Oppenheimer Developing Markets Fund
Prospectus dated December 29, 1998
Oppenheimer Developing Markets Fund is a mutual fund that aggressively
seeks long-term capital appreciation to make your investment grow. It emphasizes
investments in common stocks and other equity securities of issuers in emerging
and developing markets throughout the world.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. It also contains
important information about how to buy and sell shares of the Fund and other
account features. Please read this Prospectus carefully before you invest and
keep it for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
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Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
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About the Fund
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund aggressively seeks capital
appreciation.
What Does the Fund Invest In? The Fund invests mainly in equity securities, such
as common and preferred stocks, convertible securities and other securities
having equity features. It focuses on equity securities of issuers in emerging
and developing markets throughout the world. The Fund looks primarily for equity
securities of companies that the portfolio manager believes have favorable
growth prospects. The Fund can also use hedging instruments to try to manage
investment risks. The Fund can also buy debt securities of companies or foreign
governments, but the Fund does not invest to earn income. These investments are
more fully explained in "About the Fund's Investments," below.
n How Does the Manager Decide What Securities to Buy or Sell? In selecting
securities for the Fund, the Fund's portfolio manager looks primarily for
foreign companies with high growth potential using fundamental analysis of a
company's financial statements and management structure, and analysis of the
company's operations and product development, as well as the special factors and
risks of the country in which the issuer operates. In seeking broad
diversification of the Fund's portfolio, the portfolio manager may search for:
o Companies of different capitalization ranges with strong market
positions and the ability to take advantage of barriers to competition
in their industry, such as high start-up costs o Companies with
management that has a proven record o Companies with newer or
established businesses that are entering into a growth cycle o
Companies with the potential to withstand high market volatility o
Companies with strong earnings growth whose stock is selling at a
reasonable price.
In applying these and other selection criteria, the portfolio manager
considers the effect of worldwide trends on the growth of various business
sectors. The trends, or global "themes," currently employed include
telecommunications/media, emerging consumer markets, infrastructure development,
natural resources use and development, corporate restructuring, capital market
development, health care expansion and efficiency enhancement. The Manager does
not invest a fixed or specific amount of the Fund's assets in any one sector,
and these themes and this strategy may change over time.
Who Is the Fund Designed For? The Fund is designed primarily for aggressive
investors seeking capital growth over the long term. Those investors should be
willing to assume the substantial risks of short-term share price fluctuations
and losses that are typical for an aggressive growth fund focusing on stock
investments in developing and emerging markets. The Fund does not seek current
income and the income from its investments will likely be small, so it is not
designed for investors needing income or preservation of capital. Because of its
focus on long-term growth, the Fund may be appropriate for some portion of a
retirement plan investment for investors with a high-risk tolerance, but should
not represent an investor's complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks are subject to changes in their value from a number of factors.
Investments in stocks can be volatile and are subject to changes in general
stock market movements (this is referred to as "market risk"). There may be
events or changes affecting particular industries that might be emphasized in
the Fund's portfolio (this is referred to as "industry risk") or the change in
value of a particular stock because of an event affecting the issuer. Stocks of
growth companies may provide greater opportunities for capital appreciation but
may be more volatile than other stocks. That volatility is likely to be even
greater for growth companies in emerging markets. The Fund focuses on foreign
securities in emerging and developing markets that have special risks not
associated with investments in domestic securities or stocks of companies in
developed foreign markets.
These risks collectively form the risk profile of the Fund and can
affect the value of the Fund's investments, its investment performance and its
price per share. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by carefully researching securities before they are purchased. The Fund
attempts to reduce its exposure to market risks by diversifying its investments,
that is, by not holding a substantial amount of stock of any one company and by
not investing too great a percentage of the Fund's assets in any one company.
Also, the Fund does not concentrate 25% or more of its assets its investments in
any one industry. However, changes in the overall market prices of securities
can occur at any time. The share price of the Fund will change daily based on
changes in market prices of securities and market conditions, and in response to
other economic events. There is no assurance that the Fund will achieve its
investment objective.
-- Risks of Investing in Stocks. Because the Fund invests primarily in
equity securities of foreign growth companies, the value of the Fund's portfolio
will be affected by changes in the foreign stock markets and the special
economic and other factors that might primarily affect the prices of growth
stocks in the markets. Market risk will affect the Fund's net asset value per
share, which will fluctuate as the values of the Fund's portfolio securities
change. The prices of individual stocks do not all move in the same direction
uniformly or at the same time. Different stock markets may behave differently
from each other.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer or
its industry.
-- Special Risks of Growth Stocks. The Fund can buy stocks of companies
in any capitalization range and focuses its investments on securities of
companies the Manager thinks have growth possibilities. While they can include
larger, more established companies entering a growth cycle, they can also
include newer, start-up companies. While new, small companies may offer greater
opportunities for capital appreciation, they involve substantially greater risks
of loss and price fluctuations. Their stocks may be less liquid than those of
larger issuers. That means the Fund could have greater difficulty selling a
security of a smaller issuer at an acceptable price, especially in periods of
market volatility. That factor increases the potential for losses to the Fund.
Also, it may take a substantial period of time before the Fund realizes a gain
on an investment in a small-cap company, if it realizes any gain at all.
-- Risks of Foreign Investing. The Fund buys securities of companies or
governments in developing and emerging markets. The Fund will normally invest
65% of its assets in foreign securities in developing markets and can invest up
to 100%. While foreign securities offer special investment opportunities, there
are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. Securities issued by
a foreign government may not be supported by the "full faith and credit" of the
government. The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic factors.
o Special Risks of Emerging and Developing Markets. Securities in
emerging and developing market countries may offer special investment
opportunities but investments in these countries present risks not found in more
mature markets. Securities may be more difficult to sell at an acceptable price
and their prices may be more volatile than securities of companies in more
developed markets. Settlements of trades may be subject to greater delays so
that the Fund may not receive the proceeds of a sale of a security on a timely
basis.
Emerging markets may have less developed trading markets and exchanges.
Emerging countries may have less developed legal and accounting systems and
investments may be subject to greater risks of government restrictions on
withdrawing the sales proceeds of securities from the country. Economies of
developing countries may be more dependent on relatively few industries that may
be highly vulnerable to local and global changes. Governments may be more
unstable and present greater risks of nationalization or restrictions on foreign
ownership of stocks of local companies. These investments may be substantially
more volatile than stocks of issuers in the U.S. and other developed countries
and may be very speculative.
-- There Are Special Risks in Using Derivative Investments. The Fund may
use derivatives to seek increased returns or to try to hedge investment risks.
In general terms, a derivative investment is an investment contract whose value
depends on (or is derived from) the value of an underlying asset, interest rate
or index. Options, futures, and forward contracts are examples of derivatives.
Currently the Fund does not use these investments to a significant degree.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, may not perform the
way the Manager expected it to perform. If that happens, the Fund's share price
could decline. The Fund has limits on the amount of particular types of
derivatives it can hold. However, using derivatives can cause the Fund to lose
money on its investments and/or increase the volatility of its share prices.
-- Risks of Other Aggressive Investment Techniques. The Fund can invest
in special situations, such as foreign privatization programs, without assurance
that these programs can succeed as private enterprises. The Fund can invest in
anticipation of reorganizations, mergers and other events that are expected to
affect an issuer's stock price, but which may not occur, causing investment
losses to the Fund.
How Risky is the Fund Overall? The Fund is an aggressive investment vehicle, and
in the short term, its share price can be expected to be volatile. The Fund
generally does not use income-oriented investments to help cushion the Fund's
total return from changes in stock prices, except for defensive or liquidity
purposes. The Fund is designed for investors willing to assume greater risks in
the hope of achieving long-term capital appreciation. It is likely to be subject
to greater fluctuations in its share prices than funds that emphasize large
capitalization stocks, or funds that do not invest in foreign securities or
emerging market securities, or funds that focus on both stocks and bonds.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance (for its
Class A shares) for the initial calendar year after its inception and by showing
how the average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
For the period from 1/1/98 through 9/30/98, the cumulative return (not
annualized) for Class A shares was -28.97%. Sales charges are not included in
the calculations of return in this bar chart, and if those charges were
included, the returns would be less than those shown. During the period shown in
the bar chart, the highest return (not annualized) for a calendar quarter was
14.88% (1stQ'97) and the lowest return (not annualized) for a calendar quarter
was -13.12% (4th Q'97).
Average Annual Total Returns
for the periods ending Past 1 Year Life of Class
December 31, 1997
Class A Shares 7.53% 8.13%*
Class B Shares 8.09% 9.48%*
Class C Shares 12.18% 13.09%*
Morgan Stanley Capital Int'l
Emerging Mkts. Index
2.06% 0.71%*
* Inception dates of all classes: 11/18/96.
The index performance is shown from 11/30/96.
The Fund's average annual total returns in the table include the applicable
sales charge for Classes A, B and C shares: for Class A, the current maximum
initial sales charge of 5.75%; for Class B, the contingent deferred sales
charges of 5% (1-year) and 3% (life of class); and for Class C, the 1%
contingent deferred sales charge for the 1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests primarily in stocks, the Fund's performance is
compared to the Morgan Stanley Capital International Emerging Markets Index, an
unmanaged index of equity securities of issuers in 25 developing markets.
However, the index performance reflects the reinvestment of income but does not
consider the effects of transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services. 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
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal period ended
August 31, 1998.
Shareholder Fees (charges paid directly from your investment):
Class A Class B Class C
Shares Shares Shares
Maximum Sales Charge (Load) on
purchases 5.75% None None
(as % of offering price)
Maximum Deferred Sales Charge
(Load) (as % of the lower of the
original offering price or None(1) 5%(2) 1%(3)
redemption proceeds)
1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
Class A Class B Class C
Shares Shares Shares
Management Fees 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) 0.23% 1.00% 1.00%
Fees
Other Expenses 0.95% 0.95% 0.95%
Total Annual Operating Expenses 2.18% 2.95% 2.95%
Numbers in the chart are based on the Fund's expenses in the fiscal period ended
8/31/98. Expenses may vary in future years. "Other expenses" include transfer
agent fees, custodial expenses, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The examples assume that you invest $10,000 in a class of shares of the
Fund for the time periods indicated and reinvest your dividends and
distributions. The first example assumes that you redeem all of your shares at
the end of those periods. The second example assumes that you keep your shares.
Both examples also assume that your investment has a 5% return each year and
that the class's operating expenses remain the same. Your actual costs may be
higher or lower because expenses will vary over time. Based on these assumptions
your expenses would be as follows:
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years(1)
Class A Shares $783 $1,218 $1,677 $2,944
Class B Shares $798 $1,213 $1,752 $2,924
Class C Shares $398 $913 $1,552 $3,271
If shares are
not redeemed: 1 Year 3 Years 5 Years 10 Years(1)
Class A Shares $783 $1,218 $1,677 $2,944
Class B Shares $298 $913 $1,552 $2,924
Class C Shares $298 $913 $1,552 $3271
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. The
Fund's portfolio might not always include all of the different types of
investments described below. Under normal market conditions,
o The Fund will invest at least 65% of its total assets in at least three
developing markets in equity securities of issuers whose principal activities
are in developing markets.
o The Fund can (but is not required to) invest up to 100% of its total assets in
foreign securities. o The Fund will emphasize investments in common stocks and
other equity securities. o The Fund will emphasize investments in growth
companies, which can be in any market capitalization range.
The Statement of Additional Information contains more detailed
information about the Fund's investment policies and risks.
-- Investments in Stocks of Growth Companies. The Fund emphasizes
investments in equity securities, primarily common stocks of foreign growth
companies in developing and emerging markets throughout the world. The Manager
looks for stocks of large and small companies that have growth potential. Growth
companies tend to be companies that may be developing new products or services,
that have relatively favorable prospects, or that are expanding into new and
growing markets. Current examples include companies in the fields of
telecommunications, biotechnology, computer software, and new consumer products.
Emerging growth companies may be providing new products or services
that can enable them to capture a dominant or important market position. They
may have a special area of expertise or the capability to take advantage of
changes in demographic factors in a more profitable way than larger, more
established companies.
Growth companies tend to retain a large part of their earnings for
research, development or investment in capital assets. Therefore, they do not
tend to emphasize paying dividends, and may not pay any dividends for some time.
They are selected for the Fund's portfolio because the Manager believes the
price of the stock will increase over the long term. While they may include
established companies that are entering a growth cycle, they can also include
newer companies, whose securities pose greater risks of loss and can result in
greater volatility in the Fund's share prices.
o Foreign Securities the Fund Can Buy. The Fund can buy equity
securities of companies organized under the laws of a foreign country. The Fund
can also buy foreign debt securities (but it would do so primarily for liquidity
or defensive purposes when stock markets are unstable). They include debt
securities issued by foreign companies or by foreign governments and their
agencies.
Foreign securities include securities traded primarily on a foreign
securities exchange or over-the-counter market. They may also be securities of
companies that derive a significant portion of their revenue or profits from
foreign business, investments or sales, or have a significant portion of their
assets outside the U.S. Foreign securities include securities of foreign issuers
that are represented in the U.S. securities markets by American Depository
Receipts (ADRs) or similar arrangements.
To determine if an issuer's principal activities are in a developing
market, the Manager considers a number of factors, such as where the issuer is
organized, the principal trading market for its securities, the sources of its
revenues and the location of its assets.
o Cyclical Opportunities. The Fund may also seek to take advantage of
changes in the business cycle by investing in companies that are sensitive to
those changes if the Manager believes they have growth potential. For example,
when the economy is expanding, companies in the consumer durables and technology
sectors might benefit and present long-term growth opportunities. The Fund seeks
growth over the long term, but may try to take tactical advantage of short-term
market movements or events affecting particular issuers or industries. If those
events do not occur, the value of the Fund's investment could decline.
o Industry Focus. At times, the Fund might increase the relative
emphasis of its investments in a particular industry or group of industries.
Stocks of issuers in a particular industry might be affected by changes in
economic conditions or by changes in government regulations, availability of
basic resources or supplies, or other events that affect that industry more than
others. If the Fund has a greater emphasis on investments in a particular
industry or group of industries, its share values may fluctuate in response to
events affecting those industries. To some extent that risk may be reduced by
the Fund's policy of not concentrating 25% or more of its assets in investments
in any one industry.
o Other Equity Securities. While the Fund emphasizes investments in
common stocks, it can also buy preferred stocks and securities convertible into
common stock and hold rights and warrants. The Manager considers convertible
securities to be "equity equivalents" because of the conversion feature and
because their rating has less impact on the investment decision than in the case
of other debt securities. Nevertheless, convertible securities are subject to
both "credit risk" (the risk that the issuer will not pay interest or repay
principal in a timely manner) and "interest rate risk" (the risk that the prices
of the securities will be affected by changes in prevailing interest rates). If
the Fund buys convertible securities (or other debt securities) it will focus
primarily on investment-grade securities, which pose less credit risk than
lower-grade debt securities.
-- Can the Fund's Investment Objective and Policies Change? The
Fund's Board of Trustees may change non-fundamental investment policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a majority of the Fund's outstanding voting
shares. The Fund's objective is a fundamental policy. Investment restrictions
that are fundamental policies are listed in the Statement of Additional
Information. An investment policy is not fundamental unless this Prospectus or
the Statement of Additional Information says that it is.
-- Portfolio Turnover. The Fund may engage in short-term trading to try
to achieve its objective, but does not expect to have a portfolio turnover rate
in excess of 100% annually. Portfolio turnover affects brokerage costs the Fund
pays. If the Fund realizes capital gains when it sells its portfolio
investments, it must generally pay those gains out to shareholders, increasing
their taxable distributions. The Financial Highlights table below shows the
Fund's portfolio turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques with investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
-- Investing in Special Situations. The Fund at times can use aggressive
investment techniques. These include seeking to benefit from what the portfolio
manager perceives to be special situations, such as mergers, reorganizations or
other unusual events expected to affect a particular issuer. However, there is a
risk in investing in these special situations that the change or event might not
occur, which could have a negative impact on the price of the security. The
Fund's investment might not produce the expected gains or could incur a loss for
the portfolio.
-- Investing in Small, Unseasoned Companies. The Fund can invest in
small, unseasoned companies. These are companies that have been in operation
less than three years, including the operations of any predecessors. These
securities might have limited liquidity and their prices can be very volatile.
-- Domestic Securities. The Fund does not expect to hold significant
amounts of investments in U.S. issuers. However, it can hold common and
preferred stocks of U.S. companies as well as their debt securities, and can
also invest in U.S. debt securities for defensive and liquidity purposes.
-- Investments in Debt Securities. The Fund can invest up to 35% of its
assets in debt securities, including debt securities of foreign companies and
governments, including those in developing countries. However, the Fund does not
invest for income and does not expect to invest significant amounts in debt
securities, unless they are convertible securities considered to be "equity
equivalents," or debt securities purchased for temporary defensive or liquidity
purposes.
While the Fund will not invest in debt securities rated less than C or
that are in default, the Fund can invest in below-investment grade debt
securities. Often, debt securities of developing markets issuers are below
investment grade or are unrated by rating organizations. Below investment grade
securities are subject to a number of risks, including a greater risk of default
by the issuer in making timely payments of interest and principal (this is
called "credit risk"). As debt securities, they are also subject to changes in
value from fluctuations in prevailing interest rates, which means that their
value could go down when interest rates rise, or go up when interest rates fall
(this is called "interest rate risk"). A discussion of these risks and rating
categories of rating agencies is in the Statement of Additional Information.
-- Illiquid and Restricted Securities. Investments may be illiquid
because of the absence of an active trading market. That may make 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. The
Fund will not invest more than 15% of its net assets in illiquid or restricted
securities. Certain restricted securities that are eligible for resale to
qualified institutional purchasers are not subject to that limit. The Manager
monitors holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.
-- Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In the broadest sense, exchange-traded
options, futures contracts, and other hedging instruments the Fund might use may
be considered "derivative" investments.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
-- Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not currently use hedging extensively and does not
use hedging instruments for speculative purposes. It has limits on its use of
hedging. The Fund does not use hedging instruments to a substantial degree and
is not required to use hedging instruments in seeking its goal.
Some of these strategies would hedge the Fund's portfolio against price
fluctuations. Other hedging strategies, such as buying futures and call options,
would tend to increase the Fund's exposure to the securities market. Forward
contracts would be used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options could be used to try to protect
against declines in the dollar value of foreign securities the Fund owns, or to
protect against an increase in the dollar cost of buying foreign securities.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could 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.
Temporary Defensive Investments. In times of adverse or unstable market or
economic conditions, the Fund can invest up to 100% of its assets in temporary
defensive investments. Generally they would be cash or cash equivalents (such as
commercial paper), money market instruments, high-quality debt securities
including U.S. government securities, or repurchase agreements. The Fund can
also hold these types of securities pending the investment of proceeds from the
sale of Fund shares or portfolio securities or to meet anticipated redemptions
of Fund shares. To the extent the Fund invests defensively in these securities,
it might not achieve its investment objective of capital appreciation.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and those issuers
may incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's Custodian and other parties. Therefore, any failure of the
computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses the
Fund's investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Fund's Board of Trustees,
under an Investment Advisory Agreement that states the Manager's
responsibilities. The Agreement sets forth 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 adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $85 billion as of
September 30, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
n Portfolio Manager. The portfolio manager of the Fund is Rajeev
Bhaman. Mr. Bhaman has been principally responsible for the day-to-day
management of the Fund's portfolio since its inception in 1996. He is a Vice
President of the Fund and of the Manager. Prior to joining the Manager in 1996,
Mr. Bhaman was Vice President for Asian Equities of Barclays de Zoete Wedd Inc.,
a money management firm.
n Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional assets
as the Fund grows: 1.00% of the first $250 million of average annual net assets
of the Fund, 0.95% of the next $250 million, 0.90% of the next $500 million; and
0.85% of average annual net assets in excess of $1 billion. The Fund's
management fee for its last fiscal year ended August 31, 1998 was 1.00% of
average annual net assets for each class of shares.
About Your Account
How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any dealer,
broker or financial institution that has a sales agreement with the Fund's
Distributor, or directly through the Distributor, or automatically through an
Asset Builder Plan under the OppenheimerFunds AccountLink service. The
Distributor may appoint certain servicing agents to accept purchase (and
redemption) orders. The Distributor, in its sole discretion, may reject any
purchase order for the Fund's shares
|X| Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
|X| 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, we recommend that you discuss your investment
with a financial advisor before your make a purchase to be sure that the Fund is
appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With
AccountLink, shares are purchased for your account on the regular business day
the Distributor is instructed by you to initiate the Automated Clearing House
(ACH) transfer to buy the shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by telephone
instructions using OppenheimerFunds PhoneLink, also described below. Please
refer to "AccountLink," below for more details.
|X| Buying Shares Through 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 in the Asset Builder Application
and the Statement of Additional Information.
How Much Can 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.
|_| With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans
and military allotment plans, you can make initial and subsequent investments
for as little as $25. Subsequent purchases of at least $25 can be made by
telephone through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing
plans and 401(k) plans, you can start your account with as little as $250. If
your IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
|_| The minimum investment requirement does not apply to 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 reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the net
asset value per share plus any initial sales charge that applies). The offering
price that applies to a purchase order is based on the next calculation of the
net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. (All references to time in this Prospectus mean "New York time").
The net asset value per share is determined 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. To determine net asset value, the Fund's Board of
Trustees has established procedures to value the Fund's securities, in general
based on market value. The Board has adopted special procedures for valuing
illiquid and restricted securities and obligations for which market values
cannot be readily obtained. Because foreign securities trade in market and
exchanges that operate on holidays and weekends, the values of the Fund's
foreign investments may change on days when investors cannot buy or redeem Fund
shares.
|_| To receive the offering price for a particular day, in most cases
the Distributor or its designated agent must receive your order by the time of
day The New York Stock Exchange closes that day. If your order is received on a
day when the Exchange is closed or after it has closed, the order will receive
the next offering price that is determined after your order is received.
|_| If you buy shares through a dealer, your dealer must receive the
order by the close of The New York Stock Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of business on
a regular business day (normally 5:00 P.M.) to receive that day's offering
price. Otherwise, the order will receive the next offering price that is
determined.
What Classes of Shares Does the Fund Offer? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are
subject to different expenses and will likely have different share prices.
When you buy shares, be sure to specify the class of shares. If you do not
choose a class, your investment will be made in Class A shares.
|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million for regular accounts or $500,000 for
certain retirement plans). The amount of that sales charge will vary depending
on the amount you invest.
The sales charge rates are listed in "How Can I Buy Class A Shares?" below.
|X| Class B Shares. If you buy Class B shares, you pay no
sales charge at the time of purchase, but you will pay an annual
asset-based sales charge, and if you sell your shares within six
years of buying them, you will normally pay a contingent deferred
sales charge. That contingent deferred sales charge varies
depending on how long you own your shares, as described in "How
Can I Buy Class B Shares?" below.
|X| Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within 12 months of buying them, you will normally
pay a contingent deferred sales charge of 1%, as described in "How Can I Buy
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 best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider 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.
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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares, and not a
combination of shares of different classes.
|X| 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, compared to the
effect over time of higher class-based expenses on shares of Class B or Class C
.
|_| Investing for the Short Term. If you have a relatively 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. That is because of the effect of the Class B contingent
deferred sales charge if you redeem within six 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 as 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.
And 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
Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than
$100,000 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
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders. Other
features (such as Automatic Withdrawal Plans) may not be advisable (because of
the effect of the contingent deferred sales charge) for Class B or Class C
shareholders. Therefore, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy.
Additionally, the 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 shares, such as the Class B and Class C asset-based sales
charge described below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares, and if you are
considering using your shares as collateral for a loan, that may be a factor to
consider.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares than
for selling another class. It is important to remember that Class B and Class C
contingent deferred sales charges and asset-based sales charges have the same
purpose as the front-end sales charge on sales of Class A shares: to compensate
the Distributor for commissions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix B to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions.
How Can I Buy 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 other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. 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 or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Net Percentage of
Offering Price Amount Invested Offering Price
Amount of Purchase
<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%
------------------------------------ ------------------------ ------------------------- -------------------------
------------------------------------ ------------------------ ------------------------- -------------------------
$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%
------------------------------------ ------------------------ ------------------------- -------------------------
</TABLE>
|X| 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 aggregating $1 million or more or for certain purchases by particular
types of retirement plans described in the Appendix to the Statement of
Additional Information. The Distributor pays dealers of record commissions in an
amount equal to 1.0% of purchases of $1 million or more other than by those
retirement accounts. For those retirement plan accounts, the commission is 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, calculated on a calendar year basis. In either case,
the commission will be paid only on purchases that were not previously subject
to a front-end sales charge and dealer commission.1
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 at the time of redemption
(excluding shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original net asset value of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable
when shares are redeemed, the Fund will first redeem shares that are not subject
to the sales charge, including shares purchased by reinvestment of dividends and
capital gains. Then the Fund will redeem other shares in the order in which you
purchased them. The Class A contingent deferred sales charge is waived in
certain cases described in Appendix B to the Statement of Additional
Information.
The Class A contingent deferred sales charge is not charged on
exchanges of shares under the Fund's exchange privilege (described below).
However, if the shares acquired by exchange are redeemed within 18 calendar
months of the end of the calendar month in which the exchanged shares were
originally purchased, then the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information:
|X| Waivers of Class A Sales Charges. The Class A initial and
contingent deferred sales charges are not imposed in the circumstances described
in Appendix B to the Statement of Additional Information. In order to receive a
waiver of the Class A contingent deferred sales charge, you must notify the
Transfer Agent when purchasing shares whether any of the special conditions
apply.
How Can I Buy 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. The Class B 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 B
shares.
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 an increase in net
asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or
capital gains distributions,
or |_| shares redeemed in the special circumstances described in Appendix B
to the Statement of Additional Information.
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 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:
Contingent Deferred Sales Charge on
Years Since Beginning of Month in Redemptions in That Year
Which Purchase Order was Accepted (As % of Amount Subject to Charge)
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
In the table, a "year" is a 12-month period. In applying the sales
charge, all purchases are considered to have been made on the first regular
business day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares
automatically convert to Class A shares 72 months after you purchase them. 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 the Statement of Additional Information.
How Can I Buy 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. 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.
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
net asset value. The contingent deferred sales charge is not imposed on: o the
amount of your account value represented by the increase in net asset value over
the initial purchase price, o shares purchased by the reinvestment of dividends
or capital gains distributions, or o shares redeemed in the special
circumstances described in Appendix B to the Statement of Additional
Information.
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 (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares. It reimburses the Distributor for a portion of its
costs incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor currently 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.
|X| 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 pay the Distributor for its services and costs in distributing Class B and
Class 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 and on Class C shares. The Distributor also receives a service fee of
0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or Class C shares.
The Distributor pays the 0.25% service fees to dealers in advance for the first
year after the shares were sold by the dealer. After the shares have been held
for a year, the Distributor pays the service fees to dealers on a quarterly
basis.
The Distributor currently pays sales commission 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 sales 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 pays 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.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be
an Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone
(through a service representative or by PhoneLink) or automatically
under Asset Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
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.
|_| 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.
|_| Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established by
calling the special PhoneLink number.
|_| 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. Please refer to "How to Sell Shares," below for
details.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1-800-525-7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
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 only 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.
Retirement Plans. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be used
by individuals and employers:
|_| Individual Retirement Accounts (IRAs), including regular IRAs, Roth
IRAs, SIMPLE IRAs, rollover and Education IRAs.
|_| SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for small
business owners or self-employed individuals.
|_| 403(b)(7) Custodial Plans, that are tax deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations.
|_| 401(k) Plans, which are special retirement plans for businesses.
|_| Pension and Profit-Sharing Plans, designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means that it must comply
with the procedures described below) and is accepted by the Transfer Agent. The
Fund lets you sell your shares by writing a letter or by telephone. You can also
set up Automatic Withdrawal Plans to redeem shares on a regular basis. 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 account, please call the Transfer Agent first, at
1-800-525-7048, for assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, the following redemption requests must be in writing and
must include a signature guarantee (although there may be other situations that
also require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check
|_| The redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different owner
or name
|_| Shares are being redeemed by someone (such as an Executor) other than
the owners
|X| 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.
|X| Retirement Plan Accounts. There are special procedures to sell
shares in an OppenheimerFunds retirement plan account. Call the Transfer Agent
for a distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a withholding form
with your redemption request to avoid delay in getting your money and if you do
not want tax withheld. If your employer holds your retirement plan account for
you in the name of the plan, you must ask the plan trustee or administrator to
request the sale of the Fund shares in your plan account.
How Do I Sell Shares by Mail? Write a letter of instructions that includes:
|_| Your name
|_| The Fund's name
|_| Your Fund account number (from your account statement)
|_| The dollar amount or number of shares to be redeemed
|_| Any special payment instructions
|_| Any share certificates for the shares you are selling
|_| The signatures of all registered owners exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217-5270
Send courier or express mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell 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 account or under a share certificate by
telephone.
|_| To redeem shares through a service representative, call 1-800-852-8457
|_| 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.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone in any 7-day period. The check must be 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.
|X| 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.
Can I Sell Shares Through My Dealer? The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
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:
|_| Shares of the fund selected for exchange must be available for sale in
your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
|_| 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.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| 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. In
some cases, sales charges may be imposed on exchange transactions. For tax
purposes, exchanges of shares involve a sale of the shares of the fund you own
and a purchase of the shares of the other fund, which may result in a capital
gain or loss. Please refer to "How to Exchange Shares" in the Statement of
Additional Information for more details.*
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the Transfer Agent
at the address on the Back Cover. Exchanges of shares held under certificate
cannot be processed unless the Transfer Agent receives the certificates with the
request.
|X| 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.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| 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 conforms to the policies
described above. It must be received 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
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time or
price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|_| 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.
|_| 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.
Shareholder Account Rules and Policies
|X| 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.
|X| 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 the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| 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. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| 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.
|X| The redemption price for shares will vary from day to
day because the value of the securities in the Fund's portfolio
fluctuates. The redemption price, which is the net asset value
per share, will normally differ for each class of shares. The
redemption value of your shares may be more or less than their
original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink (as elected by the shareholder) within
seven days after the Transfer Agent receives redemption instructions in proper
form. However, under unusual circumstances determined by the Securities and
Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be forwarded
within three business days after redemption.
|X| 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 from the date
the shares were purchased. That delay may be avoided if you purchase shares by
Federal Funds wire or certified check, or arrange with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase payment
has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact that
the market value of shares has dropped. In some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such
as a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with securities from the Fund's
portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| 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 and Tax Information
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income annually and to pay dividends to shareholders
in December on a date selected by the Board of Trustees. Dividends and
distributions paid on Class A shares will generally be higher than dividends for
Class B and Class C shares, which normally have higher expenses than Class A.
The Fund has no fixed dividend rate and cannot guarantee that it will pay any
dividends or distributions.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
What Choices Do I Have for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
|X| 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.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends by
check or having them sent to your bank account through AccountLink.
|X| 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 through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds
Account. You can reinvest all distributions in the same class of
shares of another OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
If more than 50% of the Fund's assets are invested in foreign
securities at the end of any fiscal year, the Fund may elect under the Internal
Revenue Code to permit shareholders to take a credit or deduction on their
federal income tax returns for foreign taxes paid by the Fund.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
|X| Avoid "Buying a Dividend". If you buy shares on or just before the
ex-dividend date or just before the Fund declares a capital gain 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.
|X| Remember There May be Taxes on Transactions. Because the Fund's
share price fluctuates, you may have a capital gain or loss when you sell or
exchange your shares. 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. Any
capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser about the effect
of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance since its inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
-----------------
YEAR ENDED
AUGUST 31,
1998 1997(/1/)
- --------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $12.82 $10.00
- --------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 .07
Net realized and unrealized gain (loss) (4.62) 2.75
------ ------
Total income (loss) from investment operations (4.51) 2.82
- --------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.09) --
Distributions from net realized gain (.46) --
------ ------
Total dividends and distributions to shareholders (.55) --
- --------------------------------------------------------------------------
Net asset value, end of period $ 7.76 $12.82
====== ======
- --------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(/2/) (36.33)% 28.20%
- --------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $23,663 $37,613
- --------------------------------------------------------------------------
Average net assets (in thousands) $35,864 $17,852
- --------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.87% 1.45%(/3/)
Expenses(/4/) 2.18% 1.94%(/3/)
- --------------------------------------------------------------------------
Portfolio turnover rate(/5/) 78.2% 26.7%
</TABLE>
1. For the period from November 18, 1996 (commencement of operations) to August
31, 1997.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or commencement of operations), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized.
4. The expense ratio reflects the effect of gross expenses paid indirectly by
the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended August 31, 1998 were $49,398,939 and $42,455,940,
respectively.
32
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS B
---------------------------
YEAR ENDED
AUGUST 31,
1998 1997(/1/)
- ------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $12.73 $10.00
- ------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .01 .03
Net realized and unrealized gain (loss) (4.57) 2.70
------ ------
Total income (loss) from investment operations (4.56) 2.73
- ------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.02) --
Distributions from net realized gain (.46) --
------ -----
Total dividends and distributions to shareholders (.48) --
- ------------------------------------------------------------------------------
Net asset value, end of period $ 7.69 $12.73
====== ======
- ------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(/2/) (36.85)% 27.30%
- ------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $12,788 $20,470
- ------------------------------------------------------------------------------
Average net assets (in thousands) $18,673 $ 7,802
- ------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.07% 0.87%(/3/)
Expenses(/4/) 2.95% 2.78%(/3/)
- ------------------------------------------------------------------------------
Portfolio turnover rate(/5/) 78.2% 26.7%
</TABLE>
1. For the period from November 18, 1996 (commencement of operations) to August
31, 1997.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or commencement of operations), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized.
4. The expense ratio reflects the effect of gross expenses paid indirectly by
the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended August 31, 1998 were $49,398,939 and $42,455,940,
respectively.
33
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS C
---------------
YEAR ENDED
AUGUST 31,
1998 1997(!)
- ------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $12.74 $10.00
- ------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .02 .04
Net realized and unrealized gain (loss) (4.58) 2.70
------ ------
Total income (loss) from investment operations (4.56) 2.74
- ------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.04) --
Distributions from net realized gain (.46) --
------ ------
Total dividends and distributions to shareholders (.50) --
- ------------------------------------------------------------------------
Net asset value, end of period $ 7.68 $12.74
====== ======
- ------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(/2/) (36.88)% 27.40%
- ------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $3,061 $3,713
- ------------------------------------------------------------------------
Average net assets (in thousands) $4,206 $1,560
- ------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.24% 0.98%(/3/)
Expenses(/4/) 2.95% 2.77%(/3/)
- ------------------------------------------------------------------------
Portfolio turnover rate(/5/) 78.2% 26.7%
</TABLE>
1. For the period from November 18, 1996 (commencement of operations) to August
31, 1997.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or commencement of operations), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized.
4. The expense ratio reflects the effect of gross expenses paid indirectly by
the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended August 31, 1998 were $49,398,939 and $42,455,940,
respectively.
<PAGE>
Appendix to Prospectus of
Oppenheimer Developing Markets Fund
Graphic material included in the Prospectus of Oppenheimer
Developing Markets Fund: "Annual Total Return (Class A) (% as of
12/31 each year)":
A bar chart will be included in the Prospectus of Oppenheimer
Developing Markets Fund (the "Fund") depicting the annual total returns of a
hypothetical $10,000 investment in Class A shares of the Fund for each of the
eight most recent calendar years, without deducting sales charges. Set forth
below is the relevant data point that will appear on the bar chart:
Calendar Oppenheimer
Year Developing Markets Fund
Ended Class A Shares
12/31/97 14.09%
<PAGE>
Oppenheimer Developing Markets Fund
For More Information:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C.
20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.
SEC File No. 811-07657
PR0785.001.1298 Printed on recycled paper.
<PAGE>
Oppenheimer Developing Markets Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated December 29, 1998
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated December 29, 1998. It should be read
together with the Prospectus. You can obtain the Prospectus 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, or by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.... 2
The Fund's Investment Policies...................................... 2
Other Investment Techniques and Strategies.......................... 7
Investment Restrictions............................................ 24
How the Fund is Managed ................................................ 26
Organization and History........................................... 26
Trustees and Officers.............................................. 28
The Manager........................................................ 33
Brokerage Policies of the Fund.......................................... 34
Distribution and Service Plans.......................................... 36
Performance of the Fund................................................. 40
About Your Account
How To Buy Shares....................................................... 44
How To Sell Shares...................................................... 52
How To Exchange Shares.................................................. 57
Dividends, Capital Gains and Taxes...................................... 59
Additional Information About the Fund................................... 61
Financial Information About the Fund
Independent Auditors' Report............................................ 61
Financial Statements.................................................... 62
Appendix A: Industry Classifications.....................................A-1
Appendix B: Special Sales Charge Arrangements and Waivers................B-1
<PAGE>
ABOUT THE FUND
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the
main risks of the Fund are described in the Prospectus. This Statement of
Additional Information contains supplemental information about those policies
and risks and the types of securities that the Fund's investment Manager,
OppenheimerFunds, Inc., can select for the Fund. Additional information is also
provided about the strategies that the Fund may use to try to achieve its
objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goal. It may use some of the special investment techniques and strategies at
some times or not at all.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of securities primarily through the exercise of its own investment
analysis. That analysis includes a number of factors, some of which are
discussed in the Prospectus. Additionally, the Manager may evaluate
o the strength of an issuer's management and the history of its
operations,
o the soundness of its financial and accounting policies and its financial
condition,
o the issuer's pending product developments and developments by
competitors,
o the effect of general market conditions on the issuer's business and the
prospects for the industry of which the issuer is a part, and
o legislative proposals that might affect the issuer.
In addition, the Manager ordinarily looks 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 that might enable the issuer
to compete successfully in its intended markets.
The Fund intends to spread its investments 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:
o prospects for relative economic growth, the balance of payments,
o anticipated levels of inflation, o governmental policies influencing
business conditions, o the outlook for currency relationships and
o 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 not a 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 considering it for the
Fund's portfolio unless the Manager believes that the lack of yield might
adversely affect appreciation possibilities.
-- Investments in Equity Securities. The Fund focuses its investments in
equity securities of foreign companies whose principal activities are in
developing markets. Equity securities include common stocks, preferred stocks,
rights and warrants, and securities convertible into common stock. The Fund's
investment primarily include stocks of what the Manager believes are growth
companies. They may have a market capitalization of any range, small, medium or
large.
The Manager selects securities primarily on the basis of its view of a
security's potential for capital appreciation.
Small-cap growth companies may offer greater opportunities for capital
appreciation than securities of large, more established companies. However,
these securities also involve greater risks than securities of larger companies.
Securities of small capitalization issuers may be subject to greater price
volatility in general than securities of large-cap and mid-cap companies.
Therefore, to the degree that the Fund has investments in smaller capitalization
companies at times of market volatility, the Fund's share price may fluctuate
more. As noted below, the Fund may invest without limit in unseasoned small cap
issuers.
o Growth Companies. Growth companies are those companies that
the Manager believes are entering into a growth cycle in their business, with
the expectation that their stock will increase in value. They may be established
companies as well as newer companies in the development stage.
Growth companies may have a variety of characteristics that in the
Manager's view define them as "growth" issuers. They may be generating or
applying new technologies, new or improved distribution techniques or new
services. They may own or develop natural resources. They may be companies that
can benefit from changing consumer demands or lifestyles, or companies that have
projected earnings in excess of the average for their sector or industry. In
each case, they have prospects that the Manager believes are favorable for the
long term. The portfolio manager of the Fund looks for growth companies with
strong, capable management sound financial and accounting policies, successful
product development and marketing and other factors.
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. Convertible securities
are subject to the credit risks and interest rate risks described below in "Debt
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 conversion of 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 Rights and Warrants. The Fund may invest in warrants or
rights. Warrants basically are options to purchase equity securities at specific
prices valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
-- Foreign Securities. The Fund emphasizes investments in equity
securities issued or guaranteed by foreign companies. "Foreign securities"
include equity and debt securities of companies organized under the laws of
countries other than the United States and of governments other than the U.S.
government. They also include securities of companies (including those that are
located in the U.S. or organized under U.S. law) that derive a significant
portion of their revenue or profits from foreign businesses, investments or
sales, or that have a significant portion of their assets abroad. They may be
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 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. They are subject to some of the
special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include 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., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
-- Risks of Foreign Investing. Investments in foreign
securities may offer special opportunities for investing but also
present special additional risks and considerations not typically
associated with investments in domestic securities. Some of these
additional risks are: o reduction of income by foreign taxes; o
fluctuation in value of foreign investments due to changes in
currency rates or currency control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in
foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits; o higher brokerage
commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss
of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
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.
-- Developing Markets and Their Special Risks. Emerging and developing
markets abroad may also offer special opportunities for growth investing but
have greater risks than markets in the United States or more developed foreign
markets, such as those in Western Europe, Canada, Australia, New Zealand and
Japan. Some of those special risks are described below.
-- Settlement of Transactions. Settlement procedures in
developing markets may differ from those of more established securities markets.
Settlements may also be delayed by operational problems, including "Year 2000"
problems caused by a failure to adapt computers to using four-digit years after
1999. Securities issued by developing 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 those assets. The inability of the Fund to
make intended purchases of securities due to settlement problems could cause the
Fund to miss investment opportunities. The Fund could suffer losses from the
inability to dispose of portfolio securities due to settlement problems. As a
result there could be 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, a possible liability
to the purchaser.
-- 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. That presents the risk of nationalization of businesses,
restrictions on foreign ownership or prohibitions of repatriation of assets.
These countries may have less protection of property rights than more developed
countries. The economies of developing countries may be predominantly based on
only a few industries and, as such, may be highly vulnerable to changes in local
or global trade conditions.
-- Less Developed Securities Markets. Developing market
countries may have less well-developed securities markets and exchanges.
Consequently they have lower trading volume than the securities markets of more
developed countries. These markets may be unable to respond effectively to
increases in trading volume. Therefore, 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.
-- Government Restrictions. In certain developing countries,
government approval may be required for the repatriation of investment income,
capital or the proceeds of sales of securities by foreign investors, such as the
Fund. Also, a government might impose temporary restrictions on remitting
capital abroad if the country's balance of payments deteriorates, or it might do
so for other reasons. If government approval were delayed or refused, the Fund
could be adversely affected. Additionally, the Fund could be adversely affected
by the imposition of restrictions on investments by foreign entities.
Among the countries that the Manager has identified as developing or
emerging markets in which the Fund will consider investing are the following
countries. The Fund might not invest in all of these countries and the list may
change.
Algeria Greece Mexico Sri Lanka
Argentina Guyana Morocco Swaziland
Bangladesh Hong Kong Myanmar Taiwan
Bolivia Hungary Namibia Tanzania
Botswana India Nigeria Thailand
Brazil Indonesia Pakistan Tunisia
Bulgaria Iran Paraguay Turkey
Chile Israel Peru Ukraine
China Ivory Coast Philippines Uruguay
Colombia Jamaica Poland Venezuela
Costa Rica Jordan Portugal Vietnam
Cyprus Kenya Russia Zambia
Czech Republic Latvia Singapore Zimbabwe
Ecuador Lebanon Slovakia Republic
Egypt Lithuania Slovenia
Estonia Malaysia South Africa
Ghana Mauritius South Korea
-- Risks of Conversion to Euro. On January 1, 1999, eleven
countries in the European Union will have adopted the euro as their official
currency. However, their current currencies (for example, the franc, the mark,
and the lire) will also continue in use until January 1, 2002. After that date,
it is expected that only the euro will be used in those countries. A common
currency is expected to confer some benefits in those markets, by consolidating
the government debt market for those countries and reducing some currency risks
and costs. But the conversion to the new currency will affect the Fund
operationally and also has potential risks, some of which are listed below.
Among other things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the
competitive environment from a consolidated currency market and greater
operational costs from converting to the new currency. This might
depress stock values.
o vendors the Fund depends on to carry out its business, such as its
Custodian (which holds the foreign securities the Fund buys), the Manager
(which must price the Fund's investments to deal with the conversion to the
euro) and brokers, foreign markets and securities depositories. If they are
not prepared, there could be delays in settlements and additional costs to
the Fund.
o exchange contracts and derivatives that are outstanding during the
transition to the euro. The lack of currency rate calculations between the
affected currencies and the need to update the Fund's contracts could pose
extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's Custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
-- Portfolio Turnover. "Portfolio turnover" describes the rate at which
the Fund traded its portfolio securities during its last fiscal year. For
example, if a fund sold all of its securities during the year, its portfolio
turnover rate would have been 100%. The Fund's portfolio turnover rate will
fluctuate from year to year, although the Fund does not expect to have a
portfolio turnover rate of more than 100% annually.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
-- Investing in Small, Unseasoned Companies. The Fund may invest in
securities of small, unseasoned companies. These are companies that have been in
operation for less than three years, including the operations of any
predecessors. Securities of these companies may be subject to volatility in
their prices. They may have a limited trading market, which may adversely affect
the Fund's ability to dispose of them and can reduce the price the Fund might be
able to obtain for them. Other investors that own a security issued by a small,
unseasoned issuer for which there is limited liquidity might trade the security
when the Fund is attempting to dispose of its holdings of that security. In that
case the Fund might receive a lower price for its holdings than might otherwise
be obtained. The Fund has no limit on the amount of its net assets that may be
invested in those securities.
-- Debt Securities. While the Fund does not invest for the purpose of
seeking current income, at times certain debt securities (other than convertible
debt securities described above under the description of equity investments) may
be selected for investment by the Fund for investment or defensive purposes, as
described below. Certain debt securities may be selected for the Fund's
portfolio for defensive purposes (including debt securities that the Manager
believes may offer some opportunities for capital appreciation when stocks are
disfavored). Up to 35% of the Fund's assets may be invested in any combination
of debt securities of government or corporate issuers in developing countries,
equity and debt securities of issuers in developed countries (including the
United States) and cash and money market instruments. For example, when the
stock market is volatile, or when the portfolio manager believes that growth
opportunities in stocks are not attractive, certain debt securities might
provide not only offer defensive opportunities but also some opportunities for
capital appreciation. These investments could include corporate bonds and notes
of foreign or U.S. companies, as well as U.S. and foreign government securities.
It is not expected that this will be a significant portfolio strategy of the
Fund under normal market circumstances.
o Credit Risk. Debt securities are subject to credit risk.
Credit risk relates to the ability of the issuer of a debt security to make
interest or principal payments on the security as they become due. If the issuer
fails to pay interest, the Fund's income may be reduced and if the issuer fails
to repay principal, the value of that bond and of the Fund's shares may be
reduced. The Manager may rely to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities selected
for the Fund's portfolio. It may also use its own research and analysis. Many
factors affect an issuer's ability to make timely payments, and the credit risks
of a particular security may change over time. The Fund may invest in
higher-yielding lower-grade debt securities (that is, securities below
investment grade), which have special risks. Those are securities rated below
the four highest rating categories of Standard & Poor's Rating Service or
Moody's Investors Service, Inc., or equivalent ratings of other rating agencies
or ratings assigned to a security by the Manager.
o Special Risks of Lower-Grade Securities. "Lower-grade" debt
securities are those rated below "investment grade" which means they have a
rating lower than "Baa" by Moody's or lower than "BBB" by Standard & Poor's or
Duff & Phelps, or similar ratings by other rating organizations. If they are
unrated, and are determined by the Manager to be of comparable quality to debt
securities rated below investment grade, they are included in limitation on the
percentage of the Fund's assets that can be invested in lower-grade securities.
The Fund will not invest in securities rated "C" or "D" or which are in default.
Among the special credit risks of lower-grade securities is the greater
risk that the issuer may default on its obligation to pay interest or to repay
principal than in the case of investment grade securities. The issuer's low
creditworthiness may increase the potential for its insolvency. An overall
decline in values in the high yield bond market is also more likely during a
period of a general economic downturn. An economic downturn or an increase in
interest rates could severely disrupt the market for high yield bonds, adversely
affecting the values of outstanding bonds as well as the ability of issuers to
pay interest or repay principal. In the case of foreign high yield bonds, these
risks are in addition to the special risk of foreign investing discussed in the
Prospectus and in this Statement of Additional Information. To the extent they
can be converted into stock, convertible securities may be less subject to some
of these risks than non-convertible high yield bonds, since stock may be more
liquid and less affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's
or Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics.
o Interest Rate Risks. In addition to credit risks, debt
securities are subject to changes in value when prevailing interest rates
change. When interest rates fall, the values of outstanding debt securities
generally rise, and the bonds may sell for more than their face amount. When
interest rates rise, the values of outstanding debt securities generally
decline, and the bonds may sell at a discount from their face amount. The
magnitude of these price changes is generally greater for bonds with longer
maturities. Therefore, when the average maturity of the Fund's debt securities
is longer, its share price may fluctuate more when interest rates change.
-- Privatization Programs. The governments in some developing countries
have been engaged in programs to sell all or part of their interests in
government-owned or controlled enterprises. Privatization programs may offer
opportunities for significant capital appreciation, and the Manager may invest
Fund assets in privatization programs in what it considers to be appropriate
circumstances. In certain developing countries, the ability of foreign entities
such as the Fund to participate in privatization programs may be limited by
local law. Additionally, the terms on which the Fund might be permitted to
participate may be less advantageous than those afforded local investors. There
can be no assurance that privatization programs will be successful.
-- Investments in Other Investment Companies. The Fund may be able to
invest in certain developing countries solely or primarily through
governmentally-authorized investment vehicles or companies. The Fund can invest
up to 10% of its total assets in shares of other investment companies. It can
invest up to 5% of its total assets in any one investment company. Each
investment must 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 that the Fund purchases or acquires as part of
a plan of merger, consolidation, reorganization or acquisition.
Investing in another investment company may involve the payment of
substantial premiums above the value of the investment company's portfolio
securities. These investments are subject to limitations under the Investment
Company Act and market availability. The Fund does not intend to invest in other
investment companies unless, in the judgment of the Manager, the potential
benefits of the 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.
-- "When-Issued" and Delayed-Delivery Transactions. The Fund can
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "delayed-delivery" or "forward commitment basis. These terms refer to
securities that have been created and for which a market exists, but which are
not available for immediate delivery. There may be a risk of loss to the Fund if
the value of the security declines prior to the settlement date.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of entering
into the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions,
it does so for the purpose of acquiring or selling securities consistent with
its investment objective and policies for its portfolio or for delivery pursuant
to options contracts it has entered into, and not for the purpose of investment
leverage. Although the Fund will enter into delayed-delivery or when-issued
purchase transactions to acquire securities, it may dispose of a commitment
prior to settlement. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
delivery or receive against a forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a
security on a when-issued or delayed delivery basis, it records the transaction
on its books and reflects the value of the security purchased in determining the
Fund's net asset value. In a sale transaction, it records the proceeds to be
received. The Fund will identify on its books cash, U.S. government securities
or other high-grade debt obligations at least equal in value to the value of the
Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
-- Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. 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. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. 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. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are 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. However, if the vendor 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 Manager will impose creditworthiness requirements to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
-- 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. To enable the Fund to sell its holdings of a
restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may
be negotiated by the Fund with the issuer at the time the Fund
buys the securities. When the Fund must arrange registration
because the Fund wishes to sell the security, a considerable
period may elapse between the time the decision is made to sell
the security and the time the security is registered so that the
Fund could sell it. The Fund would bear the risks of any downward
price fluctuation during that period.
The Fund can also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted
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 under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid 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 holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
-- Loans of Portfolio Securities. To raise cash for liquidity purposes,
the Fund can lend its portfolio securities to brokers, dealers and other types
of financial institutions approved by the Fund's Board of Trustees. These loans
are limited to not more than 10% of the value of the Fund's total assets. The
Fund currently does not intend to engage in loans of securities in the coming
year, but if it does so, such loans will not likely exceed 5% of the Fund's
total assets.
There are some risks in connection with securities lending. The Fund
might experience a delay in receiving additional collateral to secure a loan, or
a delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, securities of the U.S. Government or
its agencies or instrumentalities, 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. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the
dividends or interest on loaned securities. It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on any short-term debt securities purchased with such loan collateral.
Either type of interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian and administrative fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five days' notice or in time to vote on any important matter.
-- Borrowing for Leverage and Liquidity. The Fund has the ability to
borrow up to 10% of the value of its net assets from banks on an unsecured basis
to invest the borrowed funds in portfolio securities. This speculative technique
is known as "leverage." The Fund can also borrow from banks for temporary or
emergency purposes. The Fund may borrow only from banks. Under current
regulatory requirements, borrowings can be made only to the extent that the
value of the Fund's assets, less its liabilities other than borrowings, is equal
to at least 300% of all borrowings (including the proposed borrowing). If the
value of the Fund's assets fails to meet this 300% asset coverage requirement,
the Fund will reduce its bank debt within three days to meet the requirement. To
do so, the Fund might have to sell a portion of its investments at a
disadvantageous time.
The Fund will pay interest on these loans, and that interest expense
will raise the overall expenses of the Fund and reduce its returns. The Fund
does not expect to borrow for leverage as a normal investment technique. If it
does borrow, its expenses will be greater than comparable funds that do not
borrow for leverage. Additionally, the Fund's net asset value per share might
fluctuate more than that of funds that do not borrow.
-- Derivatives. The Fund can invest in a variety of derivative
investments to seek income for liquidity needs or for hedging purposes. Some
derivative investments the Fund can use are the hedging instruments described
below in this Statement of Additional Information. However, the Fund does not
use, and does not currently contemplate using, derivatives or hedging
instruments to a significant degree in the coming year.
Some of the derivative investments the Fund can use include debt
exchangeable for common stock of an issuer or "equity-linked debt securities" of
an issuer. At maturity, the debt security is exchanged for common stock of the
issuer or it is payable in an amount based on the price of the issuer's common
stock at the time of maturity. Both alternatives present a risk that the amount
payable at maturity will be less than the principal amount of the debt because
the price of the issuer's common stock might not be as high as the Manager
expected.
-- Hedging. Although the Fund does not anticipate the extensive use of
hedging instruments, the Fund can use hedging instruments. To attempt to protect
against declines in the market value of the Fund's portfolio, 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 could:
o sell futures contracts, o buy puts on such futures or on securities,
or
o write covered calls on securities or futures. Covered calls can also
be used to increase the Fund's income, but the Manager does not expect
to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities
market as a temporary substitute for purchasing particular securities. In that
case the Fund would normally seek to purchase the securities and then terminate
that hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
o Futures. The Fund can buy and sell futures contracts that relate to
(1) broadly-based stock indices (these are referred to as stock index futures),
(2) other broadly based securities indices (these are referred to as financial
futures),
(3) debt securities (these are referred to as interest rate futures),
(4) foreign currencies (these are referred to as forward contracts), and
(5) commodities (these are referred to as commodity futures).
A broadly-based stock index is used as the basis for trading stock
index futures. They may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index cannot
be purchased or sold directly. Financial futures are similar contracts based on
the future value of the basket of securities that comprise the index. These
contracts obligate the seller to deliver, and the purchaser to take, cash to
settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the
purchaser to take) cash or a specified type of debt security to settle the
futures transaction. Either party could also enter into an offsetting contract
to close out the position.
The Fund can invests a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4)
industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts and
options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as
other types of commodities.
No payment is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
Custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under 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
daily.
At any time prior to 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 any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are traded.
o Put and Call Options. The Fund may buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Fund may buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
o Writing Covered Call Options. The Fund can write (that is,
sell) covered calls. If the Fund sells a call option, it must be covered. That
means the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable the Fund to satisfy its obligations if the
call is exercised. Up to 25% of the Fund's total assets may be subject to calls
the Fund writes.
When the Fund writes a call on a security, it receives cash (a
premium). The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium).
If the buyer of the call exercises it, the Fund will pay an amount of cash equal
to the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case, the Fund would keep the cash premium.
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 calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for Federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
require the Fund to deliver a futures contract. It would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging policies.
o Writing Put Options. The Fund can sell put options. A put
option on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Fund will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price. If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to
pay for the underlying security the Fund will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize
a profit on an outstanding put option it has written or to prevent the
underlying security from being put. Effecting a closing purchase transaction
will also permit the Fund to write another put option on the security, or to
sell the security and use the proceeds from the sale for other investments. The
Fund will realize a profit or loss from a closing purchase transaction depending
on whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund can 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 buys a call
(other than in a closing purchase transaction), it pays a premium. The Fund then
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.
The Fund benefits only if it sells the call at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts whether or not it holds the underlying investment
in its portfolio. When the Fund purchases a put, it pays a premium and, except
as to puts on indices, has the right to sell the underlying investment to a
seller of a put on a corresponding investment during the put period at a fixed
exercise price. Buying a put on securities or futures the Fund owns 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 date. In that case the Fund will have
paid the premium but lost the right to sell the underlying investment. However,
the Fund may sell the put prior to its expiration.
That sale may or may not be at a profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may buy a call or put only if, after the purchase, the value
of all call and put options held by the Fund will not exceed 5% of the Fund's
total assets.
o Buying and Selling Options on Foreign Currencies. The Fund
can buy and sell calls and puts on foreign currencies. They include puts and
calls that trade on a securities or commodities exchange or in the
over-the-counter markets or are quoted by major recognized dealers in such
options. The Fund could use these calls and puts to try to protect against
declines in the dollar value of foreign securities and increases in the dollar
cost of foreign securities the Fund wants to acquire.
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 those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency 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 it can do so for additional cash consideration held in a
segregated account by its Custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline 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. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in a segregated account with the Fund's Custodian
bank.
o Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument 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.
The Fund's option activities could affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund might 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 could pay a brokerage commission each time it buys a call or
put, sells a call or put, or buys or sells an underlying investment in
connection with the exercise of a call or put. Those commissions could be higher
on a relative basis 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 investments. 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 investment.
If a covered call written by the Fund is exercised on an investment
that has increased in value, the Fund will be required to sell the investment at
the call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
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 assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of 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 securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
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
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market 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 market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further 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 securities purchased.
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 "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 a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another
party agrees to sell, a specific currency at a future date. That date may be any
fixed number of days from the date of the contract agreed upon by the parties.
The transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
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 the risk of 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. Although forward contracts may reduce the risk of loss from a decline
in the value of the hedged currency, at the same time they limit any potential
gain if the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in 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 the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar
value of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund might enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its 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.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying
to its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund
may maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one 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. As another alternative,
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 contact price.
The precise matching of the amounts under forward contracts and the
value of the securities involved generally will not be possible because the
future value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
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 to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to
sell a currency, the Fund might sell a portfolio security and use the sale
proceeds to make delivery of the currency. In the alternative the Fund might
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract. Under that contract the Fund will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund might 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. The
gain or loss will depend on the extent to which the exchange rate or rates
between the currencies involved moved between the execution dates of the first
contract and offsetting contract.
The costs 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. Because forward contracts are usually
entered into on a principal basis, no brokerage fees or commissions are
involved. Because these contracts are not traded on an exchange, the Fund must
evaluate the credit and performance risk of the counterparty under each forward
contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. 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 might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "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 options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures 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 the option exchanges. The exchanges limit the maximum number of
options that may be written or held by a single investor or group of investors
acting in concert. Those limits apply 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 that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). 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.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
o Tax Aspects of Certain Hedging Instruments. Certain foreign currency
exchange contracts in which the Fund may invest are treated as "Section 1256
contracts" under the Internal Revenue Code. In general, gains or losses relating
to Section 1256 contracts are characterized as 60% long-term and 40% short-term
capital gains or losses under the Code. However, foreign currency gains or
losses arising from Section 1256 contracts that are 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," and
unrealized gains or losses are treated as though they were realized. These
contracts also may be marked-to-market for purposes of determining 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 those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character and timing of gains (or losses) recognized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position making
up a straddle is allowed only to the extent that the 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, the following gains or losses are
treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that
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, and
(2) gains or losses attributable to fluctuations in the value of a
foreign currency between the date of acquisition of a debt
security denominated in a foreign currency or foreign currency
forward contracts and the date of disposition.
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 for that trade, which may increase or decrease the amount
of the Fund's investment company income available for distribution to its
shareholders.
-- Temporary Defensive Investments. When market conditions are unstable, or
the Manager believes it is otherwise appropriate to reduce holdings in
stocks, the Fund can invest in a variety of debt securities for defensive
purposes. The Fund can also purchase these securities for liquidity
purposes to meet cash needs due to the redemption of Fund shares, or to
hold while waiting reinvest cash received from the sale of other portfolio
securities. The Fund can hold cash or buy: o high-quality (rated in the top
rating categories of nationally-recognized rating organizations or deemed
by the Manager to be of comparable quality), short-term money market
instruments, including those issued by the U. S. Treasury or other
government agencies,
o commercial paper (short-term, unsecured, promissory notes of
domestic or foreign companies) rated in the top two rating
categories of a nationally recognizes rating organization,
o debt obligations of corporate or foreign government issuers, rated
investment grade (rated at least Baa by Moody's Investors Service,
Inc. or at least BBB by Standard & Poor's Corporation, or a
comparable rating by another rating organization), or unrated
securities judge by the Manager to have a comparable quality to
rated securities in those categories,
o certificates of deposit and bankers' acceptances of domestic and foreign
banks and savings and loan associations, and
o repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.
Investment Restrictions
n What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
-- Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities issued or guaranteed by any one issuer
if more than 5% of its total assets would be invested in securities of that
issuer or if it would then own more than 10% of that issuer's voting securities.
That restriction applies to 75% of the Fund's total assets. The limit does not
apply to securities issued by the U.S. government or any of its agencies or
instrumentalities.
o The Fund cannot concentrate investments in any particular industry.
That means it cannot invest 25% or more of its total assets in companies in any
one industry.
o The Fund cannot lend money. However, the Fund can enter into
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 they are publicly distributed. Investments in obligations that are not
publicly distributed are 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.
o The Fund cannot invest in real estate or interests in real estate.
However, the Fund can purchase readily-marketable securities of companies
holding real estate or interests in real estate.
o The Fund cannot issue senior securities. This restriction does not
prevent the Fund from borrowing money for investment or emergency purposes, or
from entering into margin, collateral or escrow arrangements permitted by its
other investment policies.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
o The Fund cannot invest in commodities or commodity contracts, other
than the hedging instruments permitted by any of its other investment policies.
It does not matter whether the hedging instrument is considered to be a
commodity or commodity contract.
Another fundamental policy adopted by the Fund permits it to invest all
of its assets in the securities of a single open-end management investment
company for which the Manager, one of its subsidiaries or a successor is the
investment adviser or sub-adviser. That fund must have substantially the same
fundamental investment objective, policies and limitations as the Fund. This
policy would permit the Fund to adopt a "master-feeder" structure. Under that
structure, the Fund would be a "feeder" fund and would invest all of its assets
in a single pooled "master fund" in which other feeder funds could also invest.
This could enable the Fund to take advantage of potential operational and cost
efficiencies in the master-feeder structure. The Fund has no present intention
of adopting the master-feeder structure. If it did so, the Prospectus and this
Statement of Additional Information would be revised accordingly. In addition,
the Fund may invest in funds selected by a Trustee of the Fund under its
Deferred Compensation Plan for Disinterested Trustees.
Does the Fund Have Any Restrictions That Are Not Fundamental? The Fund
has a number of other investment restrictions that are not fundamental policies,
which means that they can be changed by the Board of Trustees without
shareholder approval.
o The Fund cannot invest in companies for the purpose of acquiring
control or management of them.
o The Fund cannot purchase securities on margin. However, the Fund may
make margin deposits in connection with any of the hedging instruments permitted
by any of its other investment policies.
o The Fund cannot invest in or hold securities of any issuer if
officers and Trustees of the Fund or the Manager individually beneficially own
more than 1/2 of 1% of the securities of that issuer and together own more than
5% of the securities of that issuer.
o The Fund cannot mortgage or pledge any of its assets. However, this
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.
Unless the Prospectus or this Statement of Additional Information
states that a percentage restriction applies on an ongoing basis, it applies
only at the time the Fund makes an investment. 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.
For purposes of the Fund's policy not to concentrate its
investments as described above, the Fund has adopted the industry
classifications set forth in Appendix A to this Statement of
Additional Information. This is not a fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in May, 1996.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. Although the Fund will
not normally hold annual meetings of its shareholders, 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.
o Classes of Shares. 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 of shares: o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes, o
may have a different net asset value, o may have separate voting rights on
matters in which interests of one class are different from interests of
another class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one
vote at shareholder meetings, with fractional shares voting proportionally on
matters submitted to the vote of shareholders. Each share of the Fund represents
an interest in the Fund proportionately equal to the interest of each other
share of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|_| Meetings of Shareholders. 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. It will also do so 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.
If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other 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. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing
business with the Fund (and each shareholder of the Fund) agrees under its
Declaration of Trust to look solely to the assets of the Fund for satisfaction
of any claim or demand that may arise out of any dealings with the Fund. The
contracts further state that 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 and occupations during the past
five years are listed below. Trustees denoted with an asterisk (*) below are
deemed to be "interested persons" of the Fund under the Investment Company Act.
All of the Trustees are Trustees or Directors of the following New York-based
Oppenheimer funds1:
Oppenheimer California Municipal Fund Oppenheimer International Small Company
Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Developing Markets Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Discovery Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Enterprise Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Global Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Global Growth & Oppenheimer Municipal Bond Fund
Income Fund Oppenheimer New York Municipal Fund
Oppenheimer Gold & Special Oppenheimer Series Fund, Inc.
Minerals Fund Oppenheimer U.S. Government Trust
Oppenheimer Growth Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Bowen, Zack, Bishop and
Farrar respectively hold the same offices with the other New York-based
Oppenheimer funds as with the Fund. As of December 1, 1998, the Trustees and
officers of the Fund as a group owned of record or beneficially less than 1% of
each class of shares of the Fund. The foregoing statement does not reflect
ownership of shares of the Fund held of record by an employee benefit plan for
employees of the Manager, other than the shares beneficially owned under the
plan by the officers of the Fund listed above. Ms. Macaskill and Mr. Donohue are
trustees of that plan.
Leon Levy, Chairman of the Board of Trustees, Age: 73
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since
1982) and Chairman of Avatar Holdings, Inc. (real estate development).
Robert G. Galli, Trustee, Age: 65
19750 Beach Road, Jupiter Island, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 to
December 1997); Vice President (June 1990 to March 1994) and General Counsel of
Oppenheimer Acquisition Corp., the Manager's parent holding company; Executive
Vice President (December 1977 to October 1995), General Counsel and a director
(December 1975 to October 1993) of the Manager; Executive Vice President and a
director (July 1978 to October 1993) and General Counsel of the Distributor,
OppenheimerFunds Distributor, Inc.; Executive Vice President and a director
(April 1986 to October 1995) of HarbourView Asset Management Corporation; Vice
President and a director (October 1988 to October 1993) of Centennial Asset
Management Corporation, (HarbourView and Centennial are investment adviser
subsidiaries of the Manager); and an officer of other Oppenheimer funds.
Benjamin Lipstein, Trustee, Age: 75
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Trustee*, Age: 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corp.; Chairman and a director of
Shareholder Services, Inc. (since August 1994), and Shareholder Financial
Services, Inc. (since September 1995) (both are transfer agent subsidiaries of
the Manager); President (since September 1995) and a director (since October
1990) of Oppenheimer Acquisition Corp.; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director (since July 1996) of
Oppenheimer Real Asset Management, Inc., an investment advisory subsidiary of
the Manager; President and a director (since October 1997) of OppenheimerFunds
International Ltd., an offshore fund management subsidiary of the Manager, and
of Oppenheimer Millennium Funds plc, an offshore investment company; President
and a director or trustee of other Oppenheimer funds; a director of Hillsdown
Holdings plc (a U.K. food company); formerly an Executive Vice President of the
Manager and a director (until 1998) of NASDAQ Stock Market, Inc.
Elizabeth B. Moynihan, Trustee, Age: 69
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institution), Executive Committee Board of Trustees of the National
Building Museum; a member of the Trustees Council, Preservation League of New
York State.
Kenneth A. Randall, Trustee, Age: 71
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil and gas producer), and Prime
Retail, Inc. (real estate investment trust); formerly President and Chief
Executive Officer of The Conference Board, Inc. (international economic and
business research) and a director of Lumbermens Mutual Casualty Company,
American Motorists Insurance Company and American Manufacturers Mutual Insurance
Company.
Edward V. Regan, Trustee, Age: 68
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 River Bank America (real estate
manager); Trustee, Financial Accounting Foundation (FASB and GASB); formerly New
York State Comptroller and trustee, New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 67
8 Sound Shore Drive, Greenwich, Connecticut 06830
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directorship Inc. (corporate governance
consulting); a director of Professional Staff Limited (U.K); a trustee of
Mystic Seaport Museum, International House and Greenwich Historical
Society.
Donald W. Spiro, Vice Chairman and Trustee*, Age: 73
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Chairman Emeritus (since August 1991) and a director (since January 1969)
of the Manager; formerly Chairman of the Manager and the Distributor.
Pauline Trigere, Trustee, Age: 86
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of P.T. Concept (design and sale of
women's fashions).
Clayton K. Yeutter, Trustee, Age: 68
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a law firm); a director of Zurich Financial
Services (financial services), Farmers Insurance Company (insurance), FMC
Corp. (chemicals and machinery) 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, formerly a director of B.A.T. Industries, Ltd. (tobacco and
financial services), Caterpillar, Inc. (machinery), ConAgra, Inc. (food and
agricultural products).
Rajeev Bhaman, Vice President and Portfolio Manager, Age: 35
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Vice President of the Manager (since November 1997); formerly Assistant Vice
President of the Manager (December 1996 - November 1997) and portfolio analyst
(March 1996 - December 1996); previously Vice President for Asian Equities of
Barclays de Zoete Wedd Inc., an investment management firm (until March 1996).
Andrew J. Donohue, Secretary, Age: 48
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corp., Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since September 1995); President and a director of Centennial Asset Management
Corp. (since September 1995); President and a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); General Counsel (since May 1996) and
Secretary (since April 1997) of Oppenheimer Acquisition Corp.; Vice President
and a director of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
George C. Bowen, Treasurer, Age: 62
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985) of
the Manager; Vice President (since June 1983) and Treasurer (since March 1985)
of the Distributor; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView Asset Management Corp.; Senior Vice President (since
February 1992), Treasurer (since July 1991) and a director (since December 1991)
of Centennial Asset Management Corp.; Vice President and Treasurer (since August
1978) and Secretary (since April 1981) of Shareholder Services, Inc.; Vice
President, Treasurer and Secretary of Shareholder Financial Services, Inc.
(since November 1989); Assistant Treasurer of Oppenheimer Acquisition Corp.
(since March 1998); Treasurer of Oppenheimer Partnership Holdings, Inc. (since
November 1989); Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc. (since July 1996); Treasurer of OppenheimerFunds International
Ltd. and Oppenheimer Millennium Funds plc (since October 1997); a trustee or
director and an officer of other Oppenheimer funds; formerly Treasurer of
Oppenheimer Acquisition Corp. (June 1990 - March 1998).
Robert G. Zack, Assistant Secretary, Age: 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager; Assistant Secretary of Shareholder Services, Inc.
(since May 1985), and Shareholder Financial Services, Inc. (since November
1989); Assistant Secretary (since October 1997) of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc; an officer of
other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 33
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds; formerly
an Assistant Vice President of the Manager/Mutual Fund Accounting (April
1994-May 1996), and a Fund Controller for the Manager.
|X| Remuneration of Trustees. The officers of the Fund and certain
Trustees of the Fund (Ms. Macaskill and Mr. Spiro) who are affiliated with the
Manager receive no salary or fee from the Fund. The remaining Trustees of the
Fund received the compensation shown below. The compensation from the Fund was
paid during its fiscal period ended August 31, 1998. The compensation from all
of the New York-based Oppenheimer funds (including the Fund) was received as a
director, trustee or member of a committee of the boards of those funds during
the calendar year 1997.
<PAGE>
<TABLE>
<CAPTION>
Total
Retirement Compensation
Benefits from all
Aggregate Compensation Accrued as Part New York based Oppenheimer
Trustee's Name from Fund of Fund Funds (20 Funds)(1)
and Position Expenses
<S> <C> <C> <C>
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Leon Levy $10,168 $8,802 $158,500
Chairman
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Robert G. Galli $5322 $0 None
Study Committee Member
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Benjamin Lipstein $14,005 $12,824 $137,000
Study Committee Chairman,3
Audit Committee Member
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Elizabeth B. Moynihan $832 $0 $96,500
Study Committee
Member
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Kenneth A. Randall $6,663 $5,900 $88,500
Audit Committee Member
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Edward V. Regan $755 $0 $87,500
Proxy Committee Chairman, Audit
Committee Member
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Russell S. Reynolds, Jr. $2,155 $1,590 $65,500
Proxy Committee
Member
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Pauline Trigere $4,781 $4,277 $58,500
- ------------------------------------ -------------------------- ------------------------- ----------------------------
- ------------------------------------ -------------------------- ------------------------- ----------------------------
Clayton K. Yeutter $565 4 $0 $65,500
Proxy Committee
Member
</TABLE>
1 For the 1997 calendar year.
2 Reflects fees from 1/1/98 to 8/31/98
3 Committee position held during a portion of the period shown.
4 Includes $84 deferred under Deferred Compensation Plan described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement
plan that provides for payments to retired Trustees. Payments are up to 80% of
the average compensation paid during a Trustee's five years of service in which
the highest compensation was received. A Trustee must serve as trustee for any
of the New York-based Oppenheimer funds for at least 15 years to be eligible for
the maximum payment. Each Trustee's retirement benefits will depend on the
amount of the Trustee's future compensation and length of service. Therefore the
amount of those benefits cannot be determined at this time, nor can we estimate
the number of years of credited service that will be used to determine those
benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect
the Fund's assets, liabilities or net income per share. The plan will not
obligate the Fund to retain the services of any Trustee or to pay any particular
level of compensation to any Trustee. Pursuant to an Order issued by the
Securities and Exchange Commission, the Fund may invest in the funds selected by
the Trustee under the plan without shareholder approval for the limited purpose
of determining the value of the Trustee's deferred fee account.
Major Shareholders. As of December 1, 1998, no person was known by the Fund to
own beneficially 5% or more of the shares of any class of the Fund's outstanding
securities.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. 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.
-- The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Equity Portfolio Team, in particular, Frank Jennings, who is a
Vice President of the Manager, and William Wilby, who is a Senior Vice President
of the Manager, provide the portfolio manager with counsel and support in
managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories 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 management fees paid by
the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class.
<PAGE>
Fiscal Years ended 8/31: Management Fees Paid to OppenheimerFunds, Inc.
1997* $211,914
1998 $588,067
* Fiscal period from inception, 11/18/96.
The investment advisory agreement contains an indemnity of the Manager. In
the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or reckless disregard of its obligations and duties
under the investment advisory agreement, the Manager is not liable for any loss
resulting from a good faith error or omission on its part with respect to any of
its duties under the agreement.
The agreement permits the Manager to act as investment adviser 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
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
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. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors will implement the policy of the
Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Trustees.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) 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 charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those considerations, as a factor in selecting
brokers for the Fund's portfolio transactions, the Manager may also consider
sales of shares of the Fund and other investment companies for which the Manager
or an affiliate serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for effecting transactions in listed securities or for certain fixed-income
agency transactions in the secondary market. Otherwise brokerage commissions are
paid only if it appears likely that a better price or execution can be obtained
by doing so. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. Instead of using a broker for those transactions, the Fund normally
deals directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. 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. The investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research may be supplied to the Manager by
a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, 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 in commission dollars.
The Board of Trustees permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
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 Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
Fiscal Years Ended 8/31: Total Brokerage Commissions Paid by the Fund(1)
1997(2) $280,213
1998 $285,5393
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. Fiscal period from inception of Fund 11/18/96
3. In the fiscal year ended 8/31/98, the amount of transactions directed to
brokers for research services was $53,096,682 and the amount of the commissions
paid to broker-dealers for those services was $275,587.
Distribution and Service Plans
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 classes of shares. The Distributor is not obligated to
sell a specific number of shares. Expenses normally attributable to sales are
borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
<PAGE>
<TABLE>
<CAPTION>
Aggregate Class A Front-End Commissions on Commissions on Commissions on
Fiscal Year Front-End Sales Sales Charges Class A Shares Class B Shares Class C Shares
Ended 8/31: Charges on Class Retained by Advanced by Advanced by Advanced by
A Shares Distributor Distributor(1) Distributor(1) Distributor(1)
<S> <C> <C> <C> <C> <C>
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
19972 $260,494 $78,557 N/A $369,016 $23,133
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
1998 $297,560 $91,264 $12,542 $370,774 $31,465
- --------------- ------------------- ------------------- -------------------- ------------------- -------------------
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. Fiscal period from inception of the Fund, 11/18/96.
<TABLE>
<CAPTION>
Class A Contingent Deferred Class B Contingent Deferred Class C Contingent Deferred
Fiscal Years Ended Sales Charges Retained by Sales Charges Retained by Sales Charges Retained by
8/31: Distributor Distributor Distributor
<S> <C> <C> <C>
- ----------------------- ----------------------------- ------------------------------ -------------------------------
1997* None None $9,165
- ----------------------- ----------------------------- ------------------------------ -------------------------------
- ----------------------- ----------------------------- ------------------------------ -------------------------------
1998 None $45,540 $3,495
- ----------------------- ----------------------------- ------------------------------ -------------------------------
</TABLE>
* From inception of the Fund, 11/18/96.
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans,"
below.
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 under
Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays the
Distributor for all or a portion of its costs incurred in connection with the
distribution and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees, including
a majority of the Independent Trustees2, cast in person at a meeting called for
the purpose of voting on that plan. Each plan has also been approved by the
holders of a "majority" (as defined in the Investment Company Act) of the shares
of the applicable class. The shareholder votes for the plans were cast by the
Manager as the sole initial holder of each class of shares of the Fund.
Under the plans, the Manager and the Distributor, in their sole
discretion, from time to time, may use their own resources (at no direct cost to
the Fund) to make payments to brokers, dealers or other financial institutions
for distribution and administrative services they perform. The Manager may use
its profits from the advisory fee it receives from the Fund. In their sole
discretion, the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan 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.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund must obtain the approval
of both Class A and Class B shareholders for a proposed material amendment to
the Class A Plan that would materially increase payments under the Plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of
the shares of each Class, voting separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan, the purpose for which the payments were made and the identity
of each recipient of a payment. The reports on the Class B Plan and Class C Plan
shall also include the Distributor's distribution costs for that quarter and in
the case of the Class B plan the amount of those costs for previous fiscal
periods that are unreimbursed. Those reports are subject to the review and
approval of the Independent Trustees.
Each Plan states 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 the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares of that
class held by the recipient for itself and its customers does not exceed a
minimum amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
o Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services 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. While the plan
permits the Board to authorize payments to the Distributor to reimburse itself
for services under the plan, the Board has not yet done so. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.25% of the average annual net assets consisting of Class A shares held in the
accounts of the recipients or their customers.
For the fiscal period ended August 31, 1998 payments under the Class A
Plan totaled $81,997, all of which was paid by the Distributor to recipients.
That included $8,051 paid to an affiliate of the Distributor's parent company.
Any unreimbursed expenses the Distributor incurs with respect to Class A shares
in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A Plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.
o Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution 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 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 under the plans during the
period for which the fee is paid. The types of services that recipients provide
are similar to the services provided under the Class A Service Plan, described
above.
The Class B and the Class C Plans permit the Distributor to retain both
the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor currently intends to pay the service fee to recipients in advance
for the first year after the shares are purchased. After the first year shares
are outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the recipient on Class C shares outstanding for a
year or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow investors
to buy 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. The payments are made to the Distributor in recognition that the
Distributor: o pays sales commissions to authorized brokers and dealers at the
time of sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide
such financing from its own resources or from the resources of an
affiliate,
o employs personnel to support distribution of Class B and Class C shares, and
o bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses.
For the fiscal period ended August 31, 1998, payments under the Class B
plan totaled $186,939 (including $0 paid to an affiliate of the Distributor's
parent). The Distributor retained $168,997 of the total amount. For the fiscal
period ended August 31, 1998, payments under the Class C plan totaled $42,076,
(including $0 paid to an affiliate of the Distributor's parent). The Distributor
retained $32,242 of the total amount.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. As of
August 31, 1998, the Distributor had incurred unreimbursed expenses under the
Class B plan in the amount of $634,402 (equal to 4.96% of the Fund's net assets
represented by Class B shares on that date) and unreimbursed expenses under the
Class C plan of $59,931 (equal to 1.96% of the Fund's net assets represented by
Class C shares on that date). If either the Class B or the Class C plan is
terminated by the Fund, the Board of Trustees may allow the Fund to continue
payments of the asset-based sales charge to the Distributor to compensate it for
its expenses incurred for distributing shares before the plan was terminated.
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown 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 (or its submission for
publication).
Use of standardized performance calculations 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 the
Fund's performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in
the Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
|_| An investment in the Fund is not insured by the FDIC or any other government
agency.
|_| The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or
less than their original cost.
|_| Total returns for any given past period represent historical performance
information and are not, and should not be considered, a prediction of future
returns.
The performance of each class of shares is shown separately, because
the performance of each class of shares will usually be different. That is
because of the different kinds of expenses each class bears. The total returns
of each class of shares of the Fund are affected by market conditions, the
quality of the Fund's investments, the maturity of debt investments, the types
of investments the Fund holds, and its operating expenses that are allocated to
the particular class.
|X| Total Return Information. There are different types of "total
returns" 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
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. 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 actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
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 without sales charge,
as described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. The "average annual total return" of
each class 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" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
( )
( ERV ) - 1 = Average Annual Total Return
( ------- )
P
|_| Cumulative Total Return. 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
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for each class of 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.
The Fund's Total Returns for the Periods Ended 8/31/98
Cumulative Total Average Annual Total Returns
Class of Returns (Life of Class)
Shares
<TABLE>
<CAPTION>
1-Year Life-of-Class
After Without After Sales Without Sales After Sales Charge Without Sales Charge
Sales Sales Charge Charge
Charge Charge
<S> <C> <C> <C> <C> <C> <C>
- -------------- ------------ ------------ ----------------- --------------- -------------------- ----------------------
- -------------- ------------ ------------ ----------------- --------------- -------------------- ----------------------
Class A -23.07% -18.38% -39.99% -36.33% -13.66% 1 -10.75% 1
- -------------- ------------ ------------ ----------------- --------------- -------------------- ----------------------
- -------------- ------------ ------------ ----------------- --------------- -------------------- ----------------------
Class B -22.69% -19.61% -39.87% -36.85% -13.42% 2 -11.51% 2
- -------------- ------------ ------------ ----------------- --------------- -------------------- ----------------------
- -------------- ------------ ------------ ----------------- --------------- -------------------- ----------------------
Class C -19.58% -19.58% -37.48% -36.88% -11.49% 3 -11.49% 3
- -------------- ------------ ------------ ----------------- --------------- -------------------- ----------------------
</TABLE>
1. Inception of Class A: 11/18/96
2. Inception of Class B: 11/18/96
3. Inception of Class C: 11/18/96
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking
of the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is 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. Lipper currently ranks the Fund's performance against all
other emerging markets funds. 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. Lipper also
publishes "peer-group" indices of the performance of all mutual funds in a
category that it monitors and averages of the performance of the funds in
particular categories.
|_| Morningstar Rankings. From time to time the Fund may publish the
star ranking of the performance of its classes of shares by Morningstar, Inc.,
an independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among domestic
stock funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) one-, three-, five- and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after considering the
fund's sales charges and expenses. Risk measures a fund's (or class's)
performance below 90-day U.S. Treasury bill 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%
of funds in a category), 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%). The current star ranking is the fund's (or class's)
3-year ranking or its combined 3- and 5-year ranking (weighted 60%/40%
respectively), or its combined 3-, 5-, and 10-year ranking (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).
Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share
classes to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the
Manager or Transfer Agent, and of 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 and
investor services by third parties may include comparisons of their services to
those provided by other mutual fund families selected by the rating or ranking
services. They may be based upon the opinions of the rating or ranking service
itself, using its research or judgment, or based upon surveys of investors,
brokers, shareholders or others.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with 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 New York
Stock 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 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 Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
n 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:
o Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or
custodial accounts on behalf of your children who are minors,
and
o 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, and
o 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.
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. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
n The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Bond Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation
Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Main Street Growth
& Income Fund
Oppenheimer Champion Income Fund Oppenheimer MidCap Fund
Oppenheimer Convertible Securities
Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Developing Markets Fund Oppenheimer Municipal Bond Fund
Oppenheimer Disciplined Allocation
Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Equity Income Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income
Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Gold & Special Minerals
Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal
Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond
Fund Oppenheimer World Bond Fund
Oppenheimer International Growth
Fund Limited-Term New York Municipal Fund
Oppenheimer International Small
Company Fund Rochester Fund Municipals
Oppenheimer Large Cap Growth Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A 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. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may 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 of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) 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 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. However, 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. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
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 a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
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
total purchases. 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 Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
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.
The Transfer Agent will not hold shares in escrow for purchases of
shares of the Fund and other Oppenheimer funds by OppenheimerFunds prototype
401(k) plans under a Letter of Intent. If the intended purchase amount under a
Letter of Intent 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.
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.
-- 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 up 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.
2. If the total minimum investment 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. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the 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 of other Oppenheimer funds acquired subject to a contingent
deferred sales charge, and (c) Class A or Class B shares acquired by exchange of
either
(1) 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
(2) 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 to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. 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. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix B to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the plan's applicable investments
reach $5 million.
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. 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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
-- Class B Conversion. 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
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder 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 shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
-- Allocation of Expenses. 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.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done 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
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the values of some of the
Fund's portfolio securities may change significantly on those days, when
shareholders may not purchase or redeem shares. Trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or
markets as a result of events that occur after the prices of those securities
are determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Board of Trustees determines that the event is likely to effect a material
change in the value of the security. The Manager may make that determination,
under procedures established by the Board.
-- Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows:
(1) if last sale information is regularly reported, they are valued at the last
reported sale price on the principal exchange on which they are traded or on
NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation
date, they are valued at the last reported sale price
preceding the valuation date if it is within the spread of
the closing "bid" and "asked" prices on the valuation date
or, if not, at the closing "bid" price on the valuation
date.
o Equity securities traded on a foreign securities exchange generally
are valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the
principal exchange on which the security is traded at its last trading session
on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the principal
exchange on which the security is traded or, on the basis of reasonable inquiry,
from two market makers in the security.
o Long-term debt securities having a remaining maturity in excess of 60 days are
valued based on the mean between the "bid" and "asked" 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.
o The following securities are valued at the mean between the "bid" and "asked"
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:
(1)
debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and
have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less
when issued and which have a remaining maturity of 60 days or less.
o The following securities are valued at cost, adjusted for amortization of
premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining maturity of 60
days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity
of 397 days or less.
o 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, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a
particular business day that are provided to the Manager by a bank, dealer or
pricing service that the Manager has determined to be reliable are used to value
foreign currency, including forward contracts, and to convert to U.S. dollars
securities that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale 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, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the 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 by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" 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. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. 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.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class
A shares on which a contingent deferred sales charge was paid, or
o Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
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 in "How to Exchange Shares" below.
Reinvestment will be at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the Transfer
Agent for that privilege at the time of reinvestment. This privilege does not
apply to Class C shares. 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.
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.
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.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
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 $200 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be 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
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,
OppenheimerFunds 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 (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is premature; and (3) conform to the requirements of the plan and
the Fund's other redemption requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary 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 and submitted to the
Transfer Agent 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 Distributor, 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. Shareholders should contact their
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
an order placed by the dealer or broker. However, 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 closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
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. The signature(s) of the registered owners on the
redemption documents must be guaranteed 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
(having a value of at least $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. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored 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
Account Application or by signature-guaranteed instructions sent to the Transfer
Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the
Account Application. If a contingent deferred sales charge applies to the
redemption, the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested.
The Fund reserves the right to amend, suspend or discontinue offering these
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 contingent deferred sales charge is waived as described in Appendix B,
below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
-- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent 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.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges 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.
-- Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. 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
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (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 not taken by the Transfer Agent in good faith to administer the
Plan. Share 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.
Shares will be redeemed to make withdrawal payments at the net asset
value per share determined on the redemption date. Checks or AccountLink
payments representing the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment, according to the choice specified in writing by the Planholder. Receipt
of payment on the date selected cannot be guaranteed.
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 after 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 to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the
Transfer Agent. The Fund may also give directions to the Transfer Agent to
terminate a Plan. The Transfer Agent will also terminate a Plan upon its receipt
of evidence satisfactory to it that the Planholder has died or is legally
incapacitated. Upon termination of a Plan by the Transfer Agent or the Fund,
shares that have not been redeemed will be held in uncertificated form in the
name of the Planholder. The account will continue as a dividend-reinvestment,
uncertificated account unless and until proper instructions are received from
the Planholder, his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated form.
Upon written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. 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 Oppenheimer funds
that have a single class without a class designation are deemed "Class A" shares
for this purpose. You can obtain a current list showing which funds offer which
classes by calling the Distributor at 1-800-525-7048.
o All of the Oppenheimer funds currently offer Class A, B and 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, and Centennial America
Fund, L.P., which only offer Class A shares.
o Oppenheimer Main Street California Municipal Fund currently offers
only Class A and Class B shares.
o Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds-sponsored 401 (k) plans.
o Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for shares
of any other Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days 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. To
qualify for that 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. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M
shares of Oppenheimer Convertible Securities Fund, Class M shares can be
exchanged only for Class A shares of other Oppenheimer funds. Exchanges to Class
M shares of Oppenheimer Convertible Securities Fund are permitted from Class A
shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that
were acquired by exchange of Class M shares. No other exchanges may be made to
Class M shares.
Shares of the Fund acquired by reinvestment of dividends or
distributions from any of the other Oppenheimer funds 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.
-- How Exchanges Affect Contingent Deferred Sales Charges. 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. 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 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. Before exchanging
shares, shareholders should take into account how the exchange may affect 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 which class of shares they intend to exchange.
-- Limits on Multiple Exchange Orders. 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.
-- Telephone Exchange Requests. When exchanging shares by
telephone, a shareholder must have an existing account in the fund to which the
exchange is to be made. Otherwise, the investors must obtain a Prospectus of
that fund before the exchange request may be submitted. For full or partial
exchanges of an account made by telephone, any special account features such as
Asset Builder Plans and Automatic Withdrawal Plans 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.
-- Processing 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 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 Fund may refuse the
request.
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.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. 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
Dividends and Distributions. The Fund has no fixed dividend rate and
there can be no assurance as to the payment of any dividends or the realization
of any capital gains. The dividends and distributions paid by a class of shares
will vary from time to time depending on market conditions, the composition of
the Fund's portfolio, and expenses borne by the Fund or borne separately by a
class. Dividends are calculated in the same manner, at the same time, and on the
same day for each class of shares. However, dividends on Class B and Class C
shares are expected to be lower than dividends on Class A shares. That is
because of the effect of the asset-based sales charge on Class B and Class C
shares. Those dividends will also differ in amount as a consequence of any
difference in the net asset values of each class of shares.
Dividends, distributions and 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.
Reinvestment will be made 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. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
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. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from 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.
Therefore, the Fund does not expect that a substantial portion of its dividends
will qualify for the 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.
If it does not, the Fund must pay an excise tax on the amounts not distributed.
It is presently anticipated that the Fund will meet those requirements. However,
the Board of Trustees and the Manager might determine in a particular year that
it would be in the best interests 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.
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 receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). 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 qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. 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.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
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 above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
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 shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as 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 numbers shown on the back cover.
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. 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. Those
uninsured balances at times may be substantial. Independent Auditors. KPMG Peat
Marwick LLP are the independent auditors of the Fund. They 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer Developing Markets Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Developing Markets Fund as of August 31, 1998, and
the related statement of operations for the year then ended and the statements
of changes in net assets and financial highlights for the year then ended and
the period from November 18, 1996 (commencement of operations) to August 31,
1997. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 1998, by correspondence with
the custodian and brokers; and where confirmations were not received from
brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material respects, the
financial position of Oppenheimer Developing Markets Fund as of August 31, 1998,
the results of its operations for the year then ended and the changes in net
assets and financial highlights for the year then ended and the period from
November 18, 1996 (commencement of operations) to August 31, 1997, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- ------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
September 22, 1998
<PAGE>
STATEMENT OF INVESTMENTS August 31, 1998
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--95.9%
- ------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--23.3%
- ------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--8.4%
Art Marketing Syndicate SA(1) 28,380 $ 177,515
- ------------------------------------------------------------------------------------------------------
Brazil Realty SA, GDR(2) 38,800 626,364
- ------------------------------------------------------------------------------------------------------
Corporacion GEO, SA de CV, Series B(1) 66,000 165,504
- ------------------------------------------------------------------------------------------------------
Courts (Singapore) Ltd. 3,226,000 454,097
- ------------------------------------------------------------------------------------------------------
Ellerine Holdings Ltd. 88,000 180,786
- ------------------------------------------------------------------------------------------------------
Grupo Accion SA de CV, Series B(1) 730,000 278,247
- ------------------------------------------------------------------------------------------------------
IRSA Inversiones y Representaciones SA, Sponsored GDR 25,332 601,635
- ------------------------------------------------------------------------------------------------------
Solidere, GDR(2) 79,800 837,900
----------
3,322,048
- ------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.5%
CDL Hotels International Ltd. 878,000 190,348
- ------------------------------------------------------------------------------------------------------
MEDIA--14.4%
Grupo Radio Centro SA de CV, Sponsored ADR 73,100 461,444
- ------------------------------------------------------------------------------------------------------
Grupo Televisa SA, Sponsored GDR(1) (2) 72,600 1,252,350
- ------------------------------------------------------------------------------------------------------
Lusomundo SGPS SA 152,000 2,120,578
- ------------------------------------------------------------------------------------------------------
Singapore Press Holdings Ltd. 85,000 598,237
- ------------------------------------------------------------------------------------------------------
Television Broadcasts Ltd. 333,000 717,637
- ------------------------------------------------------------------------------------------------------
Times Publishing Ltd. 510,000 545,592
----------
5,695,838
- ------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--20.2%
- ------------------------------------------------------------------------------------------------------
BEVERAGES--1.0%
Serm Suk Public Co. Ltd. (1) 71,800 404,410
- ------------------------------------------------------------------------------------------------------
FOOD--8.7%
Cresud SA(1) 482,050 684,634
- ------------------------------------------------------------------------------------------------------
Dairy Farm International Holdings Ltd. 1,244,000 1,181,800
- ------------------------------------------------------------------------------------------------------
Makro Atacadista SA 104,000 733,418
- ------------------------------------------------------------------------------------------------------
PT Hero Supermarket(1) 4,466,500 388,823
- ------------------------------------------------------------------------------------------------------
Rolimpex SA(1) 350,000 460,396
----------
3,449,071
- ------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--4.3%
Cheminor Drugs Ltd. 171,050 494,806
- ------------------------------------------------------------------------------------------------------
Dr. Reddy's Laboratories Ltd. 57,000 554,985
- ------------------------------------------------------------------------------------------------------
Glaxo (India) Ltd. 207 1,935
- ------------------------------------------------------------------------------------------------------
Lavipharm, SA 102,300 650,219
- ------------------------------------------------------------------------------------------------------
Pfizer Ltd. (1) 85 1,194
----------
1,703,139
</TABLE>
13 Oppenheimer Developing Markets Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--3.2%
Parkway Holdings Ltd. 330,000 $ 314,011
- ------------------------------------------------------------------------------------------------------
Pliva d.d., Sponsored GDR(2) 110,400 951,836
----------
1,265,847
- ------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--1.2%
Grupo Casa Autrey SA ADR 83,000 456,500
- ------------------------------------------------------------------------------------------------------
Pond's (India) Ltd. 228 6,504
----------
463,004
- ------------------------------------------------------------------------------------------------------
TOBACCO--1.8%
Eastern Tobacco 24,500 545,801
- ------------------------------------------------------------------------------------------------------
Papastratos Cigarettes SA 8,800 161,712
----------
707,513
- ------------------------------------------------------------------------------------------------------
ENERGY--3.8%
- ------------------------------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS--1.5%
Cia de Eletricidade do Estado da Bahia, Preference 19,250,000 588,648
- ------------------------------------------------------------------------------------------------------
OIL-INTEGRATED--2.3%
Energy Africa Ltd. (1) 155,000 337,729
- ------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA, ADR 17,650 184,455
- ------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference 3,560,000 372,047
----------
894,231
- ------------------------------------------------------------------------------------------------------
FINANCIAL--34.5%
- ------------------------------------------------------------------------------------------------------
BANKS--18.1%
Amalgamated Banks of South Africa Ltd. 80,000 223,493
- ------------------------------------------------------------------------------------------------------
Banco Bradesco SA, Preference 46,000,000 270,462
- ------------------------------------------------------------------------------------------------------
Banco de Galicia y Buenos Aires SA de CV, Sponsored ADR 17,977 206,741
- ------------------------------------------------------------------------------------------------------
Banco Pinto & Sotto Mayor SA 98,560 1,886,843
- ------------------------------------------------------------------------------------------------------
Bank Leumi Le-Israel 465,000 743,688
- ------------------------------------------------------------------------------------------------------
Banque Libanaise Pour Le Commercial, GDR 30,500 539,850
- ------------------------------------------------------------------------------------------------------
Commercial International Bank, Sponsored GDR 58,750 425,938
- ------------------------------------------------------------------------------------------------------
Espirito Santo Financial Group, ADR 41,700 688,050
- ------------------------------------------------------------------------------------------------------
Grupo Financiero Banorte SA de CV, Series B(1) 1,018,000 530,977
- ------------------------------------------------------------------------------------------------------
Grupo Financiero Inbursa SA de CV, Series B 165,000 268,448
- ------------------------------------------------------------------------------------------------------
Hansabank Ltd. (1) 130,000 799,360
- ------------------------------------------------------------------------------------------------------
Industrial Finance Corp. of Thailand (The) 1,479,799 180,119
- ------------------------------------------------------------------------------------------------------
PT Pan Indonesia Bank 1,100,000 22,098
- ------------------------------------------------------------------------------------------------------
Unibanco-Uniao de Bancos Brasileiros SA, Sponsored GDR 23,000 345,000
----------
7,131,067
</TABLE>
14 Oppenheimer Developing Markets Fund
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIVERSIFIED FINANCIAL--10.9%
Banco BHIF, Sponsored ADR 73,500 $ 983,063
- ------------------------------------------------------------------------------------------------------
Haci Omer Sabanci Holding AS ADR 119,000 467,075
- ------------------------------------------------------------------------------------------------------
Housing Development Finance Corp. Ltd. (1) 5,000 301,123
- ------------------------------------------------------------------------------------------------------
Industrial Credit & Investment Corp. of India Ltd. 6,200 10,142
- ------------------------------------------------------------------------------------------------------
Industrial Credit & Investment Corp. of India Ltd., GDR(2) 221,625 2,000,166
- ------------------------------------------------------------------------------------------------------
Marico Industries Ltd. 87,000 558,584
----------
4,320,153
- ------------------------------------------------------------------------------------------------------
INSURANCE--5.5%
Adamjee Insurance Co. Ltd. 691,250 628,942
- ------------------------------------------------------------------------------------------------------
Aksigorta AS 17,983,000 479,391
- ------------------------------------------------------------------------------------------------------
Liberty Life Assn. Africa Ltd. 28,099 330,177
- ------------------------------------------------------------------------------------------------------
National Mutual Asia Ltd. 815,000 315,517
- ------------------------------------------------------------------------------------------------------
WARTA SA 22,500 398,652
----------
2,152,679
- ------------------------------------------------------------------------------------------------------
INDUSTRIAL--2.2%
- ------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--1.3%
Cia de Saneamento Basico do Estado de Sao Paulo(1) 5,470,126 455,430
- ------------------------------------------------------------------------------------------------------
MRC Allied Industries, Inc.(1) 4,400,000 18,082
- ------------------------------------------------------------------------------------------------------
Noble Group Ltd.(1) 550,000 55,000
------
528,512
- ------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.9%
Asian Terminals, Inc. 5,600,000 81,826
- ------------------------------------------------------------------------------------------------------
Guangshen Railway Co. Ltd., Sponsored ADR 61,300 256,694
----------
338,520
- ------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.6%
- ------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--1.6%
Embraer-Empresa Brasileira de Aeronautica SA Preference(1) 47,750,000 649,137
- ------------------------------------------------------------------------------------------------------
UTILITIES--10.3%
- ------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.7%
Cia de Eletricidade do Estado da Bahia 15,560,000 542,046
- ------------------------------------------------------------------------------------------------------
Cia Paranaense Energia, Sponsored ADR, Preference B Shares 163,600 899,800
----------
1,441,846
- ------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.3%
Primagaz Rt. 13,500 135,132
</TABLE>
15 Oppenheimer Developing Markets Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
TELEPHONE UTILITIES--6.3%
Khantimansiysk(1)(3) 4,100 $ 57,667
- ------------------------------------------------------------------------------------------------------
Kubanelectrosvyaz(1)(3) 15,750 85,129
- ------------------------------------------------------------------------------------------------------
Telecomunicacoes Brasileiras SA 18,200,000 974,215
- ------------------------------------------------------------------------------------------------------
Telecomunicacoes do Rio de Janeiro SA, Preference 17,018,554 621,776
- ------------------------------------------------------------------------------------------------------
Telerj Celular SA, Cl. B(1) 4,318,554 152,275
- ------------------------------------------------------------------------------------------------------
Videsh Sanchar Nigam Ltd., GDR(2) 63,000 614,250
----------
2,505,312
----------
Total Common Stocks (Cost $60,699,587) 37,886,455
<CAPTION>
UNITS
=====================================================================================================
<S> <C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.4%
- -----------------------------------------------------------------------------------------------------
Banco Bradesco SA Rts., Exp. 9/98 1,264,906 430
- -----------------------------------------------------------------------------------------------------
Cia de Saneamento Basico do Estado de Sao Paulo Rts., Exp. 9/98 2,392 --
- -----------------------------------------------------------------------------------------------------
Haci Omer Sabanci Holding AS ADR Rts., Exp. 9/98 56,000 153,825
- -----------------------------------------------------------------------------------------------------
PT Pan Indonesia Bank Wts., Exp. 6/00 378,930 1,353
------
Total Rights, Warrants and Certificates (Cost $3,112) 155,608
<CAPTION>
FACE
AMOUNT(4)
=====================================================================================================
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--1.9%
- -----------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.09%, 8/15/27 (Cost $633,802)(5) $3,600,000 769,651
=====================================================================================================
CORPORATE BONDS AND NOTES--1.5%
- -----------------------------------------------------------------------------------------------------
Grupo Financiero Banorte SA de CV, 23.49% Nts., 12/5/02
(Cost $685,236)(3) (6) MXP 5,760,000 577,760
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $62,021,737) 99.7% 39,389,474
- -----------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.3 123,041
------------ -------------
NET ASSETS 100.0% $39,512,515
============ =============
</TABLE>
1. Non-income producing security.
2. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $6,282,866 or 15.90% of the Fund's net
assets as of August 31, 1998.
3. Identifies issues considered to be illiquid or restricted--See Note 6 of
Notes to Financial Statements.
4. Face amount is reported in U.S. Dollars, except for those denoted in the
following currency: MXP--Mexican Peso
5. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
6. Represents the current interest rate for a variable rate security.
16 Oppenheimer Developing Markets Fund
<PAGE>
- --------------------------------------------------------------------------------
Distribution of investments by country of issue, as a percentage of total
investments at value, is as follows:
<TABLE>
<CAPTION>
COUNTRY MARKET VALUE PERCENT
- -----------------------------------------------------------------
<S> <C> <C>
Brazil $ 7,415,502 18.8%
- -----------------------------------------------------------------
India 4,543,688 11.5
- -----------------------------------------------------------------
Portugal 4,007,420 10.2
- -----------------------------------------------------------------
Mexico 3,991,230 10.1
- -----------------------------------------------------------------
Singapore 3,093,737 7.9
- -----------------------------------------------------------------
United States 2,409,537 6.1
- -----------------------------------------------------------------
Argentina 1,493,010 3.8
- -----------------------------------------------------------------
Lebanon 1,377,750 3.5
- -----------------------------------------------------------------
Hong Kong 1,278,503 3.2
- -----------------------------------------------------------------
Turkey 1,100,291 2.8
- -----------------------------------------------------------------
South Africa 1,072,186 2.7
- -----------------------------------------------------------------
Poland 1,036,564 2.6
- -----------------------------------------------------------------
Chile 983,062 2.5
- -----------------------------------------------------------------
Egypt 971,739 2.5
- -----------------------------------------------------------------
Greece 811,931 2.1
- -----------------------------------------------------------------
Estonia 799,360 2.0
- -----------------------------------------------------------------
Israel 743,688 1.9
- -----------------------------------------------------------------
Pakistan 628,942 1.6
- -----------------------------------------------------------------
Thailand 584,529 1.5
- -----------------------------------------------------------------
Indonesia 412,275 1.0
- -----------------------------------------------------------------
China 256,694 0.7
- -----------------------------------------------------------------
Russia 142,795 0.4
- -----------------------------------------------------------------
Hungary 135,132 0.3
- -----------------------------------------------------------------
Philippines 99,909 0.3
------------- -----
Total $39,389,474 100.0%
============= =====
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Developing Markets Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1998
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $62,021,737)--see accompanying statement $ 39,389,474
- ----------------------------------------------------------------------------------------------------------------
Cash 571,968
- ----------------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 514,871
Shares of beneficial interest sold 111,591
Interest and dividends 56,661
- ----------------------------------------------------------------------------------------------------------------
Deferred organization costs--Note 1 20,084
- ----------------------------------------------------------------------------------------------------------------
Other 2,693
-------------
Total assets 40,667,342
================================================================================================================
LIABILITIES
Unrealized depreciation on forward foreign currency
exchange contracts--Note 5 588
- ----------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 793,092
Shares of beneficial interest redeemed 228,440
Shareholder reports 49,758
Trustees' fees--Note 1 34,239
Distribution and service plan fees 15,522
Transfer and shareholder servicing agent fees 14,489
Other 18,699
-------------
Total liabilities 1,154,827
================================================================================================================
NET ASSETS $ 39,512,515
=============
================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $ 63,874,940
- ----------------------------------------------------------------------------------------------------------------
Undistributed net investment income 160,789
- ----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (1,900,719)
- ----------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign currencies (22,622,495)
-------------
Net assets $ 39,512,515
=============
</TABLE>
18 Oppenheimer Developing Markets Fund
<PAGE>
<TABLE>
<S> <C>
===============================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$23,662,859 and 3,049,995 shares of beneficial interest outstanding) $7.76
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering price) $8.23
- -----------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $12,788,451
and 1,663,076 shares of beneficial interest outstanding) $7.69
- -----------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $3,061,205
and 398,403 shares of beneficial interest outstanding) $7.68
</TABLE>
See accompanying Notes to Financial Statements.
19 Oppenheimer Developing Markets Fund
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended August 31, 1998
<TABLE>
<S> <C>
================================================================================================================
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $90,485) $ 1,317,766
- ----------------------------------------------------------------------------------------------------------------
Interest (net of foreign withholding taxes of $5,045) 475,205
------------
Total income 1,792,971
================================================================================================================
EXPENSES
Management fees--Note 4 588,067
- ----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 81,997
Class B 186,939
Class C 42,076
- ----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 261,078
- ----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 129,699
- ----------------------------------------------------------------------------------------------------------------
Shareholder reports 103,932
- ----------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 40,456
- ----------------------------------------------------------------------------------------------------------------
Legal, auditing and other professional fees 18,035
- ----------------------------------------------------------------------------------------------------------------
Deferred organization amortization 3,739
- ----------------------------------------------------------------------------------------------------------------
Insurance expenses 3,374
- ----------------------------------------------------------------------------------------------------------------
Registration and filing fees 1,443
- ----------------------------------------------------------------------------------------------------------------
Other 6,145
------------
Total expenses 1,466,980
================================================================================================================
NET INVESTMENT INCOME 325,991
================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 1,237,486
Foreign currency transactions (2,445,877)
------------
Net realized loss (1,208,391)
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (18,643,908)
Translation of assets and liabilities denominated in foreign currencies (5,168,849)
------------
Net change (23,812,757)
------------
Net realized and unrealized loss (25,021,148)
================================================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(24,695,157)
============
</TABLE>
See accompanying Notes to Financial Statements.
20 Oppenheimer Developing Markets Fund
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31, 1998 AUGUST 31, 1997(1)
================================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 325,991 $ 275,409
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (1,208,391) 1,264,096
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (23,812,757) 1,190,262
------------ -----------
Net increase (decrease) in net assets resulting from operations (24,695,157) 2,729,767
================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (246,812) --
Class B (28,433) --
Class C (13,196) --
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (1,271,220) --
Class B (679,498) --
Class C (163,333) --
================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from beneficial
interest transactions--Note 2:
Class A 2,205,847 35,563,435
Class B 1,248,778 19,948,692
Class C 1,358,951 3,554,694
================================================================================================================
NET ASSETS
Total increase (decrease) (22,284,073) 61,796,588
- ----------------------------------------------------------------------------------------------------------------
Beginning of period 61,796,588 --
------------ -------
End of period (including undistributed net investment
income of $160,789 and $276,929, respectively) $ 39,512,515 $61,796,588
============ =============
</TABLE>
1. For the period from November 18, 1996 (commencement of operations) to August
31, 1997.
See accompanying Notes to Financial Statements.
21 Oppenheimer Developing Markets Fund
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------- ----------------------
YEAR ENDED AUGUST 31, YEAR ENDED AUGUST 31,
1998 1997(1) 1998
================================================================================================= ======================
<S> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $12.82 $10.00 $12.73
- ------------------------------------------------------------------------------------------------- ----------------------
Income from investment operations:
Net investment income .11 .07 .01
Net realized and unrealized gain (4.62) 2.75 (4.57)
---------- -------- -------
Total income from investment operations (4.51) 2.82 (4.56)
- ------------------------------------------------------------------------------------------------- ----------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.09) -- (.02)
Distributions from net realized gain (.46) -- (.46)
---------- -------- -------
Total dividends and distributions to shareholders (.55) -- (.48)
- ------------------------------------------------------------------------------------------------- ----------------------
Net asset value, end of period $ 7.76 $12.82 $ 7.69
======== ======== ========
================================================================================================= ======================
TOTAL RETURN, AT NET ASSET VALUE(2) (36.33)% 28.20% (36.85)%
================================================================================================= ======================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $23,663 $37,613 $12,788
- ------------------------------------------------------------------------------------------------- ----------------------
Average net assets (in thousands) $35,864 $17,852 $18,673
- ------------------------------------------------------------------------------------------------- ----------------------
Ratios to average net assets:
Net investment income 0.87% 1.45%(3) 0.07%
Expenses(4) 2.18% 1.94%(3) 2.95%
- ------------------------------------------------------------------------------------------------- ----------------------
Portfolio turnover rate(5) 78.2% 26.7% 78.2%
</TABLE>
1. For the period from November 18, 1996 (commencement of operations) to August
31, 1997.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or commencement of operations), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized.
22 Oppenheimer Developing Markets Fund
<PAGE>
<TABLE>
<CAPTION>
CLASS C
----------- -------------------------------
YEAR ENDED AUGUST 31,
1997(1) 1998 1997(1)
==========================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.00 $12.74 $10.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .03 .02 .04
Net realized and unrealized gain 2.70 (4.58) 2.70
------- ------ ---------
Total income from investment operations 2.73 (4.56) 2.74
- ----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.04) --
Distributions from net realized gain -- (.46) --
------- ------ ---------
Total dividends and distributions to shareholders -- (.50) --
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.73 $ 7.68 $12.74
======= ====== =========
==========================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 27.30% (36.88)% 27.40%
==========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $20,470 $3,061 $3,713
- ----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) 7,802 $4,206 $1,560
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.87%(3) 0.24% 0.98%(3)
Expenses(4) 2.78%(3) 2.95% 2.77%(3)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 26.7% 78.2% 26.7%
</TABLE>
4. The expense ratio reflects the effect of gross expenses paid indirectly by
the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1998 were $49,398,939 and $42,455,940, respectively.
See accompanying Notes to Financial Statements.
23 Oppenheimer Developing Markets Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Developing Markets Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to
aggressively seek capital appreciation. The Fund invests primarily in equity
securities of issuers in emerging markets throughout the world. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers
Class A, Class B and Class C shares. Class A shares are sold with a front-end
sales charge. Class B and Class C shares may be subject to a contingent deferred
sales charge. All classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution and/or
service plan, expenses directly attributable to that class and exclusive voting
rights with respect to matters affecting that class. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on
investments is separately identified from the fluctuations arising from changes
in market values of securities held and reported with all other foreign currency
gains and losses in the Fund's Statement of Operations.
24 Oppenheimer Developing Markets Fund
<PAGE>
================================================================================
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
August 31, 1998, a provision of $33,393 was made for the Fund's projected
benefit obligations and payments of $1,509 were made to retired trustees,
resulting in an accumulated liability of $32,671 at August 31, 1998.
The Board of Trustees has adopted a deferred compensation
plan for independent Trustees that enables Trustees to elect to defer receipt of
all or a portion of annual fees they are entitled to receive from the Fund.
Under the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Trustee in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
Deferral of Trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
income per share.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
25 Oppenheimer Developing Markets Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
ORGANIZATION COSTS. The Manager advanced $26,486 for organization and start-up
costs of the Fund. Such expenses are being amortized over a five-year period
from the date operations commenced. In the event that all or part of the
Manager'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 proportionate amount of unamortized organization costs
represented by the ratio that the number of shares redeemed bears to the number
of initial shares outstanding at the time of such redemption.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for tax purposes. The character of the distributions
made during the year from net investment income or net realized gains may differ
from its ultimate characterization for federal income tax purposes. Also, due to
timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
The Fund adjusts the classification of distributions to
shareholders to reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly,
during the year ended August 31, 1998, amounts have been reclassified to reflect
a decrease in undistributed net investment income of $153,690, a decrease in
paid-in capital of $3,937, and a decrease in accumulated net realized loss of
$157,627.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Discount on securities purchased is amortized over the life of
the respective securities, in accordance with federal income tax requirements.
Realized gains and losses on investments and options written and unrealized
appreciation and depreciation are determined on an identified cost basis, which
is the same basis used for federal income tax purposes.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
26 Oppenheimer Developing Markets Fund
<PAGE>
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1998 PERIOD ENDED AUGUST 31, 1997(1)
------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 3,153,898 $ 36,542,888 4,247,882 $ 52,288,386
Dividends and
distributions reinvested 137,965 1,466,572 -- --
Redeemed (3,175,275) (35,803,613) (1,314,475) (16,724,951)
---------- ------------ ---------- ------------
Net increase 116,588 $ 2,205,847 2,933,407 $ 35,563,435
========== ============ ========== ============
- ----------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,231,248 $ 14,160,669 1,782,562 $ 22,206,999
Dividends and
distributions reinvested 64,707 685,899 -- --
Redeemed (1,240,445) (13,597,790) (174,996) (2,258,307)
---------- ------------ ---------- ------------
Net increase 55,510 $ 1,248,778 1,607,566 $ 19,948,692
========== ============ ========== ============
- ----------------------------------------------------------------------------------------------------------------
Class C:
Sold 419,799 $ 4,895,743 342,441 $ 4,208,237
Dividends and
distributions reinvested 15,549 164,660 -- --
Redeemed (328,388) (3,701,452) (50,998) (653,543)
---------- ------------ ---------- ------------
Net increase 106,960 $ 1,358,951 291,443 $ 3,554,694
========== ============ ========== ============
</TABLE>
1. For the period from November 18, 1996 (commencement of operations) to August
31, 1997.
================================================================================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At August 31, 1998, net unrealized depreciation on investments of $22,622,495
was composed of gross appreciation of $1,822,843, and gross depreciation of
$24,449,988.
27 Oppenheimer Developing Markets Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of 1.00% of
the first $250 million of average annual net assets, 0.95% of the next $250
million, 0.90% of the next $500 million, and 0.85% of average annual net assets
in excess of $1 billion.
For the year ended August 31, 1998, commissions (sales
charges paid by investors) on sales of Class A shares totaled $297,560, of which
$91,264 was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary
of the Manager, as general distributor, and by an affiliated broker/dealer.
Sales charges advanced to broker/dealers by OFDI on sales of the Fund's Class B
and Class C shares totaled $370,774 and $31,465, respectively, of which $41,968
was paid to an affiliated broker/dealer for Class B. During the year ended
August 31, 1998, OFDI received contingent deferred sales charges of $45,540 and
$3,495, respectively, upon redemption of Class B and Class C shares, as
reimbursement for sales commissions advanced by OFDI at the time of sale of such
shares.
OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
The Fund has adopted a Service Plan for Class A shares to
reimburse OFDI 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. OFDI uses
the service fee to reimburse brokers, dealers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares. During the year ended
August 31, 1998, OFDI paid $8,051 to an affiliated broker/dealer as
reimbursement for Class A personal service and maintenance expenses.
28 Oppenheimer Developing Markets Fund
<PAGE>
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate OFDI for its costs in distributing Class B and Class C
shares and servicing accounts. Under the Plans, the Fund pays OFDI an annual
asset-based sales charge of 0.75% per year on Class B and Class C shares for its
services rendered in distributing Class B and Class C shares. OFDI also receives
a service fee of 0.25% per year to compensate dealers for providing personal
services for accounts that hold Class B and Class C shares. Each fee is computed
on the average annual net assets of Class B or Class C shares, determined as of
the close of each regular business day. During the year ended August 31, 1998,
OFDI retained $168,977 and $32,242, respectively, as compensation for Class B
and Class C sales commissions and service fee advances, as well as financing
costs. If either Plan is terminated by the Fund, the Board of Trustees may allow
the Fund to continue payments of the asset-based sales charge to OFDI for
distributing shares before the Plan was terminated. As of August 31, 1998, OFDI
had incurred excess distribution and servicing costs of $634,402 for Class B and
$59,931 for Class C.
================================================================================
5. FORWARD CONTRACTS
A forward foreign currency exchange contract (forward contract) is a commitment
to purchase or sell a foreign currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign
currency risks. They may also be used to tactically shift portfolio currency
risk. The Fund generally enters into forward contracts as a hedge upon the
purchase or sale of a security denominated in a foreign currency. In addition,
the Fund may enter into such contracts as a hedge against changes in foreign
currency exchange rates on portfolio positions.
Forward contracts are valued based on the closing prices of
the forward currency contract rates in the London foreign exchange markets on a
daily basis as provided by a reliable bank or dealer. The Fund will realize a
gain or loss upon the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure
on outstanding forward contracts are noted in the Statement of Investments where
applicable. Unrealized appreciation or depreciation on forward contracts is
reported in the Statement of Assets and Liabilities. Realized gains and losses
are reported with all other foreign currency gains and losses in the Fund's
Statement of Operations.
Risks include the potential inability of the counterparty to
meet the terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
29 Oppenheimer Developing Markets Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
5. FORWARD CONTRACT (continued)
At August 31, 1998, the Fund had outstanding forward contracts as follows:
<TABLE>
<CAPTION>
EXPIRATION CONTRACT VALUATION AS OF UNREALIZED
DATE AMOUNT (000S) AUGUST 31, 1998 DEPRECIATION
- ----------------------------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
- ---------------------
<S> <C> <C> <C> <C>
Indonesia Rupiah (IDR) 9/1/98-9/2/98 166,886 IDR $14,900 $473
----
CONTRACTS TO SELL
- -----------------
Malaysian Ringgit (MYR) 9/1/98 94 MYR 22,369 115
----
Total Unrealized Depreciation $588
====
</TABLE>
================================================================================
6. ILLIQUID AND RESTRICTED SECURITIES
At August 31, 1998, investments in securities included issues that are illiquid
or restricted. Restricted securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund intends to invest no more than
10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation at August 31, 1998 was $720,556, which represents
1.82% of the Fund's net assets.
- --------------------------------------------------------------------------------
7. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
For the year ended August 31, 1998, the Fund had borrowings
of $6,000,000 outstanding over a two-day period at an average interest rate of
6.1%. The Fund had no borrowings outstanding as of August 31, 1998.
<PAGE>
Industry Classifications
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
Appendix B
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of
Class A shares of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by the Distributor or the
dealers or other financial institutions offering those shares to certain classes
of investors or in certain transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans1 (4)
Group Retirement Plans2 (5) 403(b)(7) custodial plan accounts (6) SEP-IRAs,
SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
waiver in a particular case is determined solely by the Distributor or the
Transfer Agent of the fund. These waivers and special arrangements may be
amended or terminated at any time by the applicable Fund and/or the Distributor.
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
1. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares
of an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example,
medical savings accounts, payroll deduction plans or similar plans. The
fund accounts must be registered in the name of the fiduciary or
administrator purchasing the shares for the benefit of participants in the
plan.
2. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or 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 (or who are eligible to participate in) the plan purchase Class
A shares of an Oppenheimer fund or funds through a single investment dealer,
broker or other financial institution designated by the group. Such plans
include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and 403(b) plans other than
plans for public school employees. The term "Group Retirement Plan" also
includes qualified retirement plans and non-qualified deferred compensation
plans and IRAs that purchase Class A shares of an Oppenheimer fund or funds
through a single investment dealer, broker or other financial institution that
has made special arrangements with the Distributor enabling those plans to
purchase Class A shares at net asset value but subject to the Class A contingent
deferred sales charge.
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any
of the Oppenheimer funds in the cases listed below. However, these purchases may
be subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on these purchases the Distributor will pay the
applicable commission described in the Prospectus under "Class A Contingent
Deferred Sales Charge": o Purchases of Class A shares aggregating $1 million or
more.
o Purchases by a Retirement Plan that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible participants or total
plan assets of $500,000 or more, or
(3) certifies to the Distributor that it
projects to have annual plan purchases of $200,000 or more. o Purchases by an
OppenheimerFunds-sponsored Rollover IRA, if the purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that has
made special arrangements with the Distributor for those purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement Plan if
the administrator of that Plan has made special arrangements with the
Distributor for those purchases. o Purchases of Class A shares by Retirement
Plans that have any of the following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
("Merrill Lynch") on a daily valuation basis for the Retirement Plan. On the
date the plan sponsor signs the record-keeping service agreement with Merrill
Lynch, the Plan must have $3 million or more of its assets invested in (a)
mutual funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service Agreement
between Merrill Lynch and the mutual fund's principal underwriter or
distributor, and (b) funds advised or managed by MLAM (the funds described in
(a) and (b) are referred to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily valuation
basis by a record keeper whose services are provided under a contract or
arrangement between the Retirement Plan and Merrill Lynch. On the date the plan
sponsor signs the record keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets (excluding assets invested in money
market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs that
agreement, the Plan has 500 or more eligible employees (as determined by the
Merrill Lynch plan conversion manager).
Waivers of Class A Sales Charges of Oppenheimer Funds
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 (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. 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, a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose.
|_| 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.
|_| 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 which are identified
as such 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).
|_| Dealers, brokers, banks 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 made available to
their clients. Those clients may be charged a transaction fee by their dealer,
broker, bank or advisor for the purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) 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.
|_| 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.
|_| Accounts for which Oppenheimer Capital (or its successor) 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.
|_| A unit investment trust that has entered into an appropriate
agreement with the Distributor. o Dealers, brokers, banks, or
registered investment advisers that have entered into an agreement with
the Distributor to sell shares to defined contribution employee retirement plans
for which the dealer, broker or investment adviser provides administration
services.
o Retirement plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each
case if those purchases are made through a broker, agent or other financial
intermediary that has made special arrangements with the Distributor for those
purchases.
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 Class C TRAC-2000 program on November 24, 1995.
o A qualified Retirement Plan 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, if that arrangement was consummated and share
purchases commenced 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 sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor.
|_| Shares purchased and paid for with the proceeds of shares redeemed
in the prior 30 days 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 shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of
any Qualified Unit Investment Liquid Trust Series.
o Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
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:
|_| To make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value.
|_| Involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules and
Policies," in the Prospectus).
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
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 Manager or a
subsidiary. The fund must be one that is 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.
(11) Plan termination or "in-service distributions," if the redemption proceeds
are rolled over directly to an OppenheimerFunds-sponsored IRA.
o For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan.
o For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
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:
o Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
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 Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company 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; (5) for separation from service; or (6) for
loans to participants or beneficiaries.
o Distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
o Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
o Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
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:
|_| Shares sold to the Manager or its affiliates.
|_| 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.
|_| Shares issued in plans of reorganization to which the Fund is a party.
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
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 described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Balanced Value
Fund, Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small
Cap Value Fund and Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds
when they merged into various Oppenheimer funds on November 24, 1995:
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
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares
of an Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.
Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest for
Value Funds Shareholders
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if 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.
<TABLE>
<CAPTION>
Number of Eligible Initial Sales Charge as a
Employees or Members Initial Sales Charge as a % % of Net Amount Invested Commission as % of
of Offering Price Offering 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 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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either
the sales charge rate in the table based on the number of members of an
Association, or the sales charge rate that applies under the Right of
Accumulation described in the applicable fund's Prospectus and Statement of
Additional Information. Individuals who qualify under this arrangement for
reduced sales charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales charge rates,
upon request to the Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders 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.
|_| Shareholders who acquired shares of any Former Quest for Value Fund
by merger of any of the portfolios of the Unified Funds.
|X| 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 purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
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.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
|X| Waivers for Redemptions of Shares Purchased Prior to March 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 an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged.
Those shares must have been purchased prior to March 6, 1995 in connection with:
o 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
o 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.
|X| 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 an Oppenheimer fund. The shares must have been acquired by the
merger of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
o redemptions following the death or disability of the shareholder(s)
(as evidenced by a determination of total disability by the U.S. Social Security
Administration);
o withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of the initial
value of the account; and
o 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 Oppenheimer fund described in this section if the
proceeds are invested in the same Class of shares in that fund or another
Oppenheimer fund within 90 days after redemption.
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for
Class A and Class B shares described in the Prospectus or this Appendix for
Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below for
those shareholders who were shareholders of Connecticut Mutual Liquid Account,
Connecticut Mutual Government Securities Account, Connecticut Mutual Income
Account, Connecticut Mutual Growth Account, Connecticut Mutual Total Return
Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan Balanced
Account and CMIA Diversified Income Account (the "Former Connecticut Mutual
Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment
adviser to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
n Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other
Former Connecticut Mutual Funds were $500,000 prior to March 18,
1996, as a result of direct purchases or purchases pursuant to the
Fund's policies on Combined Purchases or Rights of Accumulation,
who still hold those shares in that Fund or other Former
Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention
entered into prior to March 18, 1996, with the former general
distributor of the Former Connecticut Mutual Funds to purchase
shares valued at $500,000 or more over a 13-month period entitled
those persons to purchase shares at net asset value without being
subject to the Class A initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
-- Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the Fund or any
one or more of the Former Connecticut Mutual Funds totaled $500,000 or more,
including investments made pursuant to the Combined Purchases, Statement of
Intention and Rights of Accumulation features available at the time of the
initial purchase and such investment is still held in one or more of the Former
Connecticut Mutual Funds or a Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total
initial amount invested by the plan in the Fund or any one or more
of the Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut Mutual
Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and
persons who are retirees from such group) engaged in a common
business, profession, civic or charitable endeavor or other
activity, and the spouses and minor dependent children of such
persons, pursuant to a marketing program between CMFS and such
group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the
Fund or any one or more of the Former Connecticut Mutual Funds,
provided the institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996:
(1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the
Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the Code,
or from IRAs, deferred compensation plans created under Section 457 of the Code,
or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or employee
benefit plans;
(5) in whole or in part, in connection with shares sold to any state, county, or
city, or any instrumentality, department, authority, or agency thereof, that is
prohibited by applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any registered
investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate the
Fund;
(8) in connection with automatic redemptions of Class A shares and
Class B shares in certain retirement plan accounts pursuant to an
Automatic Withdrawal Plan but limited to no more than 12% of the
original value annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or
as adopted by the Board of Directors of the Fund.
Special Reduced Sales Charge for Former Shareholders
of Advance America Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a result of
the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
<PAGE>
Oppenheimer Developing Markets Fund
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
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 Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
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
67890
PX785.1298
