividends and capital gains they
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receive from the Fund (unless the Fund's shares are held in a retirement account
or the shareholder is otherwise exempt from tax). One of the tests for the
Fund's qualification as a regulated investment company is that less than 30% of
its gross income must be derived from gains realized on the sale of securities
held for less than three months. To comply with this 30% cap, the Fund will
limit the extent to which it engages in the following activities, but will not
be precluded from them: (i) selling investments, including Stock Index Futures,
held for less than three months, whether or not they were purchased on the
exercise of a call held by the Fund; (ii) purchasing options which expire in
less than three months; (iii) effecting closing transactions with respect to
calls or puts written or purchased less than three months previously; (iv)
exercising puts or calls held by the Fund for less than three months; or (v)
writing calls on investments held less than three months.
Certain foreign currency exchange contracts (Forward Contracts) in
which the Fund may invest are treated as "section 1256 contracts." Gains or
losses relating to section 1256 contracts generally are characterized under the
Internal Revenue Code as 60% long-term and 40% short-term capital gains or
losses. However, foreign currency gains or losses arising from certain section
1256 contracts (including Forward Contracts) generally are treated as ordinary
income or loss. In addition, section 1256 contracts held by the Fund at the end
of each taxable year are "marked-to- market" with the result that unrealized
gains or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of the excise tax applicable to investment
company distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt these
transactions from this marked-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position(s) making up a
straddle is allowed only to the extent such loss exceeds any unrecognized gain
in the offsetting positions making up the straddle. Disallowed loss is generally
allowed at the point where there is no unrecognized gain in the offsetting
positions making up the straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of foreign currency forward contracts, gains
or losses attributable to fluctuations in the value of a foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as an ordinary gain or loss. Currency gains and
losses are offset against market gains and losses on each trade before
determining a net "section 988" gain or loss under the Internal Revenue Code,
which may ultimately increase or decrease the amount of the Fund's investment
company income available for distribution to its shareholders.
o Risks of Hedging With Options and Futures. An option position may
be closed out only on a market that provides secondary trading for options of
the same series, and there is no
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assurance that a liquid secondary market will exist for any particular option.
In addition to the risks associated with hedging that are discussed in the
Prospectus and above, there is a risk in using short hedging by (i) selling
Stock Index Futures or (ii) purchasing puts on stock indices or Stock Index
Futures to attempt to protect against declines in the value of the Fund's equity
securities. The risk is that the prices of Stock Index Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of the
Fund's equity securities. The ordinary spreads between prices in the cash and
futures markets are subject to distortions, due to differences in the natures of
those markets. First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures markets depends
on participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures markets could be reduced, thus producing distortion.
Third, from the point of view of speculators, the deposit requirements in the
futures markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
equity securities being hedged and movements in the price of the hedging
instruments, the Fund may use hedging instruments in a greater dollar amount
than the dollar amount of equity securities being hedged if the historical
volatility of the prices of the equity securities being hedged is more than the
historical volatility of the applicable index. It is also possible that if the
Fund has used hedging instruments in a short hedge, the market may advance and
the value of equity securities held in the Fund's portfolio may decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value in its portfolio securities. However, while this
could occur for a very brief period or to a very small degree, over time the
value of a diversified portfolio of equity securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
If the Fund uses hedging instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual equity
securities (long hedging) by buying Stock Index Futures and/or calls on such
Futures, on securities or on stock indices, it is possible that the market may
decline. If the Fund then concludes not to invest in equity securities at that
time because of concerns as to a possible further market decline or for other
reasons, the Fund will realize a loss on the hedging instruments that is not
offset by a reduction in the price of the equity securities purchased.
Short Sales Against-the-Box. In this type of short sale, while the short
position is open, the Fund must own an equal amount of the securities sold
short, or by virtue of ownership of other securities have the right, without
payment of further consideration, to obtain an equal amount of the securities
sold short. Short sales against-the-box may be made to defer, for Federal income
tax purposes, recognition of gain or loss on the sale of securities "in the box"
until the short position is closed out. They may also be used to protect a gain
on the security "in-the-box" when the Fund does not want to sell it and
recognize a capital gain.
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<PAGE>
Other Investment Restrictions
Fundamental Investment Restrictions. The Fund's significant investment
restrictions are described in the Prospectus. The following are also fundamental
policies, and together with the Fund's fundamental policies described in the
Prospectus, cannot be changed without the approval of a "majority" of the Fund's
outstanding voting securities. Such a "majority" vote is defined in the
Investment Company Act as the vote of the holders of the lesser of: (i) 67% or
more of the shares present or represented by proxy at a shareholders meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy; or (ii) more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot do any of the
following:
o invest in commodities or in commodities contracts, other than the
hedging instruments permitted by any of its other investment
policies, whether or not any such hedging instrument is considered
to be a commodity or a commodity contract;
o invest in real estate or in interests in real estate, but it can
purchase readily marketable securities of companies holding real
estate or interests therein;
o lend money, but the Fund can engage in repurchase transactions and
can invest in all or a portion of an issue of bonds, debentures,
commercial paper, or other similar corporate obligations, whether
or not publicly distributed, provided that the Fund's purchase of
obligations that are not publicly distributed shall be subject to
any applicable percentage limitation on the Fund's holdings of
illiquid and restricted securities; the Fund may also lend its
portfolio securities, subject to any restrictions adopted by the
Board of Trustees and set forth in the Prospectus;
o underwrite securities of other companies, except to the extent
that it might be deemed to be an underwriter for purposes of the
Securities Act of 1933 in the resale of any securities held in its
own portfolio;
o issue "senior securities", but this does not prohibit it from
borrowing money for investment or emergency purposes, or entering
into margin, collateral or escrow arrangements as permitted by its
other invest policies.
The percentage restrictions described above and in the Prospectus
(other than the percentage limitations that apply on an ongoing basis) apply
only at the time of investment and require no action by the Fund as a result of
subsequent changes in relative values.
As a matter of fundamental policy, the Fund also may invest all of its
assets in the securities of a single open-end management investment company for
which the Manager or one of its subsidiaries or a successor is advisor or
sub-advisor, notwithstanding any other fundamental investment policy or
limitation. That other fund must have substantially the same fundamental
investment objective, policies and limitations as the Fund. The Fund is
permitted by this policy (but
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<PAGE>
not required) to adopt a "master-feeder" structure in which the Fund and other
"feeder" funds would invest all of their assets in a single pooled "master fund"
in an effort to take advantage of potential efficiencies. The Fund has no
present intention of adopting a "mater-feeder" structure, and would be required
to update its Prospectus and this Statement of Additional Information prior to
its doing so.
Non-Fundamental Investment Restrictions. The following operating policies of the
Fund are not fundamental policies and, as such, may be changed by vote of a
majority of the Fund's Board of Trustees without Shareholder approval. These
additional restrictions provide that the fund cannot:
o invest in companies for the primary purpose of acquiring control
or management thereof;
o invest or hold securities of any issuer if those officers and
trustees of the Fund or officers and directors of its advisor
owning individually more than 0.5% of the securities of such
issuer together own more than 5% of the securities of that issuer;
o purchase securities on margin; however, the Fund can make margin
deposits in connection with any of the hedging instruments
permitted by any of its other investment policies;
o mortgage or pledge any of its assets; this prohibition does not
prohibit the escrow arrangements contemplated by the writing of
covered call options or other collateral or margin arrangements in
connection with any of the hedging instruments permitted by any of
its other investment policies;
The percentage restrictions described above and in the Prospectus
(other than the percentage limitations that apply on an ongoing basis) apply
only at the time of investment and require no action by the Fund as a result of
subsequent changes in relative values.
For purposes of the Fund's policy not to concentrate its assets,
described in "Other Investment Restrictions" in the Prospectus, the Fund has
adopted the industry classifications set forth in the Appendix to this Statement
of Additional Information. This is not a fundamental policy.
How the Fund Is Managed
Organization of the Fund. As a Massachusetts business trust, the Fund is not
required to hold, and does not plan to hold, regular annual meetings of
shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder meeting is
called by the Trustees or upon proper request of the shareholders. Shareholders
have the right, upon the declaration in writing or vote of two-thirds of the
outstanding shares of the Fund, to remove a Trustee. The Trustees will call a
meeting of shareholders to vote on the removal of a Trustee upon the written
request of the record holders of 10% of its outstanding shares. In addition, if
the Trustees receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued at
$25,000 or more or holding at least 1% of the Fund's outstanding shares,
whichever is less, stating that they wish to communicate with other
-20-
<PAGE>
shareholders to request a meeting to remove a Trustee, the Trustees will then
either make the Fund's shareholder list available to the applicants or mail
their communication to all other shareholders at the applicants' expense, or the
Trustees may take such other action as set forth under Section 16(c) of the
Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides for
indemnification and reimbursement of expenses out of its property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any shareholder
of the Trust, agrees under the trust instrument to look solely to the assets of
the Trust for satisfaction of any claim or demand which may arise out of any
dealings with the Trust, and the Trustees shall have no personal liability to
any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. The address of each Trustee and officer is Two World Trade Center,
New York, New York 10048-0203, unless another address is listed below. Ms.
Macaskill is not a director of Oppenheimer Money Market Fund, Inc. Otherwise,
all of the Trustees are also trustees or directors of Oppenheimer Asset
Allocation Fund, Oppenheimer California Municipal Fund, Oppenheimer Discovery
Fund, Oppenheimer Enterprise Fund, Oppenheimer Fund, Oppenheimer Global Fund,
Oppenheimer Global Emerging Growth Fund, Oppenheimer Global Growth & Income
Fund, Oppenheimer Gold & Special Minerals Fund, Oppenheimer Growth Fund,
Oppenheimer International Growth Fund, Oppenheimer Money Market Fund, Inc.,
Oppenheimer Multi-Sector Income Trust, Oppenheimer Multi-State Municipal Trust,
Oppenheimer New York Municipal Fund, Oppenheimer Series Funds, Inc., Oppenheimer
Target Fund, Oppenheimer Municipal Bond Fund, Oppenheimer U. S. Government Trust
and Oppenheimer World Bond Fund (the "New York-based Oppenheimer funds").
Messrs. Spiro, Bishop, Bowen, Donohue, Farrar and Zack, who are officers of the
Fund, respectively hold the same offices with the other New York-based
Oppenheimer funds as with the Fund. As of the date of this Statement of
Additional Information, the Manager owned all of the outstanding shares of the
Fund as its initial shareholder and no Trustee or officer of the Fund owned of
record or beneficially any shares of the Fund.
Robert G. Galli, Trustee*; Age 63
Vice Chairman of the Manager and formerly held the following positions:
Vice President and Counsel of Oppenheimer Acquisition Corp. ("OAC"),
the Manager's parent holding company; Executive Vice President, General
Counsel and director of the Manager and the OppenheimerFunds
Distributor, Inc. (the "Distributor"); Vice President and a director of
HarbourView Asset Management Corporation ("HarbourView") and Centennial
Asset Management Corporation ("Centennial"), investment advisor
subsidiaries of the Manager, a director of Shareholder Financial
Services, Inc. ("SFSI") and Shareholder Services, Inc. ("SSI"),
transfer agent subsidiaries of the Manager and an officer of other
Oppenheimer funds.
Leon Levy, Chairman of the Board of Trustees; Age 71
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership)
and Chairman of Avatar Holdings, Inc. (real estate development).
Benjamin Lipstein, Trustee; Age 73
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; a director of Sussex Publishers,
Inc. (Publishers of Psychology Today and Mother Earth News) and of
Spy Magazine, L.P.
Bridget A. Macaskill, President and a Trustee*; Age 48
President, Chief Executive Officer and a Director of the Manager;
Chairman and a director of SSI and SFSI; President and a Director of
OAC, HarbourView and Oppenheimer Partnership Holdings,
Inc.("Partnership Holdings"), a holding company subsidiary of the
Manager; a director of Oppenheimer Real Asset Management Inc. ("Real
Asset"); formerly an Executive Vice President of the Manager.
Elizabeth B. Moynihan, Trustee; Age 67
801 Pennsylvania Avenue, N.W., Washington, DC 20004
Author and architectural historian; a trustee of the Freer Gallery of
Art (Smithsonian Institution), the Institute of Fine Arts (New York
University), National Building Museum; a member of the Trustees
Council, Preservation League of New York State and of the Indo- U.S.
Sub-Commission on Education and Culture.
Kenneth A. Randall, Trustee; Age 69
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding
company), Dominion Energy, Inc. (electric power and oil & gas
producer), Enron-Dominion Cogen Corp. (cogeneration company), Kemper
Corporation (insurance and financial services company), and Fidelity
Life Association (mutual life insurance company);formerly President and
Chief Executive Officer of The Conference Board, Inc. (international
and economic and business research) and a director of Lumbermens Mutual
Casualty Company, American Motorists Insurance Company and American
Manufacturers Insurance Company.
Edward V. Regan, Trustee; Age 66
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York;
Senior Fellow of Jerome Levy Economics Institute, Bard College; a
member of the U.S. Competitiveness Policy Council; a director of
GranCare, Inc. (healthcare provider); formerly New York State
Comptroller and a trustee of the New York State and Local Retirement
Fund.
-21-
<PAGE>
Russell S. Reynolds, Jr., Trustee; Age 64
200 Park Avenue, New York, New York 10166
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directorship, Inc. (consulting and
publishing); a director of XYAN Inc. (printing), Professional Staff
Limited and American Scientific Resources Inc.; a trustee of Mystic
Seaport Museum, International House, Greenwich Hospital and Greenwich
Historical Society.
Sidney M. Robbins, Trustee; Age 84
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions, Graduate
School of Business, Columbia University; Visiting Professor of Finance,
University of Hawaii; Emeritus Founding Director of The Korea Fund,
Inc. (closed-end investment company); a member of the Board of
Advisors, Olympus Private Placement Fund, L.P.; Professor Emeritus of
Finance, Adelphi University.
Donald W. Spiro, Vice Chairman and Trustee*; Age 70
Chairman Emeritus and a director of the Manager; formerly Chairman of
the Manager and the Distributor.
Pauline Trigere, Trustee; Age 84
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and sale
of women's fashions).
Clayton K. Yeutter, Trustee; Age 65
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar, Inc.
(machinery), ConAgra, Inc. (food and agricultural products), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery),
IMC Global Inc. (chemicals and animal feed) and Texas Instruments,
Inc. (electronics); formerly (in descending chronological order)
Counselor to the President (Bush) for Domestic Policy, Chairman of the
Republican National Committee, Secretary of the U.S. Department
of Agriculture, and U.S. Trade Representative.
Andrew J. Donohue, Secretary; Age 46
Executive Vice President and General Counsel of the Manager and the
Distributor; President and a director of Centennial; Executive Vice
President, General Counsel and a director of HarbourView, SSI, SFSI and
Partnerships Holding; President and a director of Real Asset; General
Counsel of OAC; Executive Vice President, Chief Legal Officer and a
director of MultiSource Services Inc. (a broker-dealer)
("MultiSource"); an officer of other Oppenheimer funds; formerly Senior
Vice President and Associate General Counsel of the Manager and the
Distributor, a partner in Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment advisor), and a
director and an officer of First Investors
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<PAGE>
Family of Funds and First Investors Life Insurance Company.
George C. Bowen, Treasurer; Age 60
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Senior
Vice President, Secretary and Treasurer of SSI; Vice President,
Treasurer and Secretary of SFSI; Treasurer of OAC; Vice President and
Treasurer of Real Asset; Chief Executive Officer, Treasurer and a
director of MultiSource; an officer of other Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age 48
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer; Age 38
3410 South Galena Street, Denver, Colorado 80231
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly a Fund Controller for the Manager,
prior to which he was an Accountant for Yale & Seffinger, P.C.,(an
accounting firm) and previously an Accountant and Commissions
Supervisor for Stuart James Company, Inc.,(a broker-dealer).
Scott Farrar, Assistant Treasurer; Age 31
3410 South Galena Street, Denver, Colorado 80231
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co.,(a bank), and previously a Senior Fund
Accountant for State Street Bank & Trust Company.
Rajeev Bhaman, Vice President and Portfolio Manager, Age 33
Securities Analyst for the Manager; formerly Vice President for Asian
Equities of Barclays de Zoete Wedd Inc.
Frank Jennings, Vice President and Portfolio Manager, Age 49
Vice President of the Manager; an officer of other Oppenheimer funds;
formerly Managing Director of Global Equities at Mitchell Hutchins
Asset Management Inc., a subsidiary of PaineWebber Inc. and previously
a global funds manager for AIG Global Investors.
- ---------------------
* A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
o Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager. They and the Trustees of the Fund who are affiliated with the
Manager (Ms. Macaskill, Messrs. Galli and Spiro) receive no salary or fee from
the Fund. The remaining trustees of the Fund received the compensation shown
below from all the New York-based Oppenheimer funds for which they served as
Trustee or Director. Compensation is paid for services in the positions listed
below their names:
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<PAGE>
<TABLE>
<CAPTION>
Total Compensation
From All New York-
Based Oppenheimer
Name and Position funds1
- ------------------------- -----------------
<S> <C>
Leon Levy $141,000
Chairman and
Trustee
Benjamin Lipstein $86,200
Study Committee
Chairman, Audit
Committee member
and Trustee
Elizabeth B. Moynihan $86,200
Study Committee
Member and Trustee
Kenneth A. Randall $78,400
Audit Committee
Chairman and Trustee
Edward V. Regan
Proxy Committee2
Chairman and $68,800
Audit Committee
Member and Trustee
Russell S. Reynolds, Jr. $52,100
Proxy Committee Member2
and Trustee
Sidney M. Robbins $122,100
Study Committee
Advisory Member, Audit
Committee Advisory
Member and Trustee
-24-
<PAGE>
Pauline Trigere $52,100
Trustee
Clayton K. Yeutter $52,100
Proxy Committee Member2
and Trustee
- ----------------------
<FN>
1. For the 1995 calendar year (prior to the inception of the Proxy Committee)
during which the New York- based Oppenheimer funds, listed in the first
paragraph of this section, included Oppenheimer Mortgage Income Fund and
Oppenheimer Time Fund (which ceased operation following the acquisition of their
assets by certain other Oppenheimer funds) but excluded Oppenheimer
International Growth Fund, which had not yet commenced operations. As of the
date of this Statement of Additional Information, the Board has not yet
established a fee for service as a Trustee of the Fund.
2. Committee positions held during a portion of the period shown. The Study and
Audit Committees meet for all the New York-based Oppenheimer funds and fees are
allocated among the funds by the Board.
[/FN]
</TABLE>
The Fund has adopted a retirement plan that provides for payment to a
retired Trustee of up to 80% of the average compensation paid during that
Trustee's five years of service in which the highest compensation was received.
A Trustee must serve in that capacity for any of the New York- based
OppenheimerFunds for at least 15 years to be eligible for the maximum payment.
Because each Trustee's retirement benefits will depend on the amount of the
Trustee's future compensation and length of service, the amount of those
benefits cannot be determined at this time, nor can the Fund estimate the number
of years of credited service that will be used to determine those benefits.
o Major Shareholders. As of the date of this Statement of Additional
Information, the Manager was the sole initial shareholder of the Fund's Class A,
Class B and Class C shares.
The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual
Life Insurance Company. OAC is also owned in part by certain of the Manager's
directors and officers, some of whom also serve as officers of the Fund, and
three of whom (Ms. Macaskill and Messrs. Spiro and Galli) serve as Trustees of
the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees, including
portfolio managers, that would compete with or take advantage of the Fund's
portfolio transactions. Compliance with the Code of Ethics is carefully
monitored and strictly enforced by the Manager.
o The Investment Advisory Agreement. A management fee is payable
monthly to the Manager under the terms of the investment advisory agreement
between the Manager and the Fund and is computed on the aggregate net assets of
the Fund as of the close of business each day. The investment advisory agreement
requires the Manager, at its expense, to provide the Fund with adequate office
space, facilities and equipment, and to provide and supervise the activities of
all administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation and maintenance
of records with respect to its operations, the
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<PAGE>
preparation and filing of specified reports, and composition of proxy materials
and registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement are
paid by the Fund. The advisory agreement lists examples of expenses paid by the
Fund, the major categories of which relate to interest, taxes, brokerage
commissions, fees to certain Trustees, legal and audit expenses, custodian and
transfer agent expenses, share issuance costs, certain printing and registration
costs and non-recurring expenses, including litigation costs.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence in the performance of its duties, or reckless disregard
for its obligations and duties thereunder, the Manager is not liable for any
loss sustained by reason of good faith errors or omissions in connection with
any matters to which the Agreement relates. The Agreement permits the Manager to
act as investment advisor for any other person, firm or corporation and to use
the name "Oppenheimer" in connection with other investment companies for which
it may act as investment advisor or general distributor. If the Manager shall no
longer act as investment advisor to the Fund, the right of the Fund to use the
name "Oppenheimer" as part of its name may be withdrawn.
o The Distributor. Under its General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A, Class B and Class C shares but is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales, (excluding payments under the Distribution and Service Plans but
including advertising and the cost of printing and mailing prospectuses, other
than those furnished to existing shareholders), are borne by the Distributor.
For additional information about distribution of the Fund's shares and the
payments made by the Fund to the Distributor in connection with such activities,
please refer to "Distribution and Service Plans," below.
o The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer
Agent, is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers ("brokers") to effect the Fund's portfolio
transactions. In doing so, the Manager is authorized by the advisory agreement
to employ broker-dealers, including "affiliated" brokers, as that term is
defined in the Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at reasonable
expense, the "best execution" (prompt and reliable execution at the most
favorable price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions paid
to the extent consistent with
-26-
<PAGE>
the interest and policies of the Fund as established by its Board of Trustees.
Purchases of securities from underwriters include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers include a
spread between the bid and asked price.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund and/or the
other accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to such brokers may be higher than another
qualified broker would have charged if a good faith determination is made by the
Manager that the commission is fair and reasonable in relation to the services
provided. Subject to the foregoing considerations, the Manager may also consider
sales of shares of the Fund and other investment companies managed by the
Manager or its affiliates as a factor in the selection of brokers for the Fund's
portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Subject to the
provisions of the advisory agreement, and the procedures and rules described
above, allocations of brokerage are generally made by the Manager's portfolio
traders based upon recommendations from the Manager's portfolio managers. In
certain instances, portfolio managers may directly place trades and allocate
brokerage, also subject to the provisions of the advisory agreement and the
procedures and rules described above. In either case, brokerage is allocated
under the supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market are
generally done with principals or market makers. Brokerage commissions are paid
primarily for effecting transactions in listed securities or for certain
fixed-income agency transactions in the secondary market, and are otherwise paid
only if it appears likely that a better price or execution can be obtained. When
the Fund engages in an option transaction, ordinarily the same broker will be
used for the purchase or sale of the option and any transaction in the
securities to which the option relates. When possible, concurrent orders to
purchase or sell the same security by more than one of the accounts managed by
the Manager or its affiliates are combined. The transactions effected pursuant
to such combined orders are averaged as to price and allocated in accordance
with the purchase or sale orders actually placed for each account. Option
commissions may be relatively higher than those which would apply to direct
purchases and sales of portfolio securities.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its affiliates,
and investment research received for the commissions of those other accounts may
be useful both to the Fund and one or more of such other accounts. Such
research, which may be supplied by a third party at the instance of a broker,
includes information and analyses on particular companies and industries as well
as market or economic trends and portfolio strategy, receipt of market
quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Manager in
a non-research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the Manager in
the investment decision-making process may be paid for in commission dollars.
The Board of Trustees has permitted the Manager to use concessions on fixed
price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board has also permitted the Manager to use stated
commissions on secondary fixed-income agency trades to obtain research where the
broker
-27-
<PAGE>
has represented to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency
basis at the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the Manager
to obtain market information for the valuation of securities held in the Fund's
portfolio or being considered for purchase. The Board of Trustees, including the
"independent" Trustees of the Fund (those Trustees of the Fund who are not
"interested persons" as defined in the Investment Company Act, and who have no
direct or indirect financial interest in the operation of the advisory agreement
or the Distribution Plans described below) annually reviews information
furnished by the Manager as to the commissions paid to brokers furnishing such
services so that the Board may ascertain whether the amount of such commissions
was reasonably related to the value or benefit of such services.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to time the
"average annual total return," "cumulative total return," "average annual total
return at net asset value" and "total return at net asset value" of a class of
shares of the Fund may be advertised. An explanation of how these total returns
are calculated for each class and the components of those calculations is set
forth below.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the average
annual total returns for each advertised class of shares of the Fund for the 1,
5, and 10-year periods (or the life of the class, if less) ending as of the most
recently-ended calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be
considered before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its returns and share
prices are not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their original
cost. Returns for any given past period are not a prediction or representation
by the Fund of future returns. The returns of each class of shares of the Fund
are affected by portfolio quality, the type of investments the Fund holds and
its operating expenses allocated to the particular class.
o Average Annual Total Returns. The "average annual total return" of a
class of shares is an average annual compounded rate of return for each year in
a specified number of years. It is the rate of return based on the change in
value of a hypothetical initial investment of $1,000 ("P" in the formula below)
held for a number of years ("n") to achieve an Ending Redeemable Value ("ERV")
of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
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o Cumulative Total Returns. The cumulative "total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown at net asset value, as
described below). For Class B shares, the payment of the applicable contingent
deferred sales charge (5.0% for the first year, 4.0% for the second year, 3.0%
for the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth year
and none thereafter) is applied to the investment result for the period shown
(unless the total return is shown at net asset value, as described below). For
Class C shares, the payment of the 1.0% contingent deferred sales charge is
applied to the investment result for the one-year period (or less). Total
returns also assume that all dividends and capital gains distributions during
the period are reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period.
o Total Returns at Net Asset Value. From time to time the Fund may also
quote an average annual total return at net asset value or a cumulative total
return at net asset value for Class A, Class B, or Class C shares. Each is based
on the difference in net asset value per share at the beginning and the end of
the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However, when
comparing total return of an investment in shares of the Fund with that of other
alternatives, investors should understand that as the Fund is an aggressive
equity fund seeking capital appreciation, its shares are subject to greater
market risks and volatility than shares of funds having other investment
objectives and that the Fund is designed for investors who are willing to accept
greater risk of loss in the hopes of realizing greater gains.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical Services,
Inc. ("Lipper"), a widely- recognized independent mutual fund monitoring
service. Lipper monitors the performance of regulated investment companies,
including the Fund, and ranks their performance for various periods based on
categories relating to investment objectives. The performance of the Fund's
classes is ranked against (i) all other funds, (ii) all other "international"
funds and (iii) all other "international" funds in a specific size category. The
Lipper performance rankings are based on total returns that include the
reinvestment of capital gain distributions and income dividends but do not take
sales charges or taxes into consideration.
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From time to time the Fund may publish the ranking of the performance
of its Class A, Class B or Class C shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the Fund,
monthly in broad investment categories (equity, taxable bond, municipal bond and
hybrid) based on risk-adjusted investment return. Investment return measures a
fund's three, five and ten-year average annual total returns (when available) in
excess of 90-day U.S. Treasury bill returns after considering sales charges and
expenses. Risk measures fund performance below 90-day U.S. Treasury bill monthly
returns. Risk and investment return are combined to produce star rankings
reflecting performance relative to the average fund in a fund's category. Five
stars is the "highest" ranking (top 10%), four stars is "above average" (next
22.5%), three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the Class A,
Class B and Class C shares of the Fund in relation to other equity funds.
Rankings are subject to change monthly.
From time to time, the Fund may include in its advertisements and sales
literature performance information about the Fund cited in other newspapers and
periodicals, such as The New York Times, which may include performance
quotations from other sources, including Lipper.
The total return on an investment in the Fund's Class A, Class B or
Class C shares may be compared with performance for the same period of the
Morgan Stanley World Index, an unmanaged index of issuers on the stock exchanges
of 20 foreign countries and the United States and widely recognized as a measure
of global stock market performance. The performance of such Index includes a
factor for the reinvestment of dividends but does not reflect expenses or taxes.
The performance of the Fund's Class A, Class B or Class C shares may also be
compared in publications to (i) the performance of various market indices or to
other investments for which reliable performance data is available, and (ii) to
averages, performance rankings or other benchmarks prepared by recognized mutual
fund statistical services.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or Transfer Agent) or the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of shareholder/investor
services by third parties may compare the Oppenheimer funds' services to those
of other mutual fund families selected by the rating or ranking services and may
be based upon the opinions of the rating or ranking service itself, based on its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A Shares and Distribution and
Service Plans for Class B and Class C shares of the Fund under Rule 12b-1 of the
Investment Company Act, pursuant to which the Fund makes payments to the
Distributor for all or a portion of its costs in connection with the
distribution and/or servicing of the shares of that class, as described in the
Prospectus. Each Plan has been approved by a vote of (i) the Board of Trustees
of the Fund, including a majority of the Independent Trustees, cast in person at
a meeting called for the purpose of voting on that Plan, and (ii) the holders of
a "majority" (as defined in the Investment Company Act) of the shares of each
class, in each instance that vote having been cast by the Manager as the sole
initial holder of shares
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of that class.
In addition, under the Plans the Manager and the Distributor, in their
sole discretion, from time to time may use their own resources (which, in the
case of the Manager, may include profits from the advisory fee it receives from
the Fund) to make payments to brokers, dealers or other financial institutions
(each is referred to as a "Recipient" under the Plans) for distribution and
administrative services they perform, at no cost to the Fund. The Distributor
and the Manager may, in their sole discretion, increase or decrease the amount
of payments they make to Recipients from their own resources.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its continuance is specifically approved
at least annually by the Fund's Board of Trustees and its Independent Trustees
by a vote cast in person at a meeting called for the purpose of voting on such
continuance. A Plan for a particular class may be terminated at any time by the
vote of a majority of the Independent Trustees or by the vote of the holders of
a "majority" (as defined in the Investment Company Act) of the outstanding
shares of that class. None of the Plans may be amended to increase materially
the amount of payments to be made unless such amendment is approved by
shareholders of the class affected by the amendment. In addition, because Class
B shares of the Fund automatically convert into Class A shares after six years,
the Fund will seek the approval of Class B as well as Class A shareholders for a
proposed amendment to the Class A Plan that would materially increase the amount
to be paid under the Class A Plan. Such approval must be by a "majority" of the
Class A and Class B shares (as defined in the Investment Company Act), voting
separately by class. All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports to the Fund's Board of Trustees at least quarterly on
the amount of all payments made pursuant to each Plan, the purpose for which the
payments were made and the identity of each Recipient that received any payment.
The report for the Class B Plan shall also include the Distributor's
distribution costs for that quarter, and such costs for previous fiscal periods
that have been carried forward, as explained in the Prospectus and below. Those
reports, including the allocations on which they are based, will be subject to
the review and approval of the Independent Trustees in the exercise of their
fiduciary duty. Each Plan further provides that while it is in effect, the
selection and nomination of those Trustees of the Fund who are not "interested
persons" of the Fund is committed to the discretion of the Independent Trustees.
This does not prevent the involvement of others in such selection and nomination
if the final decision on selection or nomination is approved by a majority of
the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers, did not exceed a minimum amount, if any,
that may be determined from time to time by a majority of the Fund's Independent
Trustees. Initially, the Board of Trustees has set the fees at the maximum rate
and has set no minimum amount of assets to qualify for payment.
Any unreimbursed expenses incurred by the Distributor with respect to
Class A shares for any fiscal year may not be recovered in subsequent years.
Payments received by the Distributor
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under the Plan for Class A shares will not be used to pay any interest expense,
carrying charge, or other financial costs, or allocation of overhead by the
Distributor.
The Class B and the Class C Plans allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year such shares
are outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net asset value of Class B and
Class C shares sold. An exchange of shares does not entitle the Recipient to an
advance service fee payment. In the event Class B or Class C shares are redeemed
during the first year that the shares are outstanding, the Recipient will be
obligated to repay to the Distributor a pro rata portion of the Distributor's
advance payment for those shares.
Although the Class B and Class C Plans permit the Distributor to retain
both the asset-based sales charges and the service fees on such shares, or to
pay Recipients the service fee on a quarterly basis, without payment in advance,
the Distributor presently intends to pay the service fee to Recipients in the
manner described above. A minimum holding period may be established from time to
time under the Class B Plan and the Class C Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B Plan and
the Class C Plan are subject to the limitations imposed by the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., on payments of
asset-based sales charges and service fees.
The Class B and Class C Plans provide for the distributor to be
compensated at a flat rate, whether the Distributor's distribution expenses are
more or less than the amounts paid by the Fund during that period. Such payments
are made in recognition that the Distributor (i) pays sales commissions to
authorized brokers and dealers at the time of sale and pays service fees as
described in the Prospectus, (ii) may finance such commissions and/or the
advance of the service fee payment to Recipients under those Plans, or may
provide such financing from its own resources, or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) may bear the costs
of sales literature, advertising and prospectuses (other than those furnished to
current shareholders), state "blue sky" registration fees and certain other
distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits the individual investor to
choose the method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor expects
to hold shares and other relevant circumstances. Investors should understand
that the purpose and function of the deferred sales charge and asset-based sales
charge with respect to Class B and Class C shares are the same as those of the
initial sales charge with respect to Class A
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shares. Any salesperson or other person entitled to receive compensation for
selling Fund shares may receive different compensation with respect to one class
of shares than the other. The Distributor normally will not accept any order for
$500,000 or $1 million or more of Class B or Class C shares, respectively, on
behalf of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different shareholder
privileges and expenses. The net income attributable to Class A, Class B and
Class C shares and the dividends payable on such shares will be reduced by
incremental expenses borne solely by those classes, including the asset-based
sales charges.
The conversion of Class B shares to Class A shares after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax advisor, to the effect
that the conversion of B shares does not constitute a taxable event for the
holder under Federal income tax law. If such a revenue ruling or opinion is no
longer available, the automatic conversion feature may be suspended, in which
event no further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the holder, and absent such exchange, Class B shares might continue to
be subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes two
types of expenses. General expenses that do not pertain specifically to a class
are allocated pro rata to the shares of each class, based on the percentage of
the net assets of such class to the Fund's total assets, and then equally to
each outstanding share within a given class. Such general expenses include (i)
management fees, (ii) legal, bookkeeping and audit fees, (iii) printing and
mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, (iv) fees to
Independent Trustees, (v) custodian expenses, (vi) share issuance costs, (vii)
organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to each
outstanding share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses, to the
extent that such expenses pertain to a specific class rather than to the Fund as
a whole.
Determination of Net Asset Values Per Share. The net asset values per share of
Class A, Class B and Class C shares of the Fund are determined as of the close
of business of The New York Stock Exchange ("the Exchange") on each day that the
Exchange is open, by dividing the value of the Fund's net assets attributable to
that class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M. New York time, but may close earlier on
some days (for example, in case of weather emergencies or on days falling before
a holiday). The Exchange's most
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recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also
close on other days. The Fund may invest a substantial portion of its assets in
foreign securities primarily listed on foreign exchanges which may trade on
Saturdays or customary U.S. business holidays on which the Exchange is closed.
Because the Fund's net asset value will not be calculated on those days, the
Fund's net asset values per share of Class A, Class B and Class C shares of the
Fund may be significantly affected at times when shareholders cannot purchase or
redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity securities
traded on a U.S. securities exchange or on NASDAQ for which last sale
information is regularly reported are valued at the last reported sale price on
their primary exchange or NASDAQ that day (or, in the absence of sales that day,
at values based on the last sale prices of the preceding trading day, or closing
"bid" prices that day); (ii) securities traded on a foreign securities exchange
are valued generally at the last sale price available to the pricing service
approved by the Fund's Board of Trustees or to the Manager as reported by the
principal exchange on which the security is traded at its last trading session
on or immediately preceding the valuation date, or at the mean between "bid" and
"ask" prices obtained from the principal exchange or two active market makers in
the security on the basis of reasonable inquiry; (iii) long-term debt securities
having a remaining maturity in excess of 60 days are valued based on the mean
between the "bid" and "ask" prices determined by a portfolio pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable inquiry; (iv)
debt instruments having a maturity of more than 397 days when issued, and
non-money market type instruments having a maturity of 397 days or less when
issued, which have a remaining maturity of 60 days or less, are valued at the
mean between "bid" and "ask" prices determined by a pricing service approved by
the Fund's Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry; (v) money market debt
securities that had a maturity of less than 397 days when issued that have a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vi) securities
(including restricted securities) not having readily-available market quotations
are valued at fair value determined under the Board's procedures. If the Manager
is unable to locate two market makers willing to give quotes (see (ii), (iii)
and (iv) above), the security may be priced at the mean between the "bid " and
"ask " prices provided by a single active market maker (which in certain cases
may be the "bid" price if no "ask" price is available).
In the case of U.S. Government Securities and mortgage-backed
securities, where as sale information is not generally available, such pricing
procedures may include "matrix" comparisons to the prices for comparable
instruments on the basis of quality, yield, maturity and other special factors
involved. The Manager may use pricing services approved by the Board of Trustees
to price U.S. Government Securities for which last sale information is not
generally available. The Manager will monitor the accuracy of such pricing
services, which may include comparing prices used for portfolio evaluation to
actual sales prices of selected securities.
Trading in securities on European and Asian exchanges and over-the-
counter markets is
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normally completed before the close of the New York Stock Exchange. Events
affecting the values of foreign securities traded in securities markets that
occur between the time their prices are determined and the close of the New York
Stock Exchange will not be reflected in the Fund's calculation of net asset
value unless the Board of Trustees or the Manager, under procedures established
by the Board of Trustees, determines that the particular event is likely to
effect a material change in the value of such security. Foreign currency,
including forward contracts, will be valued at the closing price in the London
foreign exchange market that day as provided by a reliable bank, dealer or
pricing service. The values of securities denominated in foreign currency will
be converted to U.S. dollars at the closing price in the London foreign exchange
market that day as provided by a reliable bank, dealer or pricing service.
Puts, calls and futures are valued at the last sales price on the
principal exchange on which they are traded, or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager, If there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing "bid" and
"ask" prices on the principal exchange or on NASDAQ on the valuation date, or,
if not, value shall be the closing "bid" price on the principal exchange or on
NASDAQ, on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between "bid" and "ask"
prices obtained by the Manager from two active market makers (which in certain
cases may be the "bid" price if no "ask" price is available).
When the Fund writes an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The credit
is adjusted ("marked-to-market") to reflect the current market value of the call
or put. In determining the Fund's gain on investments, if a call or put written
by the Fund is exercised, the proceeds are increased by the premium received. If
a call or put written by the Fund expires, the Fund has a gain in the amount of
the premium; if the Fund enters into a closing purchase transaction, it will
have a gain or loss depending on whether the premium received was more or less
than the cost of the closing transaction. If the Fund exercises a put it holds,
the amount the Fund receives on its sale of the underlying investment is reduced
by the amount of premium paid by the Fund. In the case of foreign securities and
corporate bonds, when last sale information is not generally available, such
pricing procedures may include "matrix" comparisons to the prices for comparable
instruments on the basis of quality, yield, maturity and other special factors
involved. The Manager may use pricing services approved by the Board of Trustees
to price any of the types of securities described above. The Manager will
monitor the accuracy of such pricing services, which may include comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25.00. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy shares. Dividends will begin to accrue on shares purchased by
the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of the Exchange.
The Exchange normally closes at 4:00 P.M., but may close earlier on certain
days. If Federal Funds are received on a business day after the close of the
Exchange, the shares will be purchased and dividends will
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begin to accrue on the next regular business day. The proceeds of ACH transfers
are normally received by the Fund 3 days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in purchasing shares
resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse and a spouse's siblings, aunts, uncles,
nieces and nephews.
o The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the sub-distributor
and include the Fund and the following
funds:
Bond Fund Series --
(1) Oppenheimer Bond Fund For Growth
Oppenheimer Asset Allocation Fund
Oppenheimer California Municipal Fund
Oppenheimer Champion Income Fund
Oppenheimer Discovery Fund
Oppenheimer Enterprise Fund
Oppenheimer Equity Income Fund
Oppenheimer Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Integrity Funds --
(1) Oppenheimer Bond Fund
(2) Oppenheimer Value Stock Fund
Oppenheimer International Bond Fund
Oppenheimer International Growth Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc.--
(1) Oppenheimer Main Street California Municipal Fund
(2) Oppenheimer Main Street Income & Growth Fund
Oppenheimer Multi-Sector Income Trust
Oppenheimer Multi-State Municipal Trust --
(1) Oppenheimer Florida Municipal Fund
(2) Oppenheimer New Jersey Municipal Fund
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(3) Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Municipal Bond Fund
Oppenheimer Municipal Fund --
(1) Oppenheimer Insured Municipal Fund
(2) Oppenheimer Intermediate Municipal Fund
Oppenheimer New York Municipal Fund
Oppenheimer Quest for Value Funds --
(1) Oppenheimer Quest Growth & Income Value Fund
(2) Oppenheimer Quest Officers Value Fund
(3) Oppenheimer Quest Opportunity Value Fund
(4) Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Series Fund, Inc. --
(1) Oppenheimer Disciplined Allocation Fund
(2) Oppenheimer Disciplined Value Fund
(3) Oppenheimer LifeSpan Balanced Fund
(4) Oppenheimer LifeSpan Growth Fund
(5) Oppenheimer LifeSpan Income Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Target Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Total Return Fund, Inc.
Capital Accumulation Plan
Oppenheimer U.S. Government Trust
Oppenheimer Variable Account Funds --
(1) Oppenheimer Bond Fund
(2) Oppenheimer Capital Appreciation Fund
(3) Oppenheimer Global Securities Fund
(4) Oppenheimer Growth Fund
(5) Oppenheimer Growth & Income Fund
(6) Oppenheimer High Income Fund
(7) Oppenheimer Money Fund
(8) Oppenheimer Multiple Strategies Fund
(9) Oppenheimer Strategic Bond Fund
Oppenheimer World Bond Fund
Panorama Series Fund, Inc. --
(1) Government Securities Portfolio
(2) Growth Portfolio
(3) Income Portfolio
(4) International Equity Portfolio
(5) LifeSpan Balanced Portfolio
(6) LifeSpan Capital Appreciation Portfolio
(7) LifeSpan Diversified Income Portfolio
(8) Money Market Portfolio
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(9) Total Return Portfolio
Rochester Fund Municipals*
Rochester Portfolio Series --*
(1) Limited Term New York Municipal Fund
The New York Tax Exempt Income Fund, Inc.
and the following "Money Market Funds":
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
Centennial Government Trust
Centennial Money Market Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Daily Cash Accumulation Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Money Market Fund, Inc.
* Shares of the Fund are not presently exchangeable for shares of these funds.
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund shares
may be subject to a contingent deferred sales charge).
o Letters of Intent. A Letter of Intent ("Letter") is the investor's
statement of intention to purchase Class A or Class A and Class B shares of the
Fund (and other eligible Oppenheimer funds) during the 13-month period from the
investor's first purchase pursuant to the Letter (the "Letter of Intent
period"), which may, at the investor's request, include purchases made up to 90
days prior to the date of the Letter. The Letter states the investor's intention
to make the aggregate amount of purchases (excluding any purchases made by
reinvestment of dividends or distributions or purchases made at net asset value
without sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the date of
the Letter) will equal or exceed the amount specified in the Letter. This
enables the investor to count the shares to be purchased under the Letter of
Intent to obtain the reduced sales charge rate (as set forth in the Prospectus)
that applies under the Right of Accumulation to current purchases of Class A
shares. Each purchase of Class A shares under the Letter will be made at the
public offering price (including the sales charge) that applies to a single
lump-sum purchase of shares in the amount intended to be purchased under the
Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of Intent
period, when added to the value (at offering price) of the investor's holdings
of shares on the last day of that period, do not equal or exceed the intended
purchase amount, the investor agrees to pay the additional amount of sales
charge applicable to such purchases, as set forth in "Terms of Escrow," below
(as those terms may be amended from time to time). The investor agrees that
shares equal in value to 5% of the intended
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purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for such Letter of Intent, and if such terms are amended, as they may be from
time to time by the Fund, that those amendments will apply automatically to
existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the Transfer
Agent will not hold shares in escrow. If the intended purchase amount under the
Letter entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
purchases. For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the Transfer
Agent will not hold shares in escrow. If the intended purchases amount under the
Letter entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there normally
will be no adjustment of commission previously paid to the broker-dealer or
financial institution of record for shares purchased for accounts held in the
name of that plan. If total eligible purchases during the Letter of Intent
period exceed the intended purchase amount and exceed the amount needed to
qualify for the next sales charge rate reduction set forth in the applicable
prospectus, the sales charges paid will be adjusted to the lower rate, but only
if and when the dealer returns to the Distributor the excess of the amount of
commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of Intent
period will be deducted. It is the responsibility of the dealer of record and/or
the investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
o Terms of Escrow That Apply to Letters of Intent.
(1) Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended purchase amount is $50,000, the
escrow shall be shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and capital gains
distributions on the escrowed shares will be credited to the investor's account.
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(2) If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed shares
will be promptly released to the investor.
(3) If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. Such sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If such difference in sales charges is not paid within twenty days after
a request from the Distributor or the dealer, the Distributor will, within sixty
days of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the redemption
proceeds.
(4) By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
(5) The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include (a) Class A
shares sold with a front-end sales charge or subject to a Class A contingent
deferred sales charge, (b) Class B shares acquired subject to a contingent
deferred sales charge, and (c) Class A or B shares acquired in exchange for
either (i) Class A shares of one of the other Oppenheimer funds that were
acquired subject to a Class A initial or contingent deferred sales charge or
(ii) Class B shares of one of the other Oppenheimer funds that were acquired
subject to a contingent deferred sales charge.
(6) Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares," and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank account, a
check (minimum $25) for the initial purchase must accompany the application.
Shares purchased by Asset Builder Plan payments from bank accounts are subject
to the redemption restrictions for recent purchases described in "How To Sell
Shares," in the Prospectus. Asset Builder Plans also enable shareholders of
Oppenheimer Cash Reserves to use those accounts for monthly automatic purchases
of shares of up to four other Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to shares
purchased by Asset Builder payments. An application should be obtained from the
Distributor, completed and returned, and a prospectus of the selected fund(s)
should be obtained from the Distributor or your financial advisor before
initiating Asset Builder payments. The amount of the Asset Builder investment
may be changed or the automatic investments may be terminated at any time by
writing to the Transfer Agent. A reasonable period (approximately 15 days) is
required after the Transfer Agent's receipt of such instructions to implement
them. The Fund reserves the right to amend, suspend, or discontinue offering
such plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date.
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That loss is equal to the amount of the decline in the net asset value per share
multiplied by the number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the Fund for the
loss, the Distributor will do so. The Fund may reimburse the Distributor for
that amount by redeeming shares from any account registered in that investor's
name, or the Fund or the Distributor may seek other redress.
Retirement Plans. In describing certain types of employee benefit plans that may
purchase Class A shares without being subject to the Class A contingent differed
sales charge, the term "employee benefit plan" means any plan or arrangement,
whether or not "qualified" under the Internal Revenue Code, including, medical
savings accounts, payroll deduction plans or similar plans in which Class A
shares are purchased by a fiduciary or other person for the account of
participants who are employees of a single employer or of affiliated employers,
if the Fund account is registered in the name of the fiduciary or other person
for the benefit of participants in the plan.
The term "group retirement plan" means any qualified or non-qualified
retirement plan (including 457 plans, SEPs, SARSEPs, 403(b) plans, and SIMPLE
plans) for employees of a corporation or a sole proprietorship, members and
employees of a partnership or association or other organized group of persons
(the members of which may include other groups), if the group has made special
arrangements with the Distributor and all members of the group participating in
the plan purchase Class A shares of the Fund through a single investment dealer,
broker or other financial institution designated by the group.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below supplements the terms and conditions for redemptions set forth
in the Prospectus.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $500 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of the shares has fallen
below the stated minimum solely as a result of market fluctuations. Should the
Board elect to exercise this right, it may also fix, in accordance with the
Investment Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would not be
involuntarily redeemed.
Payments "In Kind." The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the portfolio of
the Fund, in lieu of cash, in conformity with applicable rules of the Securities
and Exchange Commission. The Fund has elected to be governed by Rule 18f-1 under
the Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets of
the Fund during any 90-day period for any one shareholder. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage or other costs
in selling the securities for cash. The method of valuing securities used to
make redemptions in kind will be the same as the method the Fund uses to value
its portfolio securities described above under the "Determination of Net Asset
Values Per Share" and that valuation will be made as of the time the redemption
price is determined.
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Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (i) Class A shares that you
purchased subject to an initial sales charge, or (ii) Class B shares on which
you paid a contingent deferred sales charge when you redeemed them, without
sales charge. This privilege does not apply to Class C shares. The reinvestment
may be made without sales charge only in Class A shares of the Fund or any of
the other Oppenheimer funds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer Agent
receives the reinvestment order. The shareholder must ask the Distributor for
that privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter any
capital gains tax payable on that gain. If there has been a capital loss on the
redemption, some or all of the loss may not be tax deductible, depending on the
timing and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer funds within 90
days of payment of the sales charge, the shareholder's basis in the shares of
the Fund that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the redemption.
However, in that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds. The Fund may amend,
suspend or cease offering this reinvestment privilege at any time as to shares
redeemed after the date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of either class at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute assignment,
gift or bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the transferred shares
in the same manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not all shares
in the account would be subject to a contingent deferred sales charge if
redeemed at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B or the Class C
contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds- sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans, or
pension or profit-sharing plans should be addressed to "Trustee, Oppenheimer
funds Retirement Plans," c/o the Transfer Agent at its address listed in "How To
Sell Shares" in the Prospectus or on the back cover of this Statement of
Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the plan and
the Fund's other redemption requirements. Participants (other than self-employed
persons maintaining a plan account in their own name) in
OppenheimerFunds-sponsored prototype pension, profit-sharing plans or 401(k)
plans may not directly redeem or exchange shares held for their accounts under
those plans. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed before the distribution may be made.
Distributions from retirement plans are subject to withholding requirements
under the Internal Revenue Code, and IRS Form W-4P (available from the Transfer
Agent) must be submitted to the Transfer Agent with the distribution request, or
the distribution may be delayed. Unless the shareholder has provided the
Transfer Agent with a certified tax identification number, the Internal Revenue
Code requires that tax be withheld from any distribution even if the shareholder
elects not to have tax withheld. The Fund, the Manager, the
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Distributor, the Trustee and the Transfer Agent assume no responsibility to
determine whether a distribution satisfies the conditions of applicable tax laws
and will not be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. The shareholder should contact the
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
the order placed by the dealer or broker, except that if the Distributor
receives a repurchase order from a dealer or broker after the close of The New
York Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker from its
customers prior to the time the Exchange closed (normally that is 4:00 P.M., but
may be earlier some days) and the order was transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form, with the signature(s) of the registered owners guaranteed on the
redemption document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Withdrawal Plan. Shares will be redeemed three business days
prior to the date requested by the shareholder for receipt of the payment.
Automatic withdrawals of up to $1,500 per month may be requested by telephone if
payments are to be made by check payable to all shareholders of record and sent
to the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges (see
"How To Buy Shares") may arrange to have Automatic Withdrawal Plan payments
transferred to the bank account designated on the OppenheimerFunds New Account
Application or signature-guaranteed instructions. The Fund cannot guarantee
receipt of a payment on the date requested and reserves the right to amend,
suspend or discontinue offering such plans at any time without prior notice.
Because of the sales charge assessed on Class A share purchases, shareholders
should not make regular additional Class A share purchases while participating
in an Automatic Withdrawal Plan. Class B and Class C shareholders should not
establish withdrawal plans, because of the imposition of the contingent deferred
sales charge on such withdrawals (except where the Class B or the Class C
contingent deferred sales charge is waived as described in the Prospectus in
"Waivers of Class B and Class C Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated below and
in the provisions of the OppenheimerFunds Application relating to such Plans, as
well as the Prospectus. These provisions may be amended from time to time by the
Fund and/or the Distributor. When adopted, such amendments will automatically
apply to existing Plans.
o Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent(on the OppenheimerFunds Application or signature-guaranteed instructions)
to exchange a pre-determined amount of shares of the Fund for shares (of the
same class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum
amount that may be exchanged to each other fund account is $25. Exchanges
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made under these plans are subject to the restrictions that apply to exchanges
as set forth in "How to Exchange Shares" in the Prospectus and below in this
Statement of Additional Information.
o Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment. It may not be desirable to purchase additional Class A shares while
making automatic withdrawals because of the sales charges that apply to
purchases when made. Accordingly, a shareholder normally may not maintain an
Automatic Withdrawal Plan while simultaneously making regular purchases of Class
A shares.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent. Neither the
Fund nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or omitted by the Transfer Agent in good faith to administer the
Plan. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Transfer Agent will credit all such shares to the
account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date. Checks or
AccountLink payments of the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment (receipt of payment on the date selected cannot be guaranteed),
according to the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time in mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice (in proper form in accordance with
the requirements of the then-current Prospectus of the Fund) to redeem all, or
any part of, the shares held under the Plan. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per share in
effect in accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to
the Transfer Agent. A Plan may also be terminated at any time by the Transfer
Agent upon receiving directions to that effect from the Fund. The Transfer Agent
will also terminate a Plan upon receipt of evidence satisfactory to it of the
death or legal incapacity of the Planholder. Upon termination of a Plan by the
Transfer Agent or the Fund, shares that have not been redeemed from the account
will be held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend- reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use Class A shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the Class A shares in
certificated form. Share certificates are not issued for Class B shares or Class
C shares. Upon written request from the Planholder, the Transfer Agent will
determine the number of Class A shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer funds
having more than one class of shares may be exchanged only for shares of the
same class of other Oppenheimer funds. Shares of the Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. All Oppenheimer funds offer Class A, Class B and Class C shares except
Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust, Centennial
Tax- Exempt Trust, Centennial Government Trust, Centennial New York Tax-Exempt
Trust, Centennial California Tax-Exempt Trust, Centennial America Fund, L.P. and
Daily Cash Accumulation Fund, Inc, which offer only Class A shares, and
Oppenheimer Main Street California Tax-Exempt Fund which only offers Class A and
Class B shares, (Class B and Class C shares of Oppenheimer Cash Reserves are
generally only available by exchange from the same class of other Oppenheimer
funds or thorough OppenheimerFunds sponsored 401(k) plans). A current list
showing which funds offer which class can be obtained by calling the Distributor
at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding Class M
shares of Oppenheimer Bond Fund for Growth, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds, including Rochester Fund
Municipals and Limited Term New York Municipal Fund. Class A shares of Rochester
Fund Municipals or Limited Term New York Municipal Fund acquired on the exchange
of Class M shares of Oppenheimer Bond Fund for Growth may be exchanged for Class
M shares of that fund. For accounts of Oppenheimer Bond Fund for Growth
established after March 8, 1996, Class M shares may be exchanged for Class A
shares of other Oppenheimer funds except Rochester Fund Municipals and Limited
Term New York Municipals. Exchanges to Class M shares of Oppenheimer Bond Fund
for Growth are permitted from Class A shares of Oppenheimer Money Market Fund,
Inc. or Oppenheimer Cash Reserves that were acquired by exchange from Class M
shares. Otherwise no exchanges of any class of any Oppenheimer fund into Class M
shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge (or, if applicable, may be
used to purchase shares of Oppenheimer funds subject to a contingent deferred
sales charge). However, shares of Oppenheimer Money Market Fund, Inc., purchased
with the redemption proceeds of shares of other mutual funds (other than funds
managed
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by the Manager or its subsidiaries) redeemed within the 12 months prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for this privilege, the investor or the
investor's dealer must notify the Distributor of eligibility for this privilege
at the time the shares of Oppenheimer Money Market Fund, Inc., are purchased,
and, if requested, must supply proof of entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds (except Oppenheimer Cash
Reserves) or from any unit investment trust for which reinvestment arrangements
have been made with the Distributor may be exchanged at net asset value for
shares of any of the Oppenheimer funds. No contingent deferred sales charge is
imposed on exchanges of shares of any class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange of
Class A shares of other Oppenheimer funds purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged Class A shares, the
Class A contingent deferred sales charge is imposed on the redeemed shares (see
"Class A Contingent Deferred Sales Charge" in the Prospectus). The Class B
contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial purchase of the
exchanged Class B shares. The Class C contingent deferred sales charge is
imposed on Class C shares acquired by exchange if they are redeemed within 12
months of the initial purchase of the exchanged Class C shares.
When Class B shares or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the Prospectus for
the imposition of the Class B or the Class C contingent deferred sales charge
will be followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might be
imposed in the subsequent redemption of remaining shares. Shareholders owning
shares of more than one class must specify whether they intend to exchange Class
A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of more than one account. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available
for exchange without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans, Automatic Withdrawal Plans, and retirement plan contributions will be
switched to the new account unless the Transfer Agent is instructed otherwise.
If all telephone lines are busy (which might occur, for example, during periods
of substantial market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date"). Normally, shares of the fund to be
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acquired are purchased on the Redemption Date, but such purchases may be delayed
by either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it (for example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is explained in the
Prospectus under the caption "Dividends, Capital Gains and Taxes." Special
provisions of the Internal Revenue Code govern the eligibility of the Fund's
dividends for the dividends-received deduction for corporate shareholders.
Long-term capital gains distributions are not eligible for the deduction. In
addition, the amount of dividends paid by the Fund which may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from its portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Because of the Fund's emphasis on foreign securities, it is unlikely that the
Fund's dividends will qualify for this deduction.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year, or
else the Fund must pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Fund will meet those requirements, the Fund's
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interest of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
If the Fund has more than 50% of its total assets invested in foreign
securities at the end of its fiscal year, it may elect the application of
Section 853 of the Internal Revenue Code to permit shareholders to take a credit
(or, at their option, a deduction) for foreign taxes paid by the Fund. Under
Section 853, shareholders would be entitled to treat the foreign taxes withheld
from interest and dividends paid to the Fund from its foreign investments as a
credit on their federal income taxes. As an alternative, shareholders could, if
to their advantage, treat the foreign tax withheld as a deduction from gross
income in computing taxable income rather than as a tax credit. In substance,
the Fund's election would enable shareholders to benefit from the same foreign
tax credit or
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deduction that would be received if they had been the record owners of the
Fund's foreign securities and had paid foreign taxes on the income received.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund intends to qualify in the
current and future fiscal years, but reserves the right not to do so. The
Internal Revenue Code contains a number of complex tests relating to such
qualification in which the Fund derives 30% or more of its gross income from the
sale of securities held less than three months, it may fail to qualify (see "Tax
Aspects of Covered Calls and Hedging Instruments," above). If it did not so
qualify, the Fund would be treated for tax purposes as an ordinary corporation
and receive no tax deduction for payments made to shareholders.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money Market
Fund, Inc., as promptly as possible after the return of such checks to the
Transfer Agent to enable the investor to earn a return on otherwise idle funds.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed in "Reduced Sales Charges,"
above, at net asset value without sales charge. To elect this option, a
shareholder must notify the Transfer Agent in writing and either have an
existing account in the fund selected for reinvestment or must obtain a
prospectus for that fund and an application from the Distributor to establish an
account. The investment will be made at the net asset value per share in effect
at the close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from shares of other Oppenheimer funds may be
invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. The Manager has represented to the Fund that the banking relationships
between the Manager and the Custodian have been and will continue to be
unrelated to and unaffected by the relationship between the Fund and the
Custodian. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal deposit insurance. Such
uninsured balances at times may be substantial.
Independent Auditors. The independent auditors of the Fund audit the Fund's
financial statements and perform other related audit services. They also act as
auditors for certain other funds advised by the Manager and its affiliates.
-47-
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Oppenheimer Developing Markets Fund:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Developing Markets Fund as of October 18, 1996. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards requires that we plan and and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures include
confirmation of cash in bank by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Oppenheimer
Developing Markets Fund at October 18, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
October 25, 1996
-48-
<PAGE>
OPPENHEIMER DEVELOPING MARKETS FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 18, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ASSETS: COMPOSITE CLASS A CLASS B CLASS C
CASH $102,000
DEFERRED ORGANIZATION COSTS - NOTE 3 17,000
--------
TOTAL ASSETS 119,000
--------
LIABILITIES - PAYABLE TO
OPPENHEIMERFUNDS, INC. - NOTE 3 17,000
--------
NET ASSETS $102,000
========
NET ASSETS - APPLICABLE TO 10,000
CLASS A SHARES, 100 CLASS B SHARES,
AND 100 CLASS C SHARES OF
BENEFICIAL INTEREST OUTSTANDING $102,000 $100,000 $1,000 $1,000
NET ASSET VALUE PER SHARE (NET
ASSETS DIVIDED BY 10,000, 100,
AND 100 SHARES OF BENEFICIAL
INTEREST FOR CLASS A, CLASS B, AND
CLASS C, RESPECTIVELY) $10.00 $10.00 $10.00
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS SALES CHARGE
OF 5.75% OF OFFERING PRICE FOR
CLASS A SHARES) $10.61 $10.00 $10.00
</TABLE>
NOTES:
1. OPPENHEIMER DEVELOPING MARKETS FUND (THE "FUND"), A DIVERSIFIED,
OPEN-END MANAGEMENT INVESTMENT COMPANY, WAS FORMED ON MAY 10, 1996,
AND HAS HAD NO OPERATIONS THROUGH OCTOBER 18, 1996 OTHER THAN THOSE
RELATING TO ORGANIZATIONAL MATTERS AND THE SALE AND ISSUANCE OF 10,000
CLASS A SHARES, 100 CLASS B AND 100 CLASS C SHARES OF BENEFICIAL
INTEREST TO OPPENHEIMERFUNDS, INC. (OFI).
2. ON JUNE 6, 1996, THE FUND'S BOARD APPROVED AN INVESTMENT ADVISORY
AGREEMENT WITH OFI, A SERVICE PLAN AND AGREEMENT FOR CLASS A SHARES
AND SERVICE AND DISTRIBUTION PLANS AND AGREEMENTS FOR CLASS B AND
CLASS C SHARES OF THE FUND WITH OPPENHEIMERFUNDS DISTRIBUTOR, INC.
(OFDI) AND A GENERAL DISTRIBUTOR'S AGREEMENT WITH OFDI AS EXPLAINED IN
THE FUND'S PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION.
3. OFI WILL ADVANCE ALL ORGANIZATIONAL AND START-UP COSTS OF THE FUND.
SUCH EXPENSES WILL BE CAPITALIZED AND AMORTIZED OVER A FIVE-YEAR
PERIOD FROM THE DATE OPERATIONS COMMENCE. ON THE FIRST DAY THAT TOTAL
ASSETS EXCEED $5 MILLION, THE FUND WILL REIMBURSE OFI FOR ALL START-UP
EXPENSES. IN THE EVENT THAT ALL OR PART OF OFI'S INITIAL INVESTMENT IN
SHARES OF THE FUND IS WITHDRAWN DURING THE AMORTIZATION PERIOD, BY ANY
HOLDER THEREOF, THE REDEMPTION PROCEEDS WILL BE REDUCED BY THE RATIO
THAT THE NUMBER OF SHARES REDEEMED BEARS TO THE NUMBER OF INITIAL
SHARES OUTSTANDING AT THE TIME OF SUCH REDEMPTION.
4. THE FUND INTENDS TO COMPLY IN ITS INITIAL FISCAL YEAR AND THEREAFTER
WITH PROVISIONS OF THE INTERNAL REVENUE CODE APPLICABLE TO REGULATED
INVESTMENT COMPANIES AND AS SUCH, WILL NOT BE SUBJECT TO FEDERAL
INCOME TAXES ON OTHERWISE TAXABLE INCOME (INCLUDING NET REALIZED
CAPITAL GAINS) DISTRIBUTED TO SHAREHOLDERS.
-49-
<PAGE>
APPENDIX A
CORPORATE INDUSTRY CLASSIFICATIONS
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric
Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
<PAGE>
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
A-1
<PAGE>
APPENDIX B
DESCRIPTION OF RATINGS
Categories of Rating Services
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and
to carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, the changes that can be
expected are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as with "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than those of
"Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
The investments in which the Fund will principally invest will be in
the lower-rated categories described below.
Baa: Bonds which are rated "Baa" are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and have speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered well-assured. Often the protection of interest
and principal payments may be very moderate and not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated "B" generally lack characteristics of
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated "Ca" represent obligations which are
speculative in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" are the lowest rated class of bonds and
can be regarded as
B-1
<PAGE>
having extremely poor prospects of ever attaining any real investment standing.
Description of Standard & Poor's Corporation Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to adverse effects of
change in circumstances and economic conditions.
The investments in which the Fund will principally invest will be in
the lower-rated categories, described below.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "CC" the highest degree.
While such bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C: Bonds on which no interest is being paid are rated "C".
D: Bonds rated "D" are in payment default and payment of interest
and/or repayment of principal is in arrears.
B-2
<PAGE>
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
PX 0785.0011196
