OPPENHEIMER
REAL ASSET FUND
PROSPECTUS DATED DECEMBER 1, 1997
Oppenheimer Real Asset Fund is a mutual fund that seeks to provide total return
as its investment objective. The Fund seeks to achieve its objective by
investing primarily in Hybrid Instruments, futures contracts, options, forward
contracts, swaps, investment grade bonds, money market instruments, and U.S.
Government securities. The Fund may also invest up to 10% of its total assets in
lower-rated debt securities ("junk bonds"). The Fund seeks to outperform
traditional equity and debt securities during adverse economic times.
INVESTMENTS IN HYBRID INSTRUMENTS, FUTURES CONTRACTS AND RELATED OPTIONS,
FORWARD CONTRACTS AND SWAPS INVOLVE HIGHER VOLATILITY AND RISK OF SIGNIFICANT
LOSS OF PRINCIPAL THAN INVESTMENTS IN EQUITY OR DEBT SECURITIES. SEE "RISK
FACTORS-HYBRID INSTRUMENTS," ON PAGE 21.
Investors should carefully consider these risks before investing. The Fund
may also use certain derivative instruments in an effort to enhance returns or
reduce the risks of market fluctuations that affect the value of the investments
the Fund holds, or to seek total return.
An investment in the Fund should not be the sole source of investment for
a shareholder. Rather, an investment in the Fund should be considered only as
part of an overall portfolio strategy which includes fixed income and equity
securities. Additionally, the Fund is "non-diversified" which means that it will
limit its investments to a smaller number of issuers than a diversified mutual
fund.
This Prospectus explains what you should know before investing in the
Fund. Please read this Prospectus carefully and keep it for future reference.
You can find more detailed information about the Fund in the December 1, 1997
Statement of Additional Information. For a free copy, call OppenheimerFunds
Services, the Fund's Transfer Agent, at 1-800-525-7048, or write to the Transfer
Agent at the address on the back cover. The Statement of Additional Information
has been filed with the Securities and Exchange Commission and is incorporated
into this Prospectus by reference (which means that it is legally part of this
Prospectus).
[logo] OppenheimerFunds
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT
GUARANTEED BY ANY BANK, ARE NOT INSURED BY THE F.D.I.C. OR ANY OTHER AGENCY, AND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-1-
<PAGE>
CONTENTS
A B O U T T H E F U N D
3 EXPENSES
5 A BRIEF OVERVIEW OF THE FUND
10 INVESTMENT OBJECTIVE AND PHILOSOPHY
12 HOW THE FUND PURSUES ITS INVESTMENT OBJECTIVE
21 RISK FACTORS
25 INVESTMENT RESTRICTIONS
27 HOW THE FUND IS MANAGED
29 PERFORMANCE OF THE FUND
A B O U T Y O U R A C C O U N T
30 HOW TO BUY SHARES
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
44 SPECIAL INVESTOR SERVICES
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
46 HOW TO SELL SHARES
By Mail
By Telephone
48 HOW TO EXCHANGE SHARES
49 SHAREHOLDER ACCOUNT RULES AND POLICIES
51 DIVIDENDS, CAPITAL GAINS AND TAXES
A-1 APPENDIX A: SPECIAL SALES CHARGE ARRANGEMENTS FOR SHAREHOLDERS OF
THE FUND WHO WERE SHAREHOLDERS OF THE FORMER QUEST FOR VALUE FUNDS
B-1 APPENDIX B: CFTC EXEMPTION FOR QUALIFYING HYBRID INSTRUMENTS
C-1 APPENDIX C: CFTC EXEMPTION FOR SWAP TRANSACTIONS
<PAGE>
A B O U T T H E F U N D
EXPENSES
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
values per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you might expect to bear indirectly. The
numbers below are based on the Fund's expenses for the fiscal period March 31,
1997 (commencement of operations) to August 31, 1997.
o SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or
sell shares of the Fund. Please refer to "About Your Account," starting on page
30, for an explanation of how and when these charges apply.
CLASS A CLASS B CLASS C CLASS Y
SHARES SHARES SHARES SHARES
- ------------------------------------------------------------------------------
Maximum Sales Charge 5.75% None None None
on Purchases (as a % of
offering price)
- ------------------------------------------------------------------------------
Maximum Deferred Sales None(1) 5% in the first 1% if shares None
Charge (as a % of the year, declining are redeemed
lower of the original to 1% in the within 12
offering price or sixth year and months of
redemption proceeds) eliminated purchase(2)
thereafter(2)
- ------------------------------------------------------------------------------
Maximum Sales Charge None None None None
on Reinvested Dividends
- ------------------------------------------------------------------------------
Exchange Fee None None None None
- ------------------------------------------------------------------------------
Redemption Fee None None None None
1. If you invest $1 million or more ($500,000 or more for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
page 35) in Class A shares, you may have to pay a sales charge of up to 1% if
you sell your shares within 12 calendar months (18 months for shares purchased
prior to May 1, 1997) from the end of the calendar month during which you
purchased those shares. See "How to Buy Shares - Buying Class A Shares," below.
2. See "How to Buy Shares - Buying Class B Shares" and "How to Buy Shares Buying
Class C Shares" below, for more information on the contingent deferred sales
charges.
o ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the Fund
pays management fees to its investment advisor, OppenheimerFunds, Inc. ("OFI" or
the "Advisor") and OFI pays the Subadvisor, Oppenheimer Real Asset Management,
Inc. (which is referred to in this Prospectus as the "Manager"), a fee for
managing the assets of the Fund. The rates of OFI's and Manager's fees are set
forth in "How the Fund is Managed," below. The Fund has other regular expenses
for services, such as transfer agent fees, custodial fees paid to the bank that
holds its portfolio securities, audit fees and legal expenses.
The actual expenses for each class of shares in future years may be more
or less than the numbers in the chart, depending on a number of factors,
including the actual value of the Fund's assets represented by each class of
shares.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
CLASS A CLASS B CLASS C CLASS Y
SHARES SHARES SHARES SHARES
- ------------------------------------------------------------------------------
Management Fees 1.00% 1.00% 1.00% 1.00%
- ------------------------------------------------------------------------------
12b-1 Distribution Plan Fees 0.25% 1.00% 1.00% None
- ------------------------------------------------------------------------------
Other Expenses 0.49% 0.56% 0.56% 0.57%
- ------------------------------------------------------------------------------
Total Fund Operating Expenses 1.74% 2.56% 2.56% 1.57%
The numbers in the table above are based upon the Fund's expenses for the fiscal
period March 31, 1997 (commencement of operations) to August 31, 1997. The
amounts are shown as a percentage of the average net assets of each class of the
Fund's shares for that fiscal period and have been annualized. The 12b-1
Distribution Plan Fees for Class A shares are service plan fees (the maximum fee
is 0.25% of average annual net assets of that class). For Class B and Class C
shares, the 12b-1 Distribution Plan Fees are the service fee (the maximum fee is
0.25% of average annual net assets of the respective class) and the asset-based
sales charge of 0.75% of average annual net assets of the respective class.
These plans are described in greater detail in "How to Buy Shares."
o EXAMPLES. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical examples shown below. Assume that
you make a $1,000 investment in each class of shares of the Fund, and that the
Fund's annual return is 5%, and that its operating expenses for each class are
the ones shown in the Annual Fund Operating Expenses table above. If you were to
redeem your shares at the end of each period shown below, your investment would
incur the following expenses by the end of 1 and 3 years:
1 YEAR 3 YEARS
- ------------------------------------------------------------------------------
Class A Shares $74 $109
- ------------------------------------------------------------------------------
Class B Shares $76 $110
- ------------------------------------------------------------------------------
Class C Shares $36 $80
- ------------------------------------------------------------------------------
Class Y Shares $16 $50
If you did not redeem your investment, it would incur the following expenses:
1 YEAR 3 YEARS
- ------------------------------------------------------------------------------
Class A Shares $74 $109
- ------------------------------------------------------------------------------
Class B Shares $26 $80
- ------------------------------------------------------------------------------
Class C Shares $26 $80
- ------------------------------------------------------------------------------
Class Y Shares $16 $50
In the first example, expenses include the Class A initial sales charge and the
applicable Class B or Class C contingent deferred sales charge. In the second
example, Class A expenses include the initial sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges. Because of
the asset-based sales charge and the contingent deferred sales charge imposed on
Class B and Class C shares, long-term holders of Class B and Class C shares
could pay the economic equivalent of more than the maximum front-end sales
charge allowed under applicable regulations. For Class B shareholders, the
automatic conversion of Class B shares to Class A shares is designed to minimize
the likelihood that this will occur. Please refer to "How to Buy Shares -Buying
Class B Shares" for more information.
THESE EXAMPLES SHOW THE EFFECT OF EXPENSES ON AN INVESTMENT, BUT ARE NOT
MEANT TO STATE OR PREDICT ACTUAL OR EXPECTED COSTS OR INVESTMENT RETURNS OF THE
FUND, ALL OF WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
A BRIEF OVERVIEW OF THE FUND
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to sell or exchange
shares.
o WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund's investment
objective is to seek total return.
o WHAT DOES THE FUND INVEST IN? The Fund seeks to outperform traditional
equity and debt securities during adverse economic conditions. The Fund invests
primarily in Hybrid Instruments, futures contracts, options, forward contracts,
swaps, investment grade bonds, money market instruments, and U.S. Government
securities. A Hybrid Instrument is a derivative instrument whose value is
derived from, or linked to, the value of another source, such as a commodity, a
futures contract, an index or some other economic variable. The Fund may also
invest in domestic and foreign equity securities , and may invest up to 10% of
its total assets in high yield, lower-rated debt securities ("junk bonds"). The
Hybrid Instruments the Fund purchases have values based on a commodity, a
futures contract, an index, or another readily measurable economic variable.
o WHO MANAGES THE FUND? The Fund's investment advisor is OppenheimerFunds,
Inc. ("OFI" or the "Advisor"). The Fund also has a Subadvisor (the "Manager")
which is Oppenheimer Real Asset Management, Inc. The Manager is a wholly owned
subsidiary of OFI. OFI, along with a subsidiary, manages investment company
portfolios having over $75 billion in assets at September 30, 1997. The Manager
is responsible for the day-to-day management of the Fund's investments. The Fund
pays an advisory fee to the Advisor, and the Advisor pays a sub-advisory fee to
the Manager, based on the Fund's net assets. The Fund has two portfolio
managers, Russell Read and Mark Anson, who are employed by the Advisor and the
Manager. They are primarily responsible for the selection of the Fund's
investments. The Fund's Board of Trustees oversees the Manager and the portfolio
managers. Please refer to "How the Fund is Managed," starting on page 27 for
more information about the Advisor and the Manager and their fees.
While the Advisor and the Manager have considerable experience investing in
currency-linked, index-linked, equity-linked and interest rate-linked Hybrid
Instruments, they have limited experience investing in commodity-linked Hybrid
Instruments. See "Risk Factors - Skill of the Manager."
o HOW RISKY IS THE FUND? While different types of investments have risks
that differ in type and magnitude, all investments carry risk to some degree.
Changes in overall market movements or interest rates, or factors affecting a
particular industry, commodity, or issuer, can affect the value of the Funds'
investments and the Fund's net asset values per share. Fixed-income investments
are generally subject to credit risk and the risk that values will fluctuate
with changes in interest rates, with lower-rated, fixed-income investments being
subject to a greater risk that the issuer will default in its interest or
principal payment obligations. HYBRID INSTRUMENTS, FUTURES CONTRACTS AND RELATED
OPTIONS, FORWARD CONTRACTS AND SWAPS MAY BE QUITE VOLATILE AND SUFFER A LOSS OF
PRINCIPAL. See "Risk Factors - Hybrid Instruments," below. Hedging instruments
involve certain risks, as discussed under "Futures Contracts, Options, and Other
Derivative Instruments."
In the Oppenheimer funds spectrum, the Fund is generally considered to be
a more aggressive fund. The Fund is expected to have a higher risk/return
profile than the other Oppenheimer funds. This is because the Fund invests in
Hybrid Instruments, futures contracts and swaps, which are subject to greater
volatility and have various additional special risks.
The Fund may invest in instruments that involve leverage. For instance,
the Fund may invest in Hybrid Instruments with a leverage factor up to 300%.
Leverage can increase the return received from a Hybrid Instrument, but at the
same time, increase the risk of loss from the Hybrid Instrument. See "Some
Hybrid Instruments Involve Leverage" and "Risk Factors - Volatility of Hybrid
Instruments."
While the Manager may attempt to reduce some risks by investing across
financial and commodity markets, and by carefully researching investments before
they are purchased for the portfolio, and in some cases by using hedging
techniques, the Manager expects the Fund's per share net asset value to be
highly volatile. There is no guarantee of success in achieving the Fund's
objective and your shares may be worth more or less than their original cost
when you redeem them. Please refer to "Risk Factors" starting on page 21 for a
more complete discussion of the Fund's investment risks.
The Fund is "non-diversified," which means, under Federal securities laws,
that it is not limited in the amount it may invest in any one security. An
investment in the Fund will therefore entail greater risk than an investment in
a diversified investment company because a higher percentage of investments
among fewer issuers may result in greater exposure to a smaller number of
issuers, greater fluctuation in the total market value of the Fund's portfolio,
and economic, political or regulatory developments may have a greater impact on
the value of the Fund's portfolio than would be the case if the portfolio were
diversified among more issuers.
o HOW CAN I BUY SHARES? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic Investment
Plan under AccountLink. Please refer to "How to Buy Shares" on page 30 for more
details.
o WILL I PAY A SALES CHARGE TO BUY SHARES? The Fund has four classes of
shares. Each class of shares has the same investment portfolio but different
expenses. Class A shares are offered with a front-end sales charge, starting at
5.75%, and reduced for larger purchases. Class B and Class C shares are offered
without a front-end sales charge, but may be subject to a contingent deferred
sales charge if redeemed within 6 years or 12 months of purchase, respectively.
There is also an annual asset-based sales charge on Class B shares and Class C
shares. Class Y shares are offered at net asset value without sales charge only
to certain institutional investors. Please review "How To Buy Shares" starting
on page 30 for more details, including a discussion about factors you and your
financial advisor should consider in determining which class of shares may be
appropriate for you.
o HOW CAN I SELL MY SHARES? Shares can be redeemed by mail or by telephone
call to the Transfer Agent on any business day, or through your dealer. Please
refer to "How to Sell Shares" on page 46. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to Exchange Shares" on
page 48.
o HOW HAS THE FUND PERFORMED? The Fund measures its performance by quoting
its average annual total returns and cumulative total returns, which measure
historical performance. Those returns can be compared to the returns (over
similar periods) of other funds. Of course, other funds may have different
objectives, investments and levels of risk.
FINANCIAL HIGHLIGHTS
The table on the following page presents audited selected financial information
about the Fund, including per share data, expense ratios and other data based on
the Fund's average net assets. This information has been audited by Deloitte &
Touche LLP, the Fund's independent auditors, whose report of the Fund's
financial statements for the fiscal period March 31, 1997 (commencement of
operations) to August 31, 1997, is included in the Statement of Additional
Information.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A CLASS B CLASS C CLASS Y
--------- --------- --------- ---------
PERIOD PERIOD PERIOD PERIOD
ENDED ENDED ENDED ENDED
AUG. 31, AUG. 31, AUG. 31, AUG. 31,
1997(1) 1997(1) 1997(1) 1997(1)
=============================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.00 $10.00 $10.00 $10.00
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .09 .07 .08 .20
Net realized and unrealized gain .22 .20 .18 .11
------ ------ ------ ------
Total income from investment operations .31 .27 .26 .31
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.31 $10.27 $10.26 $10.31
====== ====== ====== ======
=============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 3.10% 2.70% 2.60% 3.10%
=============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $37,687 $16,471 $10,616 $1
- ---------------------------------------------------------------------------------------------
Average net assets (in thousands) $18,361 $ 7,388 $ 5,599 $1
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.27% 3.35% 3.34% 4.75%
Expenses 1.74% 2.56% 2.56% 1.57%
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 38.9% 38.9% 38.9% 38.9%
</TABLE>
1. For the period from March 31, 1997 (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 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, 1997 were $31,032,770 and $5,519,569, respectively.
-2-
<PAGE>
INVESTMENT OBJECTIVE AND PHILOSOPHY
INVESTMENT OBJECTIVE. The Fund seeks to provide total return. The Fund's
investment objective is fundamental and can be changed only with the approval of
shareholders. There can be no assurance that the Fund will meet its investment
objective. The Fund is subject to the investment restrictions described in this
Prospectus and in the Statement of Additional Information, some of which are
fundamental policies.
INVESTMENT PHILOSOPHY. The investment philosophy for the Fund is to create a
portfolio that the Manager believes should outperform investments in traditional
equity and fixed income securities ("traditional securities") during periods of
adverse economic conditions, when the value of traditional securities tends to
decline. During "bull markets," when the value of traditional securities tends
to increase, the Manager expects the Fund's investments to underperform an
investment in traditional securities. For this reason an investment in the Fund
should not be the sole source of investment for a shareholder. Rather, an
investment in the Fund should complement an investor's total portfolio and
thereby offer greater potential diversification and return benefits.
During the period 1970 through 1996, the correlation between the quarterly
investment returns of commodities and the quarterly investment returns of
traditional financial assets such as stocks and bonds has generally been
negative. That is, as financial assets increase in value, the value of
commodities tends to decrease in value. This inverse relationship occurred
generally because commodities have historically tended to increase and decrease
in value during different parts of the business cycle than financial assets.
Nevertheless, at various times, commodities prices may move in tandem with the
prices of financial assets and thus negate any potential diversification
benefits. In fact, during 1995 and 1996 commodities prices have generally not
been negatively correlated with financial assets. However, in 1997 commodity
prices have generally been negatively correlated with financial assets.
For example, a portfolio consisting of traditional securities has tended
to decline during periods of increasing interest rates and inflation. During
such periods, the value of certain commodities, such as oil and metals, has
tended to increase. Conversely, during periods of low inflation and moderate
economic growth, financial assets have tended to increase in value more than
commodities.
The success of the Manager's investment strategy depends, among other
things, upon the Manager's analysis of financial and commodity market conditions
and its ability to predict which investments will outperform traditional
securities. To the extent that the Manager is successful, investors in the Fund
may achieve investment results that outperform a portfolio of traditional
securities during adverse economic conditions. To the extent, however, that the
Manager is not successful, investors in the Fund may achieve investment results
that underperform a portfolio of traditional securities, even during adverse
economic conditions. Also, the Fund should underperform traditional securities
during favorable economic conditions.
While personnel of the Advisor and the Manager have considerable
experience in investing in traditional securities, they have only limited
experience in investing in commodity-linked Hybrid Instruments, commodity
futures and related options, forward contracts and commodity swaps. The
commodities markets and instruments related to the commodities market may be
subject to additional special risks that do not affect traditional securities.
See "Risks - Skill of the Manager," and "Risks - Commodity Futures Contracts."
INVESTMENT POLICIES AND STRATEGIES. The Fund's investment policies and
strategies are described in the sections that follow.
o CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund has
the investment objective, described above, as well as investment policies it
follows to try to achieve its objective. Additionally, the Fund uses certain
investment techniques and strategies in carrying out those policies. The Fund's
investment policies are not "fundamental" unless this Prospectus or the
Statement of Additional Information says that a particular policy is
"fundamental." The Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without the approval
of a "majority" of the Fund's outstanding voting shares. The term "majority" is
defined in the Investment Company Act of 1940 (the "1940 Act") to be a
particular percentage of outstanding voting shares (and this term is explained
in the Statement of Additional Information). The Fund's Board of Trustees may
change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus or the
Statement of Additional Information.
o NON-DIVERSIFICATION. The Fund is classified as a "non-diversified"
investment company under the 1940 Act, and the proportion of the Fund's assets
that may be invested in the securities of a single issuer is not limited by the
"diversification" requirements of the 1940 Act. An investment in the Fund will
therefore entail greater risk than an investment in a diversified investment
company because a higher percentage of investments among fewer issuers may
result in greater exposure to a smaller number of issuers, greater fluctuation
in the total market value of the Fund's portfolio, and economic, political or
regulatory developments may have a greater impact on the value of the Fund's
portfolio than would be the case if the portfolio were diversified among more
issuers. The Fund, however, intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). Generally, to qualify as a regulated investment company, the
Fund intends to limit its investments so that at the end of each quarter, (1)
the Fund will invest no more than 25% of its total assets in the securities of a
single issuer, and (2) with respect to at least 50% of its total assets, the
Fund will not (a) invest more than 5% of its total assets in the securities of a
single issuer, and (b) acquire more than 10% of the outstanding voting
securities of a single issuer.
HOW THE FUND PURSUES ITS INVESTMENT OBJECTIVE.
The Fund will invest at least 65% of its total assets in Hybrid Instruments,
futures contracts, options, forward contracts, swaps, investment grade bonds,
money market instruments, and U.S. Government securities. The Fund may also
invest in domestic and foreign equity securities and may invest up to 10% of its
total assets in high yield, lower-rated debt securities ("junk bonds").
The Manager might not use all of these instruments or all of these
investment strategies to the full extent permitted unless it believes doing so
will help the Fund achieve its investment objective.
o HYBRID INSTRUMENTS.
o HYBRID INSTRUMENTS ARE "DERIVATIVE" INSTRUMENTS.
A Hybrid Instrument is a derivative instrument whose value is derived
from, or linked to, the value of another source, typically a commodity, a
futures contract, an index or some other readily measurable economic variable.
The Hybrid Instruments in which the Fund invests may include, but are not
limited to, debt instruments with principal and/or coupon payments linked to the
value of commodities, commodity futures contracts, or the performance of
commodity indexes, such as the Goldman Sachs Commodity Index (the "GSCI").
Although the Fund will be economically exposed to commodity prices, the
predominant characteristic of each Hybrid Instrument is expected to be that of a
debt obligation. The Fund may invest in Hybrid Instruments where the principal
is protected completely, partially or not at all.
The Hybrid Instruments in which the Fund expects to invest are typically
structured as follows:
o ISSUERS OF HYBRID INSTRUMENTS. Hybrid Instruments may be issued by banks,
brokerage firms, insurance companies and corporations. Except as described
below, the Fund will not invest 25% or more of its total assets in Hybrid
Instruments and securities issued by companies in any one industry. However, the
Fund will invest 25% or more of its total assets in securities, Hybrid
Instruments and other instruments including futures and forward contracts,
related options, and swaps linked to the energy and natural resources,
agriculture, livestock, industrial metals, and precious metals industries. In
addition, the Fund may invest collectively more than 25% of its total assets in
Hybrid Instruments and securities issued by companies in the financial services
sector (which includes, for instance, the banking, brokerage and insurance
industries).
o HYBRID INSTRUMENTS WILL BE LINKED TO THE COMMODITY MARKETS. Hybrid
Instruments in which the Fund may invest are structured so that part of their
return is derived from, or linked to, an underlying commodity, commodity index,
futures contract, or another readily measurable economic variable. Consequently,
at maturity of the note, the Fund may receive back more or less of its invested
principal, or more or less of its stated coupon payment, depending on the
performance of the underlying commodity, index, futures contract, or economic
variable. For instance, the Fund may invest in Hybrid Instruments linked to the
GSCI which not only increase in value when the GSCI increases in value, but may
also decrease in value if the GSCI declines in value. See "Hybrid Instruments
without principal protection," below.
o HYBRID INSTRUMENTS WITH PRINCIPAL PROTECTION. The Fund may invest in
Hybrid Instruments that have principal protection. With full principal
protection, the Fund will receive at maturity of the Hybrid Instrument either
the stated par value of the Hybrid Instrument, or potentially, an amount greater
than the stated par value if the underlying commodity, index, futures contract
or economic variable to which the Hybrid Instrument is linked has increased in
value. Partially protected Hybrid Instruments may suffer some loss of principal
if the underlying commodity, index, futures contract or economic variable to
which the Hybrid Instrument is linked declines in value during the term of the
Hybrid Instrument. However, partially protected Hybrid Instruments have a
specified limit as to the amount of principal that they may lose.
o HYBRID INSTRUMENTS WITHOUT PRINCIPAL PROTECTION. The Fund may also invest
in Hybrid Instruments that offer no principal protection. At maturity, there is
a risk that the underlying commodity price, futures contract, index or other
economic variable may have declined sufficiently in value such that some or all
of the face value of the Hybrid Instrument might not be returned. Some of the
Hybrid Instruments that the Fund may invest in may have no principal protection
and the Hybrid Instrument could lose all of its value. To limit this exposure,
the Fund does not expect that it will invest more than 25% of its total assets
in Hybrid Instruments where the potential loss to the Hybrid Instrument under
its terms, either at redemption or maturity, exceeds 50% of its face value (as
calculated at the time of investment).
o SOME HYBRID INSTRUMENTS INVOLVE ECONOMIC LEVERAGE.
Generally, economic leverage exists when an investor achieves the right to
a return on a capital base that exceeds the return on the investment that the
investor has personally contributed to the entity or instrument achieving a
return. Borrowing money is considered a traditional form of leverage, because
the borrower can use the additional money to increase exposure to a particular
investment. Some Hybrid Instruments in which the Fund may invest involve a
degree of leverage. The Manager, however, believes that the leverage risks
involved in Hybrid Instruments are economic in nature, and do not constitute
leverage in the traditional sense because, among other things, the Fund does not
borrow money to purchase the Hybrid Instruments and the Fund's risk of loss on a
Hybrid Instrument is limited to the amount of the Fund's investment in the
Hybrid Instrument.
For example, a Hybrid Instrument linked to the value of a commodity index
may return income calculated as a multiple of the price movement of the
underlying index. For instance, a Hybrid Instrument with a leverage factor of
1.5 will increase in value by 1.5% for every 1% increase in the underlying
index. Therefore, at maturity, if the underlying index has increased by 10%, the
Hybrid Instrument would pay the full principal value plus 15% of the principal
value. However, if the Hybrid Instrument is not principal protected and the
underlying index declines by 10%, the Hybrid Instrument would pay only 85% of
its principal at maturity. Therefore, economically leveraged Hybrid Instruments
can increase the gain or the loss associated with an underlying commodity,
index, futures contract or economic variable. See "Risk Factors Volatility of
Hybrid Instruments."
The Fund has established certain limitations to ensure that it is not
subject to undue leverage risk. See "Limitations on Hybrid Instruments -
Limitations on leverage," below.
o LIMITATIONS ON HYBRID INSTRUMENTS.
MATURITY. The Fund does not intend to invest more than 10% of its total
assets, determined at the time of investment, in Hybrid Instruments with a
maturity greater than 19 months.
PRINCIPAL PROTECTION. The Fund does not expect that it will invest more
than 25% of its total assets, in Hybrid Instruments where, under the terms of
the Hybrid Instrument, the risk of loss of principal, upon either redemption or
maturity, exceeds 50% of the principal value of the Hybrid Instrument
(calculated at the time of investment).
QUALIFYING HYBRID INSTRUMENTS. The Fund will invest in Hybrid Instruments
that qualify for the exemption from regulation by the Commodity Futures Trading
Commission. See Appendix B of this Prospectus for a description of Qualifying
Hybrid Instruments. The Fund shall determine at the time of investment that such
investments are qualifying Hybrid Instruments. Additionally, the Fund may invest
from time to time in non-qualifying Hybrid Instruments to the extent permitted
by applicable law. The Fund may invest up to 100% of its total assets in
Qualifying Hybrid Instruments.
LIMITATIONS ON LEVERAGE. The Fund will seek to limit the amount of
economic leverage with respect to any one Hybrid Instrument in which it invests
as well as the leverage of the Fund's overall portfolio. The Fund will not
engage in a transaction involving a Hybrid Instrument if, at the time of
purchase, (a) that Hybrid Instrument's "leverage ratio" exceeds 300% of the
price increase in the underlying commodity, futures contract, index or other
economic variable; or (b) the Fund's "portfolio leverage ratio" exceeds 150%,
measured at the time of purchase. "Leverage ratio" is defined as the expected
increase in the value of a Hybrid Instrument, assuming a one percent price
increase in the underlying commodity, futures contract, index or other economic
factor. In other words, for a Hybrid Instrument with a leverage factor of 150%,
a 1% gain in the underlying economic variable would be expected to result in a
1.5% gain in value for the Hybrid Instrument. "Portfolio leverage ratio" is
defined as the average (mean) leverage ratio of all instruments in the Fund's
portfolio, weighted by the market values of such instruments or, in the case of
futures contracts, their notional values.
|X| COMMODITY FUTURES CONTRACTS. The Fund may buy and sell commodity
futures contracts to the fullest extent permissible by law. The Fund may
purchase and sell commodity futures contracts for a number of purposes described
below. See "Futures Contracts, Options and Other Derivative Instruments."
o FUTURES CONTRACTS, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. In order to
increase its investment return, to manage its exposure to changing interest
rates, commodity prices, securities prices, currency exchange rates and other
economic variables or, for other investment purposes, the Fund may engage in
several strategies involving various derivative instruments.
The Fund may buy and sell options, futures and forward contracts for a
number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities and instruments may
decline, or to establish a position in the futures or options market as a
temporary substitute for purchasing individual securities or instruments. It may
do so in an attempt to enhance its income or return by purchasing and selling
call and put options on commodity futures, commodity indices, financial indices
or securities. It may also use certain types of derivative instruments to try to
manage its exposure to changing interest rates.
The Fund expects to engage in futures and options transactions primarily
in 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.
The Fund may also transact in other commodity or financial futures if it
believes that doing so may be advantageous to the Fund's shareholders, including
futures contracts and options relating to (1) foreign currencies (these are
Forward Contracts), (2) financial indices, such as U.S. or foreign government
securities indices, corporate debt securities indices or equity securities
indices (these are referred to as Financial Futures), (3) interest rates (these
are referred to as Interest Rate Futures), and (4) commodities (these are
referred to as commodities futures).
These types of futures contracts are described in the Statement of Additional
Information.
The Fund may buy and sell exchange-traded and over-the-counter options,
including index options, commodities options, currency options, interest rate
options, and options on foreign securities, and may invest in futures contracts
and related options with respect to commodities, foreign currencies, fixed
income securities, and foreign stock indices.
When the Fund writes a call option, it gives the purchaser the right, but
not the obligation, to buy a particular security at a set price within a set
time. The Fund receives income from the premium paid by the purchaser. The calls
are "covered," which means that the Fund owns the securities that are subject to
the call or, for other types of calls, segregates liquid assets to cover its
obligation under the call. There is no limit on the amount of the Fund's total
assets that may be subject to covered calls.
When the Fund writes a put option, it gives the purchaser the right, but
not the obligation, to require the Fund to buy a particular security at a set
price within a set time. Writing puts requires the segregation of liquid assets
by the Fund to cover the put with no more than 50% of the Fund's total assets
subject to written puts.
o FUTURES CONTRACTS. When the Fund sells a futures contract it obligates
itself to deliver at a specified date a specified quantity of a commodity at a
specified price. In practice, only a very small percentage of all futures
contracts result in actual delivery of the underlying contract. Generally, the
Fund expects to satisfy or offset its delivery obligations by taking an equal,
but opposite position in the futures markets in the same commodity.
o FORWARD CURRENCY CONTRACTS. The Fund may invest in Forward Currency
Contracts which are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund may use them to try to "lock in" the U.S. dollar price
of a security denominated in a foreign currency that the Fund has purchased or
sold, or to protect against possible losses from changes in the relative value
of the U.S. dollar and a foreign currency. The Fund may also use "cross
hedging," where the Fund seeks to hedge against changes in currencies other than
the currency in which a security it holds is denominated. The use of Forward
Contracts may reduce the gain that would otherwise result from a change in the
relationship between the U.S. dollar and a foreign currency.
o DERIVATIVE INSTRUMENTS CAN BE VOLATILE INSTRUMENTS AND MAY GENERALLY
INVOLVE SPECIAL RISKS. Derivative instruments are complicated investments and
may require special knowledge and expertise to effectively manage their risks
and returns. See "Risk Factors - Risks of Derivative Instruments."
o HEDGING. The Fund may employ futures and forward contracts, options and
other derivative instruments as hedging instruments. The Fund may hedge to
attempt to protect against declines in the market value of its portfolio or to
permit the Fund to retain unrealized gains in the value of its portfolio
investments. For more information on the Fund's hedging activities, see
"Hedging" in the Statement of Additional Information.
o SWAPS.
o SWAPS ARE CUSTOMIZED AGREEMENTS. Swaps are customized agreements between
two parties to exchange or swap cash flows or assets at specified intervals in
the future. A swap contract may be best described as a portfolio of forward
contracts, where one party agrees to exchange an asset (e.g. bushels of wheat)
for another asset (cash) at specified dates in the future. A one period swap
contract operates similar to a forward or futures contract because there is an
agreement to swap wheat for cash at only one forward date. The Fund may engage
in swap transactions that have more than one period and therefore, more than one
exchange of assets. The Fund may enter into swap transactions whose terms and
obligations extend beyond one year.
o SWAPS ARE DERIVATIVE INSTRUMENTS. The Fund expects to commit a portion
of its net assets to total return swaps on commodity prices, futures contracts,
the GSCI, components of the GSCI, other commodity indices, or other readily
measurable economic variables. A total return swap gives the Fund the right to
receive the appreciation in value of an underlying asset in return for paying a
fee to the swap counterparty. The fee paid by the Fund will typically be
determined by multiplying the face value of the swap agreement by an agreed upon
interest rate. If the underlying asset declines in value over the term of the
swap, the Fund would be required to pay to the counterparty the dollar value of
this decline in addition to its fee payments.
o QUALIFYING SWAP TRANSACTIONS. Similar to Qualifying Hybrid Instruments,
the Fund intends to invest only in Qualifying Swap Transactions. Qualifying Swap
Transactions are exempt from regulation by the Commodity Futures Trading
Commission under the Commodity Exchange Act. Qualifying Swap Transactions are
described in more detail in Appendix C of this Prospectus.
o U.S. GOVERNMENT SECURITIES. The Fund's investments in U.S.
Government securities may include, but are not limited to, the following:
o U.S. GOVERNMENT OBLIGATIONS. These are securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. U.S. Treasury notes,
bills and bonds are backed by the full faith and credit of the U.S. Government.
Some U.S. Government agency securities are backed by the full faith and credit
of the U.S. Government (for example,"Ginnie Maes"). Others are supported by the
right of the agency to borrow an amount from the U.S. Government limited to a
specific line of credit (for example, "Fannie Maes"). Others are supported only
by the credit of the agency that issued the security (for example, "Freddie
Macs").
o ZERO COUPON SECURITIES. These securities, which may be issued by the
U.S. Government, or its agencies or instrumentalities, are purchased by the Fund
at a substantial discount from their face value. They are subject to greater
fluctuations in market value as interest rates change than debt securities that
pay interest periodically. For financial and tax purposes, interest accrues on
zero coupon bonds even though cash is not actually received by the Fund.
o MORTGAGE-BACKED SECURITIES AND CMOS. The Fund may invest in securities
issued by the U.S. Government or its agencies or instrumentalities that
represent an interest in a pool of mortgage loans. See "U.S. Government
Mortgage-Backed Securities and CMOs," below.
o INVESTMENT GRADE BONDS. The Fund may invest in investment grade debt
obligations rated in the four highest investment categories by Standard & Poor's
Corporation, Moody's Investor Services, Inc., or by another nationally
recognized statistical rating organization ("NRSRO") or, if unrated, considered
by the Manager to be of similar quality. These investments may include:
o CORPORATE BONDS. The Fund may invest in debt securities issued by
domestic corporations.
o INTERNATIONAL BONDS. The Fund may invest in international bonds,
including debt securities denominated in currencies other than the U.S. dollar.
Generally, these securities are issued by foreign corporations and foreign
governments and are traded on foreign markets. Investment in international debt
securities that are denominated in foreign currencies involve certain additional
risks, which are described in the Statement of Additional Information.
o ASSET-BACKED SECURITIES. Asset-backed securities represent interests in
pools of assets such as receivables from credit card loans and automobile loans
and other trade receivables. Asset-backed securities may be supported by a
credit enhancement, such as a letter of credit, a guarantee or a preference
right. However, the extent of the credit enhancement may be different for
different securities and generally applies to only a fraction of the security's
principal amount. Prepayments on the underlying receivables may reduce the
return on asset-backed securities.
o PARTICIPATION INTERESTS. Participation interests are interests in loans
made to U.S. or foreign companies or to foreign governments. These interests are
typically acquired from banks or brokers that have made the loan or are members
of the lending syndicate. No more than 5% of the Fund's net assets may be
invested in participation interests of the same borrower.
The Manager has set certain creditworthiness standards for issuers of loan
participations, and monitors their creditworthiness. The value of loan
participation interests depends primarily upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers may have
difficulty making payments. If a borrower fails to make scheduled interest or
principal payments, the Fund could experience a decline in the net asset value
of its shares. Some borrowers may have senior securities outstanding rated as
low as "C" by Moody's or "D" by S&P, but may be deemed acceptable credit risks.
Certain participation interests may be illiquid and are subject to the Fund's
limitations on investments in illiquid securities. See "Illiquid and Restricted
Securities".
o U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES AND CMOS. The Fund may invest
in securities that represent an interest in a pool of residential mortgage
loans. These include collateralized mortgage-backed obligations (referred to as
"CMOs") issued by the U.S. Government, or its agencies or instrumentalities
(Ginnie Mae, Fannie Mae, or Freddie Mac). The issuer's obligation to make
interest and principal payments on a mortgage-backed security is secured by the
underlying portfolio of mortgages or mortgage-backed securities. Prepayments on
the underlying mortgages are an important element of mortgage backed securities
and may result in a gain or loss to the Fund and may reduce the return on the
Fund's investments.
The Fund may invest in CMOs that are "stripped"; that is, the security is
divided into two parts, one of which receives some or all of the principal
payments and the other of which receives some or all of the interest. Stripped
securities that receive interest only are subject to increased volatility in
price due to interest rate changes and have the additional risk that if the
principal underlying the CMO is prepaid (which is more likely to happen if
interest rates fall), the Fund will lose the anticipated cash flow from the
interest on the mortgages that were prepaid. Stripped securities that receive
principal payments only are also subject to increased volatility in price due to
interest rate changes and have the additional risk that the security will be
less liquid during demand or supply imbalances. See "Mortgage-backed Securities"
in the Statement of Additional Information for more details.
o PRIVATE LABEL MORTGAGE-BACKED SECURITIES, CMOS AND ZERO COUPON BONDS. The
Fund may purchase mortgage-backed securities, CMOs and zero coupon bonds sold by
private issuers other than the U.S. Government, its instrumentalities or its
agencies. These private issuers are not backed or guaranteed by the U.S.
Government, and may pose greater credit risk than the U.S. Government, or its
instrumentalities or agencies.
o MONEY MARKET INSTRUMENTS. The Fund may invest in money market
instruments, including U.S. Government obligations, certificates of deposit,
banker's acceptances, bank deposits, other financial institution obligations,
commercial paper and other short-term commercial obligations. These include time
deposits, certificates of deposit and bankers acceptances of a domestic or
foreign bank with total assets of at least U.S. $1 billion. These instruments
may also include instruments that have variable interest rates which, in the
opinion of the Manager, are expected to maintain a value at or close to the face
value of the instrument. The Fund may keep a portion of its assets in cash.
o HIGH YIELD SECURITIES. The Fund may invest up to 10% of its total assets
in high-risk, high yield, lower-rated debt securities and comparable unrated
securities ("junk bonds"). High yield securities carry more credit risk and are
rated "BB" or below by S&P or "Ba" or below by Moody's, or have a similar credit
risk rating by another NRSRO or, if unrated, considered by the Manager to be of
comparable quality. High yield securities are considered more risky than
investment grade bonds because there is greater uncertainty regarding the
economic viability of the issuer. The Fund may invest in securities rated as low
as "D" by S&P. See "High Yield Securities - Special Risks."
o BOARD-APPROVED INSTRUMENTS. The Fund may invest in other instruments
(including new instruments that may be developed in the future) that the Fund's
Board of Trustees determines are consistent with the Fund's investment objective
and investment policies.
OTHER INVESTMENT TECHNIQUES AND STRATEGIES. The Fund may also use the investment
techniques and strategies described below. These techniques and strategies
involve certain additional risks. The Statement of Additional Information
contains more information about these techniques and strategies, including
limitations on their use that may help to reduce some of the risks.
o PORTFOLIO TURNOVER. A change in the assets and securities held by the
Fund is known as "portfolio turnover." The Fund will actively trade short-term
instruments whose values are linked to an underlying commodity, futures
contract, index or other economic variable. Consequently, the Fund may have a
high portfolio turnover rate. High portfolio turnover (100% or more) may affect
the ability of the Fund to qualify as a "regulated investment company" under the
Internal Revenue Code for tax deductions for dividends and capital gains paid to
Fund shareholders. Portfolio turnover also affects brokerage costs, dealer
mark-ups and other transaction costs.
The Fund will not generally exceed a turnover rate of three times (300%).
Although the Fund may have a high turnover ratio due to the short term nature of
its investments, the Fund does not expect its brokerage expenses to be
excessive. This is because the Fund will purchase many of its investments
directly from dealers rather than through brokers. Additionally, because of the
short term nature of the Fund's investments, the Fund expects to generate short
term taxable gains which will be included in its gross income.
o SPECIAL RISKS - BORROWING. As a fundamental policy the Fund may borrow
money in an amount up to 33.33% of its total assets from banks. Such borrowing
may be used to fund shareholder redemptions or for other purposes. The Fund will
borrow only if it can do so without putting up assets as security for a loan.
Borrowing may subject the Fund to greater risks and costs than funds that do not
borrow. These risks may include the possible reduction of income and increased
fluctuation in the Fund's net asset value per share, since the Fund pays
interest on its borrowings.
o WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such securities on
a "delayed delivery" basis. These terms refer to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. The Fund does not intend to make such
purchases for speculative purposes. During the period between the purchase and
settlement, no payment is made for the security and no interest accrues to the
buyer from the investment. There may be a risk of loss if the value of the
security changes prior to the settlement date and there is the risk that the
other party may not perform. The Fund may "roll" these transactions by selling
the when-issued security before settlement date and simultaneously purchasing
another substantially similar when-issued security.
o REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements.
They are primarily used by counterparties for liquidity. In a repurchase
transaction, the Fund buys a security and simultaneously sells it to the seller
for delivery at a future date. Repurchase agreements must be fully
collateralized. However, if the seller fails to pay the resale price on the
delivery date, the Fund may incur costs in disposing of the collateral and may
experience losses if there is any delay in its ability to do so. If the default
on the part of the seller is due to insolvency and the seller initiates
bankruptcy proceedings, the ability of the Fund to liquidate the collateral may
be delayed or limited.
o REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse
repurchase agreements where the Fund sells securities to a buyer and
simultaneously agrees to buy back the securities from the buyer at a future
date. Reverse repurchase agreements are a form of borrowing by the Fund.
o FORWARD ROLL TRANSACTIONS. The Fund may enter into "forward roll"
transactions with banks or other buyers that provide for future delivery to the
Fund of the mortgage-backed securities in which the Fund may invest. The Fund
would be required to place liquid securities in a segregated account with its
custodian bank in an amount equal to its purchase payment obligation under the
roll.
When the Fund engages in forward roll transactions, it relies on the buyer
or seller as the case may be, to consummate the transaction. Failure of the
buyer or seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous.
o ILLIQUID AND RESTRICTED SECURITIES. Under the policies and procedures
established by the Fund's Board of Trustees, the Advisor determines the
liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund will
not invest more than 15% of its net assets in illiquid or restricted securities.
The Fund's percentage limitation on these investments does not apply to certain
restricted securities that are eligible for resale to qualified institutional
purchasers, such as securities purchased under Rule 144A of the Securities Act
of 1933. The Advisor monitors holdings of illiquid securities on an ongoing
basis and at times the Fund may be required to sell some holdings to maintain
adequate liquidity.
o LOANS OF PORTFOLIO SECURITIES. To attempt to generate income, the Fund
may lend its portfolio securities to brokers, dealers and other financial
institutions. The Fund must receive collateral for a loan. These loans are
limited to not more than one-third of the Fund's net assets and are subject to
other conditions described in the Statement of Additional Information. The Fund
presently does not intend to lend its portfolio securities, but if it does, the
value of securities loaned is not expected to exceed one-third of the value of
its total assets in the coming year.
RISK FACTORS
o HYBRID INSTRUMENTS.
THE HYBRID INSTRUMENTS IN WHICH THE FUND INVESTS CAN INVOLVE SUBSTANTIAL
RISKS, INCLUDING RISK OF LOSS OF A SIGNIFICANT PORTION OF PRINCIPAL.
o RISK OF LOSS OF INTEREST. To the extent that payment of interest is
linked to the value of a particular commodity, futures contract, index or other
economic variable, the Fund, as the holder of a Hybrid Instrument, may not
receive all or a portion of interest on its investment.
o RISK OF LOSS OF PRINCIPAL. To the extent that the amount of the
principal to be repaid upon maturity is linked to the value of a particular
commodity, futures contract, index or other economic variable, the Fund, as
holder of the Hybrid Instrument, may not receive all or a portion of the
principal. The Fund does not expect that it will invest more than 25% of its
total assets in Hybrid Instruments where under the terms of the Hybrid
Instrument, the risk of loss of principal, upon either redemption or maturity,
exceeds 50% of the principal value of the Hybrid Instrument, calculated at the
time of investment. At any particular time, the risk associated with any
particular instrument in the Fund's portfolio may be significantly higher than
50% risk of loss, particularly when a Hybrid Instrument has appreciated
significantly since its acquisition by the Fund.
o LACK OF SECONDARY MARKET. The Hybrid Instruments that the Fund expects to
invest in may be created specifically for investment by the Fund. Therefore, a
liquid secondary market may not exist for these Hybrid Instruments, which may
adversely affect the ability of the Fund to sell them or to accurately value
them. See "Illiquid and Restricted Securities," above. However, to the extent
the Hybrid Instruments in which the Manager invests are linked to a readily
measurable commodity, futures contract, index, or economic variable, the
valuation of these instruments should be clearly priced to all financial market
participants which may increase their liquidity.
o SKILL OF THE MANAGER. The success of the Fund in selecting Hybrid
Investments for its portfolio depends on the skill of the Manager in predicting
the movement of interest rates, the value of particular commodities and other
economic variables. There is no assurance that the Manager will accurately
predict these movements.
Additionally, OFI and the Manager have limited experience investing in
commodity-linked Hybrid Instruments. However, OFI, the parent company of the
Manager, does have considerable experience investing in currency-linked,
equity-linked and interest rate-linked Hybrid Instruments. To the extent there
are similarities among these instruments, the experience of OFI and the Manager
may be useful in selecting Hybrid Instruments for the Fund.
o VOLATILITY OF HYBRID INSTRUMENTS. The value of the Hybrid Instruments in
which the Fund invests may fluctuate significantly because the values of the
underlying commodities, futures contracts, indexes or other economic variables
to which they are linked are themselves extremely volatile. Additionally,
economic leverage will increase the volatility of Hybrid Instruments as they may
increase or decrease in value more quickly than the underlying commodity, index,
futures contract, or economic variable.
o COUNTERPARTY RISK. Hybrid Instruments are privately issued notes with
stated maturities. These securities may be issued by banks, broker-dealers or
corporations. Therefore, the Fund must accept the credit risk of the issuer's
performance at the maturity of the instrument. The Fund will attempt to limit
this risk, as best as possible, by transacting whenever possible with
counterparties who have an investment grade credit rating. Additionally, the
Fund may transact with counterparties who have a lower than investment grade
credit rating but have a Letter of Credit from a major money center bank or some
other form of credit enhancement.
o COMMODITY FUTURES CONTRACTS.
o STORAGE COSTS. Similar to the financial futures markets, there are
hedgers and speculators in the commodity futures markets. However, unlike
financial instruments, there are costs of physical storage associated with
purchasing the underlying commodity. For instance, a large manufacturer of baked
goods that wishes to hedge against a rise in the price of wheat has two choices:
(i) it can purchase the wheat today in the cash market and store the commodity
at a cost until it needs the wheat for its manufacturing process, or (ii) it can
buy commodity futures contracts. The price of the commodity futures contract
will reflect the storage costs of purchasing the physical commodity. These
storage costs include the time value of money invested in the physical commodity
plus the actual costs of storing the commodity less any benefits from ownership
of the physical commodity that are not obtained by the holder of a futures
contract (this is sometimes referred to as the "convenience yield"). To the
extent that these storage costs change for an underlying commodity while the
Fund is long futures contracts on that commodity, the value of the futures
contract may change commensurately.
o REINVESTMENT RISK. In the commodity futures markets, if producers of the
underlying commodity wish to hedge the price risk of selling the commodity, they
will sell futures contracts today to lock in the price of the commodity at
delivery tomorrow. In order to induce speculators to take the corresponding long
side of the same futures contract, the commodity producer must be willing to
sell the futures contract at a price which is below the expected future spot
price. Conversely, if the predominate hedgers in the futures market are the
purchasers of the underlying commodity who purchase futures contracts to hedge
against a rise in prices, then speculators will only take the short side of the
futures contract if the futures price is greater than the expected future spot
price of the commodity.
The changing nature of the hedgers and speculators in the commodity
markets can determine whether futures prices are above or below the expected
future spot price. This can have significant implications for the Fund when it
is time to reinvest the proceeds from a maturing futures contract into a new
futures contract. If the nature of hedgers and speculators in futures markets
has shifted such that commodity purchasers are the predominate hedgers in the
market, the Fund might reinvest at higher futures prices or choose other related
commodity investments.
o ADDITIONAL ECONOMIC FACTORS. The values of commodities which underlie
commodity futures contracts are subject to additional variables which may be
less significant to the values of traditional securities such as stocks and
bonds. Variables such as drought, floods, weather, livestock disease, embargoes
and tariffs may have a larger impact on commodity prices and commodity-linked
instruments, including futures contracts, Hybrid Instruments, commodity options
and commodity swaps, than on traditional securities. These additional variables
may create additional investment risks which subject the Fund's investments to
greater volatility than investments in traditional securities.
o LEVERAGE. There is much greater leverage in futures trading than in
stocks. As a registered investment company, the Fund must pay in full for all
securities it purchases. In other words, the Fund is not allowed to purchase
securities on margin. However, the Fund is allowed to purchase futures contracts
on margin where the initial margin requirements are typically between 3 and 6
percent of the face value of the contract. That is, the Fund is only required to
pay up front between 3 to 6 percent of the face value of the futures contract.
Therefore, the Fund has a higher degree of leverage in its futures contract
purchases than in its stock purchases. As a result there may be differences in
the volatility of rates of return between securities purchases and futures
contract purchases, with the returns from futures contracts being more volatile.
o SWAP TRANSACTIONS. Swap transactions are privately negotiated
off-exchange agreements between the Fund and a counterparty. There is no central
market for swap transactions and therefore they are less liquid investments than
exchange-traded instruments. Furthermore, if the Fund were to sell the swap to a
third party, it would still remain primarily liable for the obligations under
the swap contract. Additionally, the Fund will bear the credit risk of a
counterparty's performance under the swap agreement. See "Swaps" in the
Statement of Additional Information.
o RISKS OF DERIVATIVE INSTRUMENTS. Some of the strategies the Fund may
pursue, such as selling futures contracts, buying puts and writing calls, may
hedge, to some degree, against price fluctuations. Other strategies, such as
buying futures contracts, writing puts, buying calls and entering into swap
agreements, tend to increase market exposure and price fluctuation. In some
cases, the Fund may buy a call option, a futures contract or a Hybrid Instrument
for the purpose of increasing its exposure in a particular market segment, which
may be considered speculative. With respect to futures contracts or related
options that are entered into for purposes that may be considered speculative,
the aggregate initial margin for futures contracts and premiums for options (or,
in the case of non-qualifying Hybrid Instruments, the portion attributable to
the options premium) will not exceed 5% of the Fund's net assets, after taking
into account realized profits and unrealized losses on such futures contracts.
Through its investment in Hybrid Instruments and other derivative instruments,
the Fund expects to achieve an economic exposure to the commodity markets equal
to no more than 150% of its total assets.
The use of derivative instruments requires special skills and knowledge
and investment techniques that are different from what is required for normal
portfolio management. If the Manager uses a derivative instrument at the wrong
time or judges market conditions incorrectly, the strategies may result in a
significant loss to the Fund and reduce the Fund's return. The Fund could also
experience losses if the prices of its hedging instruments, futures and options
positions were not properly correlated with its other investments or if it could
not close out a position because of an illiquid market for the future or option
or derivative instrument.
There are also special risks in particular strategies. For example, if a
covered call written by the Fund is exercised on an investment that has
increased in value above the call price, the Fund will be required to sell the
investment at the call price and will not be able to realize any profit on the
investment above the call price. In writing a put, there is a risk that the Fund
may be required to buy the underlying security at a disadvantageous price if the
market value is below the put price. These risks and the strategies the Fund may
use are described in greater detail in the Statement of Additional Information.
o RISKS OF DEBT SECURITIES. In addition to credit risks, described below,
debt securities are subject to changes in their value due to changes in
prevailing interest rates. When prevailing interest rates rise, the values of
already-issued debt securities generally decline. The magnitude of these
fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. Changes in the value of debt securities held by
the Fund mean that the Fund's share prices can go up or down when interest rates
change because of the effect of the change on the value of the Fund's portfolio
of debt securities. Credit risk relates to the ability or the perceived ability
of the issuer to meet interest or principal payments on a security as they
become due. Generally, higher yielding, lower-grade bonds, described below, are
subject to credit risks to a greater extent than lower yielding,
investment-grade bonds.
o HIGH YIELD SECURITIES - SPECIAL RISKS. High yield, lower-grade debt
securities, whether rated or unrated, often are speculative investments.
Lower-grade debt securities have special risks that may make them riskier
investments than investment grade securities. They may be subject to greater
market fluctuations and risk of loss of income and principal than lower
yielding, investment- grade debt securities. There may be less of a market for
them and therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
allow it to make the payments of interest due on the outstanding obligation. The
issuer's low credit worthiness may also increase the potential for its
insolvency.
These risks mean that the Fund may not achieve the expected return from
its investment in lower-grade debt securities, and that the Fund's net asset
value per share may be adversely affected by declines in value of these
securities. The Fund is not obligated to dispose of securities when issuers are
in default or if the rating of the security is reduced. Convertible securities
may entail additional risks but may be less subject to some of these risks than
other debt securities, to the extent they can be converted into stock, which may
be more liquid and less affected by these other risk factors.
o FOREIGN INVESTMENT RISKS. Investments in foreign securities involve the
possibility of expropriation, nationalization or confiscatory taxation, taxation
of income earned in foreign nations (including, for example, withholding taxes
on interest and dividends) or other taxes imposed with respect to investments in
foreign nations, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country and repatriation of
investments), default in foreign government securities, and political or social
instability or diplomatic developments that could adversely affect investments.
In addition, there is often less publicly available information about foreign
issuers than those in the U.S. Foreign companies are often not subject to
uniform accounting, auditing and financial reporting standards. The Fund may
encounter difficulties in pursuing legal remedies or in obtaining judgments in
foreign courts.
Brokerage commissions, fees for custodial services and other costs
relating to investments in other countries are generally greater than in the
U.S. Foreign markets have different clearance and settlement procedures from
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions.
INVESTMENT RESTRICTIONS
The investment objective and certain investment restrictions of the Fund are
matters of fundamental policy for purposes of the Investment Company Act of 1940
(the "1940 Act") and therefore cannot be changed without the approval of a
"majority" of the outstanding voting securities of the Fund. This means the
lesser of: (i) 67% of the shares of the Fund present at a shareholders' meeting
if the holders of more than 50% of the shares of the Fund then outstanding are
present in person or by proxy; or (ii) more than 50% of the outstanding voting
securities of the Fund. The following investment restrictions apply only at the
time of purchase by the Fund.
As a matter of fundamental policy, the Fund:
(1) will not purchase the securities, Hybrid Instruments and other instruments
of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, or repurchase
agreements secured thereby) if, as a result, 25% or more of the Fund's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry, provided that the
Fund will invest 25% or more of its total assets in securities, Hybrid
Instruments and other instruments, including futures and forward
contracts, related options and swaps, linked to the energy and natural
resources, agriculture, livestock, industrial metals, and precious metals
industries. The individual components of an index will be considered as
separate industries;
(2) will not make loans, except that, to the extent appropriate under its
investment program, the Fund may (a) purchase bonds, debentures, other
debt securities and Hybrid Instruments, including short-term obligations;
(b) enter into repurchase transactions; and (c) lend portfolio securities
provided that the value of such loaned securities does not exceed
one-third of the Fund's total assets;
(3) will not issue any senior security (as defined in the 1940 Act), except
that (a) the Fund may enter into commitments to purchase securities in
accordance with the Fund's investment pro gram, including reverse
repurchase agreements, delayed delivery and when-issued securities, which
may be considered the issuance of senior securities, (b) the Fund may
engage in transactions that may result in the issuance of a senior
security to the extent permitted under the 1940 Act and applicable
regulations, interpretations of the 1940 Act or an exemptive order; (c)
the Fund may engage in short sales of securities to the extent permitted
in its investment program and other restrictions; (d) the purchase or sale
of Hybrid Instruments, futures contracts and related options shall not be
considered to involve the issuance of senior securities; and (e) the Fund
may borrow money as authorized by the 1940 Act;
(4) will not borrow money, except that (a) the Fund may enter into commitments
to purchase securities and instruments in accordance with its investment
program, including delayed- delivery and when-issued securities and
reverse repurchase agreements, provided that the total amount of any
borrowing does not exceed 33-1/3% of the Fund's total assets; (b) the Fund
may borrow money in an amount not to exceed 33-1/3% of the value of its
total assets at the time when the loan is made. Borrowings representing
more than 33-1/3% of the Fund's total assets must be repaid before the
Fund may make additional investments;
(5) will not purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the Fund from purchasing or selling Hybrid Instruments, options
and futures contracts with respect to individual commodities or indices,
or from investing in securities or other instruments backed by physical
commodities or indices); or
(6) will not purchase or sell real estate unless acquired as a result of
direct ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments backed
by real estate or securities of companies engaged in the real estate
business, including REITs). Investments by a Fund in securities backed by
mortgages on real estate or in securities of companies engaged in such
activities are not hereby precluded.
HOW THE FUND IS MANAGED
ORGANIZATION AND HISTORY. The Fund was organized in July, 1996 as a
Massachusetts business trust. The Fund is an open-end, non-diversified
management investment company, with an unlimited number of authorized shares of
beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. "Trustees and Officers
of the Fund" in the Statement of Additional Information names the Trustees and
officers of the Fund and provides more information about them. Although the Fund
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.
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 four classes of shares, Class A, Class B, Class C
and Class Y. All classes invest in the same investment portfolio. Only certain
institutional investors may elect to purchase Class Y shares. Each class has its
own dividends and distributions and pays certain expenses which may be different
for the different classes. Each class may have a different net asset value. Each
share has one vote at shareholder meetings, with fractional shares voting
proportionally. Shareholders of the Fund vote in the aggregate, on certain
matters such as the election of Trustees. Each class votes on matters which
affect that class and does not vote on matters which do not affect that class.
Shares are freely transferrable.
THE MANAGER AND ITS AFFILIATES. The Fund is managed by OppenheimerFunds, Inc.
("OFI" or the "Advisor") and Oppenheimer Real Asset Management, Inc. (the
"Manager"), which is the Subadvisor for the Fund and is responsible for
selecting the Fund's investments and handles its day-to-day business. OFI and
the Manager are registered investment advisors with the Securities and Exchange
Commission and the Manager is a registered Commodity Trading Advisor with the
Commodity Futures Trading Commission ("CFTC"). The Manager is a wholly owned
subsidiary of OFI. OFI and the Manager carry out their duties, subject to the
policies established by the Board of Trustees, under an Investment Advisory
Agreement and Sub-Advisory Agreement which state OFI's and Manager's
responsibilities. The Investment Advisory Agreement and the Sub-Advisory
Agreement set forth the fees paid by the Fund to OFI, and by OFI to the Manager,
and describes the expenses that the Fund is responsible to pay to conduct its
business.
OFI has operated as an investment advisor since 1959. OFI (including
subsidiaries) currently manage investment companies, including other Oppenheimer
funds, with assets of more than $75 billion as of September 30, 1997, and with
more than 3 million shareholder accounts. The Manager is owned by OFI, which in
turn is a wholly owned subsidiary of Oppenheimer Acquisition Corp., a holding
company that is owned in part by senior officers of OFI and controlled by
Massachusetts Mutual Life Insurance Company.
o PORTFOLIO MANAGERS. The Portfolio Managers of the Fund are Russell Read
and Mark Anson. Mr. Read and Mr. Anson are a Senior Vice President and a Vice
President, respectively, of the Advisor and both are Vice Presidents of the
Manager. They are the persons principally responsible for the day-to-day
management of the Fund's portfolio. Mr. Read joined OFI in October, 1993 as
Director of Quantitative Research. Prior to that, Mr. Read was an investment
manager for The Prudential and Associate Economist for the First National Bank
of Chicago. Mr. Read received his Ph.D. in Political Economy from Stanford
University and his M.B.A. in Finance/International Business and B.A. in
Statistics from the University of Chicago. Mr. Anson joined OFI in January, 1996
as a Vice President and Assistant Counsel. Prior to that, Mr. Anson was employed
as a Registered Options Principal on the Equity Derivatives desk at Salomon
Brothers Inc. and as an attorney at Chapman and Cutler. Mr. Anson earned his
Ph.M. and Ph.D. in Finance from the Graduate School of Business at Columbia
University and his J.D. from Northwestern University School of Law. Mr. Anson
has also earned a C.P.A. certificate. Both Mr. Read and Mr. Anson are Chartered
Financial Analysts.
o FEES AND EXPENSES. Under the Investment Advisory Agreement, the Fund
pays OFI the following annual fees, which decline on additional assets as the
Fund grows: 1.0% of the first $200 million of average net assets, 0.90% of the
next $200 million, 0.85% of the next $200 million, 0.80% of the next $200
million, and 0.75% of net assets in excess of $800 million. Under the
Sub-Advisory Agreement, the Manager receives from OFI the following portions of
the annual fees: 0.50% of the first $200 million of average net assets, 0.45% of
the next $200 million, 0.425% of the next $200 million, 0.40% of the next $200
million, and 0.375% of the net assets in excess of $800 million.
The Fund pays expenses related to its daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal fees and auditing costs. Those
expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other expenses paid
by the Fund is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected for the
Fund's portfolio transactions. When deciding which brokers to use, OFI and the
Manager are permitted by the Investment Advisory Agreement and the Sub- Advisory
Agreement to consider whether brokers have sold shares of the Fund or any other
funds for which the Manager or OFI serve as investment advisor.
o THE DISTRIBUTOR. The Fund's shares are sold through dealers, brokers and
other financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of OFI that acts as the Fund's Distributor. The
Distributor also distributes the shares of the other Oppenheimer funds and is
sub-distributor for funds managed by a subsidiary of OFI.
o THE TRANSFER AGENT. The Fund's Transfer Agent is OppenheimerFunds
Services, a division of OFI, which acts as the shareholder servicing agent for
the Fund on an "at cost" basis. It also acts as the shareholder servicing agent
for the other Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free number shown
below in this Prospectus and on the back cover.
PERFORMANCE OF THE FUND
EXPLANATION OF PERFORMANCE TERMINOLOGY. The Fund uses the terms "total return"
and "average annual total return" to illustrate its performance. The performance
of each class of shares is shown separately, because the performance of each
class of shares will usually be different as a result of the different kinds of
expenses each class bears. These returns measure the performance of a
hypothetical account in the Fund over various periods, and do not show the
performance of each shareholder's account (which will vary if dividends are
received in cash or shares are sold or purchased). The Fund's performance data
may help you see how well your Fund has done over time and to compare it to
other funds or market indices.
It is important to understand that the Fund's total returns represent past
performance and should not be considered to be predictions of future returns or
performance. More detailed information about how total returns are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's performance. The
Fund's investment performance will vary over time, depending on market
conditions, the composition of the portfolio, expenses, and which class of
shares you purchase.
o TOTAL RETURNS. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted. Total
returns may also be quoted at net asset value, without considering the effect of
the contingent deferred sales charge, and those returns would be less if sales
charges were deducted.
The performance benchmark for the Fund is the Goldman Sachs Commodity
Index ("GSCI"). The GSCI is comprised of the near term futures prices for 22
commodities within five major commodity sectors: energy, agriculture, livestock,
industrial metals and precious metals.
A B O U T Y O U R A C C O U N T
HOW TO BUY SHARES
CLASSES OF SHARES. The Fund offers investors four different classes of shares:
Class A, Class B, Class C and Class Y. The fourth class, Class Y, is offered
only to certain institutional investors. The different classes of shares
represent investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
o CLASS A SHARES. If you buy Class A shares, you may pay an initial sales
charge on investments up to $1 million (up to $500,000 for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
page 35). If you purchase Class A shares as part of an investment of at least $1
million ($500,000 for Retirement Plans) in shares of one or more Oppenheimer
funds, you will not pay an initial sales charge, but if you sell any of those
shares within 12 months of buying them (18 months if the shares were purchased
prior to May 1, 1997), you may pay a contingent deferred sales charge.
o CLASS B SHARES. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as described in "Buying
Class B Shares," below.
o CLASS C SHARES. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1%, as
described in "Buying Class C Shares," below.
O CLASS Y SHARES. Class Y shares are offered only to certain institutional
investors that have special agreements with the Distributor.
None of the instructions described elsewhere in this Prospectus or the
Statement of Additional Information for the purchase, redemption, reinvestment,
exchange or transfer of shares of the Fund or the reinvestment of dividends
apply to its Class Y shares. Clients of Class Y Sponsors must request their
Sponsor to effect all transactions in Class Y shares on their behalf.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial advisor. The Fund's operating costs that apply to a
class of shares and the effect of the different types of sales charges on your
investment will vary your investment results over time. The most important
factors 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.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We assumed you are an
individual investor, and therefore ineligible to purchase Class Y shares. We
used the maximum sales charge rates that apply to each class, considering the
effect of the annual asset-based sales charge on Class B and Class C shares
(which, like all expenses, will affect your investment return). For the sake of
comparison, we have assumed that there is a 10% rate of appreciation in the
investment each year. Of course, the actual performance of your investment
cannot be predicted and will vary, based on the Fund's actual investment returns
and the operating expenses borne by each class of shares, and which class of
shares you invest in.
The factors discussed below are not intended to be investment advice or
recommendations, because each investor's financial considerations are different.
The discussion below of the factors to consider in purchasing a particular class
of shares assumes that you will purchase only ONE class of shares and not a
combination of shares of different classes.
o HOW LONG DO YOU EXPECT TO HOLD YOUR INVESTMENT? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment (which reduces the amount of
your investment dollars used to buy shares for your account), compared to the
effect over time of higher class-based expenses on Class B or Class C shares for
which no initial sales charge is paid.
INVESTING FOR THE SHORT TERM. If you have a short-term investment horizon
(that is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares, because of the effect of the Class B contingent deferred sales charge if
you redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in the
short-term. Class C shares might be the appropriate choice (especially for
investments of less than $100,000), because there is no initial sales charge on
Class C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then the more you invest and the more your investment horizon increases toward
six years, Class C shares might not be as advantageous as Class A shares. That
is because the annual asset-based sales charge on Class C shares will have a
greater impact on your account over the longer term than the reduced front-end
sales charge available for larger purchases of Class A shares. For example,
Class A shares might be more advantageous than Class C shares (as well as Class
B shares) for investments of more than $100,000 expected to be held for 5 or 6
years (or more). For investments over $250,000 expected to be held 4 to 6 years
(or more), Class A shares may become more advantageous than Class C shares (and
Class B shares). If investing $500,000 or more, Class A shares may be more
advantageous as your investment horizon approaches 3 years or more.
For investors who invest $1 million or more, in most cases Class A shares
will be the most advantageous choice, no matter how long you intend to hold your
shares. For that reason, the Distributor normally will not accept purchase
orders of $500,000 or more of Class B shares or $1 million or more of Class C
shares, from a single investor.
INVESTING FOR THE LONGER TERM. If you are investing for the longer term,
for example, for retirement, and do not expect to need access to your money for
seven years or more, Class B shares may be an appropriate consideration, if you
plan to invest less than $100,000. If you plan to invest more than $100,000 over
the long term, Class A shares will likely be more advantageous than Class B
shares or Class C shares, as discussed above, because of the effect of the
expected lower expenses for Class A shares and the reduced initial sales charges
available for larger investments in Class A shares under the Fund's Right of
Accumulation.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time, using
the assumed annual performance return stated above, and therefore you should
analyze your options carefully.
o ARE THERE DIFFERENCES IN ACCOUNT FEATURES THAT MATTER TO YOU? Because
some account features may not be available to Class B or Class C shareholders,
or other features (such as Automatic Withdrawal Plans) might not be advisable
(because of the effect of the contingent deferred sales charge) for Class B or
Class C shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy. Additionally,
dividends payable to Class B and Class C shareholders will be reduced by the
additional expenses borne by those classes that are not borne by Class A, such
as the Class B and Class C asset-based sales charges described below and in the
Statement of Additional Information. Share certificates are not available for
Class B or Class C shares, and if you are considering using your shares as
collateral for a loan, that may be a factor to consider.
o HOW DOES IT AFFECT PAYMENTS TO MY BROKER? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares may receive different compensation for selling one class of shares
than for selling another class. It is important that investors understand that
the purpose of the Class B and Class C contingent deferred sales charges and
asset-based sales charges are the same as the purpose of the front-end sales
charge on sales of Class A shares: that is, to compensate the Distributor for
commissions it pays to dealers and financial institutions for selling shares.
The Distributor may pay additional periodic 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.
HOW MUCH MUST YOU INVEST? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
o With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial
plans and military allotment plans, you can make initial and subsequent
investments of as little as $25. Subsequent purchases of at least $25 can be
made by telephone through AccountLink.
o Under pension, profit-sharing and 401(k) plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250 (if
your IRA is established under an Asset Builder Plan, the $25 minimum applies),
and subsequent investments may be as little as $25.
o There is no minimum investment requirement if you are buying shares by
reinvesting dividends from the Fund or other Oppenheimer funds (a list of them
appears in the Statement of Additional Information, or you can ask your dealer
or call the Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
o HOW ARE SHARES PURCHASED? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Distributor, directly through the Distributor, or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint servicing agents as the Distributor's agent
to accept purchase (and redemption) orders. WHEN YOU BUY SHARES, BE SURE TO
SPECIFY CLASS A, CLASS B OR CLASS C SHARES. IF YOU DO NOT CHOOSE, YOUR
INVESTMENT WILL BE MADE IN CLASS A SHARES.
o BUYING SHARES THROUGH YOUR DEALER. Your dealer will place your order
with the Distributor on your behalf.
o BUYING SHARES THROUGH THE DISTRIBUTOR. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is appropriate for
you.
o PAYMENT BY FEDERAL FUNDS WIRE. Shares may be purchased by Federal
Funds Wire. The minimum investment is $2,500. You must FIRST call the
Distributor's Wire Department at 1-800-525-7041 to notify the Distributor of
the wire, and receive further instructions.
o BUYING SHARES THROUGH OPPENHEIMERFUNDS ACCOUNTLINK. You can use
AccountLink to link your Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House (ACH) member. You can
then transmit funds electronically TO PURCHASE SHARES, or to have the Transfer
Agent SEND REDEMPTION PROCEEDS or to TRANSMIT DIVIDENDS AND DISTRIBUTIONS to
your bank account.
Shares are purchased for your account on AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH transfer
to buy shares. You can provide those instructions automatically, under an Asset
Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. You should request AccountLink
privileges on the application or dealer settlement instructions used to
establish your account. See "AccountLink" below for more details.
o ASSET BUILDER PLANS. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are in the Statement of Additional Information.
o AT WHAT PRICE ARE SHARES SOLD? Shares are sold at the public offering
price based on the net asset value (and any initial sales charge that applies)
that is next determined after the Distributor receives the purchase order in
Denver, Colorado, or the order is received and transmitted to the Distributor by
an entity authorized by the Fund to accept purchase or redemption orders. The
Fund has authorized the Distributor, certain broker-dealers and agents or
intermediaries designated by the Distributor or those broker-dealers to accept
orders. In most cases, to enable you to receive that day's offering price, the
Distributor or its designated agent must receive your order by the time of day
The New York Stock Exchange closes, which is normally 4:00 P.M., New York time,
but may be earlier on some days (all references to time in this Prospectus mean
"New York time"). The net asset value of each class of shares is determined as
of that time on each day The New York Stock Exchange is open (which is a
"regular business day").
If you buy shares through a dealer, normally your order must be
transmitted to the Distributor so that it is received before the Distributor's
close of business that day, which is normally 5:00 P.M. THE DISTRIBUTOR, IN ITS
SOLE DISCRETION, MAY REJECT ANY PURCHASE ORDER FOR THE FUND'S SHARES.
SPECIAL SALES CHARGE ARRANGEMENTS FOR CERTAIN PERSONS. Appendix A to this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the former Quest For Value Funds (as described in that Appendix).
BUYING CLASS A SHARES. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
FRONT-END SALES FRONT-END SALES
CHARGE AS A CHARGE AS A COMMISSIONS AS
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------
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%
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
o CLASS A CONTINGENT DEFERRED SALES CHARGE. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds in the following cases:
o Purchases aggregating $1 million or more;
o Purchases by a retirement plan qualified under section 401(a) if the
retirement plan has total plan assets of $500,000 or more;
o Purchases by a retirement plan qualified under section 401(a) or 401(k)
of the Internal Revenue Code, by a non-qualified deferred compensation plan,
employee benefit plan, group retirement plan (see "How to Buy Shares -
Retirement Plans" in the Statement of Additional Information for further
details), an employee's 403(b)(7) custodial plan account, SEP IRA, SARSEP, or
SIMPLE plan (all of these plans are collectively referred to as "Retirement
Plans"); that: (1) buys shares costing $500,000 or more, or (2) has, at the time
of purchase, 100 or more eligible participants, or (3) certifies that it
projects to have annual plan purchases of $200,000 or more; or
o Purchases by an OppenheimerFunds Rollover IRA if the purchases are made
(1) through a broker, dealer, bank or registered investment advisor that has
made special arrangements with the Distributor for these purchases, or (2) by a
direct rollover of a distribution from a qualified retirement plan if the
administrator of that plan has made special arrangements with the Distributor
for those purchases.
The Distributor pays dealers of record commissions on those purchases in
an amount equal to (i) 1.0% for non-Retirement Plan accounts, and (ii) for
Retirement Plan accounts, 1.0% of the first $2.5 million, plus 0.50% of the next
$2.5 million, plus 0.25% of purchases over $5 million calculated on a calendar
year basis. That commission will be paid only on those purchases that were not
previously subject to a front-end sales charge and dealer commission. No sales
commission will be paid to the dealer, broker or financial institution on sales
of Class A shares purchased with the redemption proceeds of shares of a mutual
fund offered as an investment option under a special arrangement with the
Distributor if the purchase occurs more than 30 days after the addition of the
Oppenheimer funds as an investment option to the Retirement Plan.
If you redeem any of those shares purchased prior to May 1, 1997, 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. A Class A contingent deferred
sales charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997 that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge may be equal to 1.0%
of the lesser of (1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gains
distributions) or (2) the original offering price (which is the original net
asset value) of the redeemed shares. 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 Class A shares of all Oppenheimer funds
you purchased subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable, the
Fund will first redeem shares that are not subject to the sales charge,
including shares purchased by reinvestment of dividends and capital gains, and
then will redeem other shares in the order that you purchased them. The Class A
contingent deferred sales charge is waived in certain cases described in
"Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However, if the
shares acquired by exchange are redeemed within 12 calendar months (18 months
for shares purchased prior to May 1, 1997) of the end of the calendar month of
the purchase of the exchanged shares, the contingent deferred sales charge will
apply.
o SPECIAL ARRANGEMENTS WITH DEALERS. The Distributor may advance up to 13
months' commissions to dealers that have established special arrangements with
the Distributor for Asset Builder Plans for their clients.
O REDUCED SALES CHARGES FOR CLASS A SHARE PURCHASES. You may be
eligible to buy Class A shares at reduced sales charge rates in one or more
of the following ways:
o RIGHT OF ACCUMULATION. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together Class A and Class B shares you purchase for your individual accounts,
or jointly, or for trust or custodial accounts on behalf of your children who
are minors. A fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and Class
B shares of the Fund and other Oppenheimer funds to reduce the sales charge rate
that applies to current purchases of Class A shares. You can also include Class
A and Class B shares of Oppenheimer funds you previously purchased subject to an
initial or contingent deferred sales charge to reduce the sales charge rate for
current purchases of Class A shares, provided that you still hold your
investment in one of the Oppenheimer funds. The 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 Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Distributor. The reduced sales charge will apply only to current purchases and
must be requested when you buy your shares.
o LETTER OF INTENT. Under a Letter of Intent, if you purchase Class A
shares or Class A shares and Class B shares of the Fund and other Oppenheimer
funds during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of your intended
purchases of both Class A and Class B shares will determine the reduced sales
charge rate for the Class A shares purchased during that period. This can
include purchases made up to 90 days before the date of the Letter. More
information is contained in the Application and in "Reduced Sales Charges" in
the Statement of Additional Information.
o WAIVERS OF CLASS A SALES CHARGES. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent which conditions apply.
WAIVERS OF INITIAL AND CONTINGENT DEFERRED SALES CHARGES FOR CERTAIN
PURCHASERS. Class A shares purchased by the following investors are not subject
to any Class A sales charges:
o the Manager or its affiliates;
o present or former officers, directors, trustees and employees (and their
"immediate families" as defined in "Reduced Sales Charges" in the Statement of
Additional Information) of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered into
sales arrangements with such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor children);
o dealers, brokers, 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 or employee benefit
plans made available to their clients (those clients may be charged the
transaction fee by their dealer, broker, bank or advisor for the purchase or
sale of fund shares);
o (1) 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; (2) retirement plans and deferred compensation
plans and trusts used to fund those plans (including, for example, plans
qualified or created under sections 401(a), 403(b) or 457 of the Internal
Revenue Code), and "rabbi trusts" that buy shares for their own accounts, in
each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of 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);
o employee benefit plans purchasing shares through a shareholder servicing
agent which the Distributor has appointed as its agent to accept those purchase
orders;
o directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts;
o any unit investment trust that has entered into an appropriate
agreement with the Distributor;
o a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995; or
o qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements are
consummated and share purchases 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 Class A sales charges:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of loan repayments by a participant
in a retirement plan for which the Manager or its affiliates acts as sponsor;
o shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment trusts for which reinvestment arrangements have
been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a Fund managed by OFI or any of
its subsidiaries) on which an initial sales charge or contingent deferred sales
charge was paid (this waiver also applies to shares purchased by exchange of
shares of Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner); this waiver must be requested when the purchase order is placed
for your shares of the Fund, and the Distributor may require evidence of your
qualification for this waiver; or
o shares purchased with the proceeds of maturing principal of units of any
Qualified Unit Investment Liquid Trust Series.
WAIVERS OF THE CLASS A CONTINGENT DEFERRED SALES CHARGE FOR CERTAIN
REDEMPTIONS. The Class A contingent deferred sales charge is also waived if
shares that would otherwise be subject to the contingent deferred sales charge
are redeemed in the following cases:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agreed in writing to accept the dealer's portion of the sales commission in
installments of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of purchase);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission per month (and no further commission
will be payable if the shares are redeemed within 12 months of purchase);
o for distributions from a TRAC-2000 401(k) plan sponsored by the
Distributor due to the termination of the TRAC-2000 program;
o for distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes: (1) following
the death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must occur after the
participant's account was established); (2) to return excess contributions; (3)
to return contributions made due to a mistake of fact; (4) hardship withdrawals,
as defined in the plan; (5) under a Qualified Domestic Relations Order, as
defined in the Internal 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 its
subsidiary) offered as an investment option in a Retirement Plan in which
Oppenheimer funds are also offered as investment options under a special
arrangement with the Distributor, or (11) plan termination or "in-service
distributions", if the redemption proceeds are rolled over directly to an
OppenheimerFunds IRA;
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; or
o for distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
o SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for
Class A shares to reimburse the Distributor for a portion of its costs incurred
in connection with the personal service and maintenance of shareholder accounts
that hold Class A shares. Reimbursement is made quarterly at an annual rate that
may not exceed 0.25% of the average annual net assets of Class A shares of the
Fund. The Distributor uses all of those fees to compensate dealers, brokers,
banks and other financial institutions quarterly for providing personal service
and maintenance of accounts of their customers that hold Class A shares and to
reimburse itself (if the Fund's Board of Trustees authorizes such
reimbursements, which it has not yet done) for its other expenditures under the
Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. Payments are made by the
Distributor quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the service providers or
their customers. The payments under the Plan increase the annual expenses of
Class A shares. For more details, please refer to "Distribution and Service
Plans" in the Statement of Additional Information.
BUYING CLASS B SHARES. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
6 years of their purchase, a contingent deferred sales charge will be deducted
from the redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). The contingent deferred sales
charge is not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. The Class B
contingent deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 6 years, and (3) shares held the longest during the 6-year period. The
contingent deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
CONTINGENT DEFERRED SALES CHARGE
YEARS SINCE BEGINNING OF MONTH IN ON 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. All purchases are considered to
have been made on the first regular business day of the month in which the
purchase was made.
o AUTOMATIC CONVERSION OF CLASS B SHARES. 72 months after you purchase
Class B shares, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and Class
C Shares" in the Statement of Additional Information.
BUYING CLASS C SHARES. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed within
12 months of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). The contingent
deferred sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial purchase price.
The Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months, and (3) shares held the longest during the 12- month period.
o DISTRIBUTION AND SERVICE PLANS FOR CLASS B AND CLASS C SHARES. The Fund
has adopted Distribution and Service Plans for Class B shares and Class C shares
to compensate the Distributor for its 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 that are
outstanding for six years or less and on Class C shares. The Distributor also
receives a service fee of 0.25% per year under each Plan. Under each Plan, both
fees are computed on the average of the net asset value of shares in the
respective class, determined as of the close of each regular business day during
the period. The asset-based sales charge and service fees increase Class B and
Class C expenses by up to 1.00% of the net assets per year of the respective
class per year.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the 0.25% service fees to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares have
been held for a year, the Distributor pays the service fees to dealers on a
quarterly basis.
The asset-based sales charge allows investors to buy Class B or Class C
shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class B and
Class C shares. Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor include paying
and financing the payment of sales commissions, service fees and other costs of
distributing and selling Class B and Class C shares.
The Distributor currently pays sales commissions of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge. The Distributor may pay the Class B service fee and the
asset-based sales charge to the dealer quarterly in lieu of paying the sales
commission and service fee in advance at the time of purchase.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is therefore
1.00% of the purchase price. The Distributor plans to pay the asset-based sales
charge as an ongoing commission to the dealer on Class C shares that have been
outstanding for a year or more. The Distributor may pay the Class C service fee
and the asset-based sales charge to the dealer quarterly in lieu of paying the
sales commission and service fee in advance at the time of purchase.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plans for Class B and C shares. If the Fund terminates either of its
Plans, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for distributing shares before the
Plan was terminated.
o WAIVERS OF CLASS B AND CLASS C SALES CHARGES. The Class B and Class C
contingent deferred sales charges will not be applied to shares purchased in
certain types of transactions nor will it apply to Class B and Class C shares
redeemed in certain circumstances as described below. The reasons for this
policy are described in "Reduced Sales Charges" in the Statement of Additional
Information. In order to receive a waiver of the Class B or Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
WAIVERS FOR REDEMPTIONS OF SHARES 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 distributions to participants or beneficiaries from Retirement Plans, if
the distributions are made (a) under an Automatic Withdrawal Plan after the
participant reaches age 59-1/2, as long as the payments are no more than 10% of
the account value annually (measured from the date the Transfer Agent receives
the request), or (b) following the death or disability (as defined in the
Internal Revenue Code) of the participant or beneficiary (the death or
disability must have occurred after the account was established);
o redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is also the sole
beneficiary (the death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration);
o returns of excess contributions to Retirement Plans;
o distributions from Retirement Plans to make "substantially equal periodic
payments" as permitted in Section 72(t) of the Internal Revenue Code that do not
exceed 10% of the account value annually, measured from the date the Transfer
Agent receives the request;
o shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," below;
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; or
o distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
WAIVERS FOR SHARES SOLD OR ISSUED IN CERTAIN TRANSACTIONS. The contingent
deferred sales charge is also waived on Class B and Class C shares sold or
issued in the following cases:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose; or
o shares issued in plans of reorganization to which the Fund is a party.
BUYING CLASS Y SHARES. Class Y shares are sold at net asset value per share
without sales charge directly to certain institutional investors, such as
insurance companies, registered investment companies and employee benefit plans,
that have special agreements with the Distributor for this purpose. These
include Massachusetts Mutual Life Insurance Company, an affiliate of OFI, which
may purchase Class Y shares of the Fund and other Oppenheimer funds (as well as
Class Y shares of funds advised by MassMutual) for asset allocation programs,
investment companies or separate investment accounts it sponsors and offers to
its customers. Individual investors are not able to invest in Class Y shares
directly.
While Class Y shares are not subject to initial or contingent deferred
sales charges or asset-based sales charges, an institutional investor buying the
shares for its customers' accounts may impose charges on those accounts. The
procedures for purchasing, redeeming, exchanging, or transferring the Fund's
other classes of shares (other than the time those orders must be received by
the Distributor or Transfer Agent) and the special account features available to
purchasers of those other classes of shares described elsewhere in this
Prospectus do not apply to Class Y shares. Instructions for purchasing,
redeeming exchanging or transferring Class Y shares must be submitted by the
institutional investor, not by its customers for whose benefit the shares are
held.
SPECIAL INVESTOR SERVICES
ACCOUNTLINK. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send money
electronically between those accounts to perform a number of types of account
transactions. These include purchases of shares by telephone (either through a
service representative or by PhoneLink, described below), automatic investments
under Asset Builder Plans, and sending dividends and distributions or Automatic
Withdrawal Plan payments directly to your bank account. Please call the Transfer
Agent for more information.
AccountLink privileges should be requested on your dealer's settlement
instructions if you buy your shares through your dealer. After your account is
established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
o USING ACCOUNTLINK TO BUY SHARES. Purchases may be made by telephone only
after your account has been established. To purchase shares in amounts up to
$250,000 through a telephone representative, call the Distributor at
1-800-852-8457. The purchase payment will be debited from your bank account.
o PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system
that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number:
1-800-533-3310.
o PURCHASING SHARES. You may purchase shares in amounts up to $100,000 by
phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund, to pay for these purchases.
o EXCHANGING SHARES. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
o SELLING SHARES. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below, for
details.
SHAREHOLDER TRANSACTIONS BY FAX. Beginning May 30, 1997, requests for certain
account transactions may be sent to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions are
included. Transaction requests submitted by fax are subject to the same rules
and restrictions as written and telephone requests described in this Prospectus.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o AUTOMATIC WITHDRAWAL PLANS. If your Fund account is worth $5,000 or more,
you can establish an Automatic Withdrawal Plan to receive payments of at least
$50 on a monthly, quarterly, semi-annual or annual basis. The checks may be sent
to you or sent automatically to your bank account on AccountLink. You may even
set up certain types of withdrawals of up to $1,500 per month by telephone. You
should consult the Statement of Additional Information for more details.
o AUTOMATIC EXCHANGE PLANS. You can authorize the Transfer Agent to
exchange automatically an amount you establish in advance for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer funds account is $25. These exchanges are subject to the terms of
the Exchange Privilege, described below.
REINVESTMENT PRIVILEGE. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies to Class A shares that you
purchased subject to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed them. This
privilege does not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your payment. Please consult the
Statement of Additional Information for more details.
RETIREMENT PLANS. Fund shares are available as an investment for your retirement
plans. If you participate in a plan sponsored by your employer, the plan trustee
or administrator must make the purchase of shares for your retirement plan
account. The Distributor offers a number of different retirement plans that can
be used by individuals and employers:
o INDIVIDUAL RETIREMENT ACCOUNTS including rollover IRAs, for individuals
and their spouses and SIMPLE IRAs offered by employers
o 403(B)(7) CUSTODIAL PLANS for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
o SEP-IRAS (Simplified Employee Pension Plans) for small business owners
or people with income from self-employment, including SAR/SEP-IRAs
o PENSION AND PROFIT-SHARING PLANS for self-employed persons and other
employers
o 401(K) PROTOTYPE RETIREMENT PLANS for businesses
Please call the Distributor for the OppenheimerFunds plan documents, which
contain important information and applications.
HOW TO SELL SHARES
You can arrange to take money out of your account by selling (redeeming) some or
all of your shares on any regular business day. Your shares will be sold at the
next net asset value calculated after your order is received and accepted by the
Transfer Agent. The Fund offers you a number of ways to sell your shares in
writing or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. IF YOU HAVE QUESTIONS
ABOUT ANY OF THESE PROCEDURES, AND ESPECIALLY IF YOU ARE REDEEMING SHARES IN A
SPECIAL SITUATION, SUCH AS DUE TO THE DEATH OF THE OWNER OR FROM A RETIREMENT
PLAN, PLEASE CALL THE TRANSFER AGENT FIRST, AT 1-800-525-7048, FOR ASSISTANCE.
o RETIREMENT ACCOUNTS. To sell shares in an Oppenheimer funds retirement
account in your name, call the Transfer Agent for a distribution request form.
There are special income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer,
you must arrange for the distribution request to be sent by the plan
administrator or trustee. There are additional details in the Statement of
Additional Information.
o CERTAIN REQUESTS REQUIRE A SIGNATURE GUARANTEE. To protect you and the
Fund from fraud, certain redemption requests must be in writing and must include
a signature guarantee in the following situations (there may be other situations
also requiring a signature guarantee):
o You wish to redeem more than $50,000 worth of shares and receive a
check
o The redemption check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your
account statement
o Shares are being transferred to a Fund account with a different owner
or name
o Shares are redeemed by someone other than the owners (such as an
Executor)
o WHERE CAN I HAVE MY SIGNATURE GUARANTEED? The Transfer Agent will accept
a guarantee of your signature by a number of financial institutions, including:
a U.S. bank, trust company, credit union or savings association, or by a foreign
bank that has a U.S. correspondent bank, or by a U.S. registered dealer or
broker in securities, municipal securities or government securities, or by a
U.S. national securities exchange, a registered securities association or a
clearing agency. IF YOU ARE SIGNING AS A FIDUCIARY OR ON BEHALF OF A
CORPORATION, PARTNERSHIP OR OTHER BUSINESS, YOU MUST ALSO INCLUDE YOUR TITLE IN
THE SIGNATURE.
SELLING SHARES BY MAIL. Write a "letter of instructions" that includes:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed
o Any special payment instructions
o Any share certificates for the shares you are selling
o The signatures of all registered owners exactly as the account is
registered, and
o Any special requirements or documents requested by the Transfer Agent to
assure proper authorization of the person asking to sell shares.
USE THE FOLLOWING ADDRESS FOR SEND COURIER OR EXPRESS MAIL
REQUEST BY MAIL: REQUESTS TO:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue,
Denver, Colorado 80217 Building D
Denver, Colorado 80231
SELLING SHARES BY TELEPHONE. You and your dealer representative of record may
also sell your shares by telephone. To receive the redemption price on a regular
business day, your call must be received by the Transfer Agent by the close of
The New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
o To redeem shares through a service representative, call 1-800-852-8457
o To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds wired to that bank account.
o TELEPHONE REDEMPTIONS PAID BY CHECK. Up to $50,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of record
of the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an account.
o TELEPHONE REDEMPTIONS THROUGH ACCOUNTLINK. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
SELLING SHARES THROUGH YOUR DEALER. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please call your dealer or
broker for more information about this procedure. Please refer to "Special
Arrangements for Repurchase of Shares from Dealers and Brokers" in the Statement
of Additional Information for more details.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. To
exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
o You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days, you
can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund you
purchase by exchange.
o BEFORE EXCHANGING INTO A FUND, YOU SHOULD OBTAIN AND READ ITS
PROSPECTUS.
SHARES OF A PARTICULAR CLASS OF THE FUND MAY BE EXCHANGED ONLY FOR SHARES
OF THE SAME CLASS IN THE OTHER OPPENHEIMER FUNDS. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At present,
Oppenheimer Money Market Fund, Inc. offers only one class of shares, which are
considered to be "Class A" shares for this purpose. In some cases, sales charges
may be imposed on exchange transactions. See "How to Exchange Shares" in the
Statement of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
o WRITTEN EXCHANGE REQUESTS. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
addresses listed in "How to Sell Shares."
o TELEPHONE EXCHANGE REQUESTS. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1-800-525-7048. That list can change from time to time.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of The New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. However, either fund may delay the purchase of shares of
the fund you are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For example,
the receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
o For tax purposes, exchanges of shares involve a redemption 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. For more information about taxes affecting
exchanges, please refer to "How to Exchange Shares" in the Statement of
Additional Information.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
SHAREHOLDER ACCOUNT RULES AND POLICIES
o NET ASSET VALUE PER SHARE is determined for each class of shares as of
the close of The New York Stock Exchange, which is normally 4:00 P.M. but may be
earlier on some days, on each day the Exchange is open by dividing the value of
the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset value. In
general, securities values are based on market value. There are special
procedures for valuing illiquid and restricted securities and obligations for
which market values cannot be readily obtained. These procedures are described
more completely in the Statement of Additional Information.
o THE OFFERING OF SHARES may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be suspended
by the Board of Trustees at any time the Board believes it is in the Fund's best
interest to do so.
o TELEPHONE TRANSACTION PRIVILEGES for purchases, redemptions or exchanges
may be modified, suspended or terminated by the Fund at any time. If an account
has more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone privileges apply to each owner of the
account and the dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner of the
account.
o THE TRANSFER AGENT WILL RECORD ANY TELEPHONE CALLS to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent during
periods of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
o REDEMPTION OR TRANSFER REQUESTS WILL NOT BE HONORED UNTIL THE TRANSFER
AGENT RECEIVES ALL REQUIRED DOCUMENTS IN PROPER FORM. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
o DEALERS THAT CAN PERFORM ACCOUNT TRANSACTIONS FOR THEIR CLIENTS BY
PARTICIPATING IN NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.
o THE REDEMPTION PRICE FOR SHARES WILL VARY from day to day because the
value of the securities in the Fund's portfolio fluctuates, and the redemption
price, which is the net asset value per share, will normally be different for
Class A, Class B, Class C and Class Y shares. Therefore, the redemption value of
your shares may be more or less than their original cost.
o PAYMENT FOR REDEEMED SHARES is made ordinarily in cash and forwarded by
check or through ACCOUNTLINK (as elected by the shareholder under the redemption
procedures described above) within 7 days after the Transfer Agent receives
redemption instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker/dealer, payment will
be forwarded within 3 business days. THE TRANSFER AGENT MAY DELAY FORWARDING A
CHECK OR PROCESSING A PAYMENT VIA ACCOUNTLINK FOR RECENTLY PURCHASED SHARES, BUT
ONLY UNTIL THE PURCHASE PAYMENT HAS CLEARED. THAT DELAY MAY BE AS MUCH AS 10
DAYS FROM THE DATE THE SHARES WERE PURCHASED. THAT DELAY MAY BE AVOIDED IF YOU
PURCHASE SHARES BY FEDERAL FUNDS WIRE, CERTIFIED CHECK OR ARRANGE WITH YOUR BANK
TO PROVIDE TELEPHONE OR WRITTEN ASSURANCE TO THE TRANSFER AGENT THAT YOUR
PURCHASE PAYMENT HAS CLEARED.
o INVOLUNTARY REDEMPTIONS OF SMALL ACCOUNTS may be made by the Fund if the
account value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped, and in some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
o UNDER UNUSUAL CIRCUMSTANCES, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with securities
from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement
of Additional Information for
more details.
o "BACKUP WITHHOLDING" of Federal income tax may be applied at the rate of
31% from taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a correct and properly certified
Social Security or Employer Identification Number when you sign your
application, or if you underreport your income to the Internal Revenue Service .
o THE FUND DOES NOT CHARGE A REDEMPTION FEE, but if your dealer or broker
handles your redemption, they may charge a fee. That fee can be avoided by
redeeming your Fund shares directly through the Transfer Agent. Under the
circumstances described in "How to Buy Shares," you may be subject to a
contingent deferred sales charge when redeeming certain Class A, Class B and
Class C shares.
o TO AVOID SENDING DUPLICATE COPIES OF MATERIALS TO HOUSEHOLDS, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800- 525-7048 to ask that copies of
those materials be sent personally to that shareholder.
DIVIDENDS, CAPITAL GAINS AND TAXES
DIVIDENDS. The Fund declares dividends separately for Class A, Class B, Class C
and Class Y shares from net investment income, if any, on an annual basis and
normally pays such dividends to shareholders in December, but the Board of
Trustees can change that date. It is expected that distributions paid with
respect to Class A and Class Y shares will generally be higher than for Class B
or Class C shares because expenses allocable to Class B and Class C shares will
generally be higher. There is no fixed dividend rate and there can be no
assurance as to the payment of any dividends because the Fund seeks total return
as its primary objective rather than income.
CAPITAL GAINS. The Fund may make distributions annually in December out of any
net short-term or long-term capital gains, and may make supplemental
distributions of capital gains following the end of its tax year (which ends
March 31st). Short-term capital gains are treated as dividends for tax purposes.
Long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year (see "Taxes" below). There can
be no assurance that the Fund will pay any capital gains distributions in a
particular year.
DISTRIBUTION OPTIONS. When you open your account, specify on your
application how you want to receive your distributions. For OppenheimerFunds
retirement accounts, all distributions are reinvested. For other accounts, you
have four options:
o REINVEST ALL DISTRIBUTIONS IN THE FUND. You can elect to reinvest all
dividends and long-term capital gains distributions in additional shares of the
Fund.
o REINVEST LONG-TERM CAPITAL GAINS ONLY. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or sent
to your bank account on AccountLink.
o RECEIVE ALL DISTRIBUTIONS IN CASH. You can elect to receive a check for
all dividends and long-term capital gains distributions or have them sent to
your bank on AccountLink.
o REINVEST YOUR DISTRIBUTIONS IN ANOTHER OPPENHEIMER FUNDS ACCOUNT. You
can reinvest all distributions in the same class of shares of another
Oppenheimer fund account you have established.
TAXES. The Fund intends to meet the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), so as to qualify as a regulated
investment company ("RIC"). To that end, the Fund has obtained an opinion of
counsel concerning the treatment of Hybrid Instruments for purposes of those
requirements. As a RIC, the Fund itself is not subject to the Federal income tax
on any of its income, provided that it satisfies certain income, diversification
and distribution requirements, which the Fund intends to do.
Notwithstanding the foregoing, the Fund retains the right not to qualify
as a RIC for income tax purposes. Moreover, counsel's opinion, which is not
binding on the Internal Revenue Service (the "IRS"), is based, among other
things, on an analysis of the relevant law as applied to the type of securities
in which the Fund will invest. Should the Fund choose not to qualify as a RIC,
or should the IRS challenge counsel's conclusions, on whatever ground, and
should its challenge be upheld, resulting in a disqualification of the Fund as a
RIC, then the Fund will be subject to the Federal income tax on its net income
at regular corporate rates (without a deduction for distributions to
shareholders). When distributed, such income would then be taxable to
shareholders as an ordinary dividend.
Under the rules applicable to a regulated investment company,
distributions by the Fund of its net investment income and the excess, if any,
of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. Distributions by the Fund of the
excess, if any, of its net long-term capital gain over its net short-term
capital loss are designated as capital gain dividends and are taxable to
shareholders as long-term capital gains, regardless of the length of time you
have held your shares.
Distributions to shareholders will be treated in the same manner for
Federal income tax purposes whether they elect to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, they are required to
treat certain distributions made during January as having been paid by the Fund
and received by them on December 31 of the preceding year. A statement setting
forth the Federal income tax status of all distributions made (or deemed made)
during the year to shareholders will be sent to you promptly after the end of
each year.
If a shareholder is a nonresident alien or other foreign shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at the rate of 30% (or a lower rate under an
applicable treaty). Non-U.S. shareholders are urged to consult their own tax
advisors concerning the application of the United States withholding tax to
them.
Under the back-up withholding rules of the Code, shareholders may be
subject to 31% withholding of Federal income tax on ordinary income dividends,
capital gain dividends and redemption payments (including exchanges) made by the
Fund. In order to avoid this back-up withholding, shareholders must provide the
Fund with a correct taxpayer identification number (which for an individual is
usually his/her Social Security number) or certify that they are corporations or
otherwise exempt from or not subject to back-up withholding.
o "BUYING A DIVIDEND". If you buy shares on or just before the ex-dividend
date, or just before the Fund declares a capital gains distribution, you will
pay the full price for the shares and then receive a portion of the price back
as a taxable dividend or capital gain, respectively.
o TAXES ON TRANSACTIONS. Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. Generally speaking, a capital gain
or loss is the difference between the price you paid for the shares and the
price you received when you sold them.
o RETURNS OF CAPITAL. In certain cases distributions made by the Fund may
be considered a non-taxable return of capital to shareholders. If that occurs,
it will be identified in notices to shareholders. A non-taxable return of
capital may reduce your tax basis in your Fund shares.
This information is only a summary of certain Federal tax information
about your investment. More information is contained in the Statement of
Additional Information. In addition you should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax situation.
-3-
<PAGE>
A P P E N D I X A
SPECIAL SALES CHARGE ARRANGEMENTS FOR SHAREHOLDERS OF THE FUND WHO
WERE SHAREHOLDERS OF THE FORMER QUEST FOR VALUE FUNDS
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares of the Fund described elsewhere in this Prospectus
are modified as described below for those shareholders of (i) Oppenheimer Quest
Value Fund, Inc., Oppenheimer Quest Growth & Income Fund, Oppenheimer Quest
Opportunity Value Fund, Oppenheimer Quest Small Cap Value Fund and Oppenheimer
Quest Global Value Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc.
became the investment advisor to those funds, and (ii) Quest for Value U.S.
Government Income Fund, Quest for Value Investment Quality Income Fund, Quest
for Value Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest
for Value National Tax-Exempt Fund and Quest for Value California Tax-Exempt
Fund when those funds merged into various Oppenheimer funds on November 24,
1995. The funds listed above are referred to in this Prospectus as the "Former
Quest for Value Funds." The waivers of initial and contingent deferred sales
charges described in this Appendix apply to shares of the Fund (i) acquired by
such shareholder pursuant to an exchange of shares of one of the Oppenheimer
funds that was one of the Former Quest for Value Funds or (ii) purchased by such
shareholder by exchange of shares of other Oppenheimer funds that were acquired
pursuant to the merger of any of the Former Quest for Value Funds into an
Oppenheimer fund on November 24, 1995.
CLASS A SALES CHARGES
o REDUCED CLASS A INITIAL SALES CHARGE RATES FOR CERTAIN FORMER QUEST
SHAREHOLDERS
o PURCHASES BY GROUPS, ASSOCIATIONS AND CERTAIN QUALIFIED RETIREMENT
PLANS. The following table sets forth the initial sales charge rates for Class A
shares purchased by a "Qualified Retirement Plan" through a single broker,
dealer or financial institution, or by members of "Associations" formed for any
purpose other than the purchase of securities if that Qualified Retirement Plan
or that Association purchased shares of any of the Former Quest for Value Funds
or received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995. For this purpose only, a "Qualified Retirement Plan" includes
any 401(k) plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a single
employer.
FRONT-END SALES FRONT-END SALES
NUMBER OF CHARGE AS A CHARGE AS A COMMISSION AS
ELIGIBLE EMPLOYEES PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OR MEMBERS OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Qualified Retirement plans and Associations having 50 or more
eligible employees or members, there is no initial sales charge on purchases of
Class A shares, but those shares are subject to the Class A contingent deferred
sales charge described beginning on page 35 of this Prospectus.
Purchases made under this arrangement qualify for the lower of the sales
charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge rate
that applies under the Rights of Accumulation described above in the Prospectus.
In addition, purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they qualified to
purchase shares of any of the Former Quest For Value Funds by virtue of
projected contributions or investments of $1 million or more each year.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations, or as eligible employees in Qualified Retirement Plans
also may purchase shares for their individual or custodial accounts at these
reduced sales charge rates, upon request to the Fund's Distributor.
O WAIVER OF CLASS A SALES CHARGES FOR CERTAIN SHAREHOLDERS. Class A shares
of the Fund purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of Funds
on February 28, 1991 and who acquired shares of any of the Former Quest for
Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
O WAIVER OF CLASS A CONTINGENT DEFERRED SALES CHARGE IN CERTAIN
TRANSACTIONS. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the following investors
who were shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the Employee Retirement
Income Security Act of 1974 and regulations adopted under that law.
o Participants in Qualified Retirement Plans that purchased shares of any
of the Former Quest For Value Funds pursuant to a special "strategic alliance"
with the distributor of those funds. The Fund's Distributor will pay a
commission to the dealer for purchases of Fund shares as described above in
"Class A Contingent Deferred Sales Charge."
CLASS A, CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE WAIVERS
O WAIVERS FOR REDEMPTIONS OF SHARES PURCHASED PRIOR TO MARCH 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by 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 merged, if those shares
were purchased prior to March 6, 1995: in connection with (i) distributions to
participants or beneficiaries of plans qualified under Section 401(a) of the
Internal Revenue Code or from custodial accounts under Section 403(b)(7) of the
Code, Individual Retirement Accounts, deferred compensation plans under Section
457 of the Code, and other employee benefit plans, and returns of excess
contributions made to each type of plan, (ii) withdrawals under an automatic
withdrawal plan holding only either Class B or Class C shares if the annual
withdrawal does not exceed 10% of the initial value of the account, and (iii)
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum value of such
accounts.
O WAIVERS FOR REDEMPTIONS OF SHARES PURCHASED ON OR AFTER MARCH 6, 1995
BUT PRIOR TO NOVEMBER 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of the Fund acquired by 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, if those shares were purchased on or after
March 6, 1995, but prior to November 24, 1995: (1) distributions to participants
or beneficiaries from Individual Retirement Accounts under Section 408(a) of the
Internal Revenue Code or retirement plans under Section 401(a), 401(k), 403(b)
and 457 of the Code, if those distributions are made either (a) to an individual
participant as a result of separation from service or (b) following the death or
disability (as defined in the Code) of the participant or beneficiary; (2)
returns of excess contributions to such retirement plans; (3) redemptions other
than from retirement plans following the death or disability of the
shareholder(s) (as evidenced by a determination of total disability by the U.S.
Social Security Administration); (4) withdrawals under an automatic withdrawal
plan (but only for Class B or Class C shares) where the annual withdrawals do
not exceed 10% of the initial value of the account; and (5) liquidation of a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the required minimum account value. A shareholder's
account will be credited with the amount of any contingent deferred sales charge
paid on the redemption of any Class A, Class B or Class C shares of the Fund
described in this section if within 90 days after that redemption, the proceeds
are invested in the same Class of shares in this Fund or another Oppenheimer
fund.
A-1
<PAGE>
A P P E N D I X B
CFTC EXEMPTION FOR QUALIFYING HYBRID INSTRUMENTS
SECTION 34.3 HYBRID INSTRUMENT EXEMPTION
(a) A hybrid instrument is exempt from all provisions of the Commodity Exchange
Act (the "Act") and any person or class of persons offering, entering into,
rendering advice or rendering other services with respect to such exempt hybrid
instrument is exempt for such activity from all provisions of the Act (except in
each case Section 2(a)(1)(B)), provided the following terms and conditions are
met:
(1) The instrument is:
(i) An equity or debt security within the meaning of Section 2(l) of the
Securities Act of 1933; or
(ii) A demand deposit, time deposit or transaction account within the
meaning of 12 CFR 204.2(b)(1), (c)(1) and (e), respectively, offered by
an insured depository institution as defined in Section 3 of the Federal
Deposit Insurance Act; an insured credit union as defined in Section 101
of the Federal Credit Union Act; or a Federal or State branch or agency
of a foreign bank as defined in Section 1 of the International Banking
Act;
(2) The sum of the commodity-dependent values of the commodity-dependent
components is less than the commodity-independent value of the
commodity-independent component;
(3) Provided that:
(i) An issuer must receive full payment of the hybrid instrument's
purchase price, and a purchaser or holder of a hybrid instrument may not be
required to make additional out-of-pocket payments to the issuer during the
life of the instrument or at maturity; and
(ii) The instrument is not marketed as a futures contract or a commodity
option, or, except to the extent necessary to describe the functioning
of the instrument or to comply with applicable disclosure requirements,
as having the characteristics of a futures contract or a commodity
option; and
(iii) The instrument does not provide for settlement in the form of a
delivery instrument that is specified as such in the rules of a
designated contract market;
(4) The instrument is initially issued or sold subject to applicable federal
or state securities or banking laws to persons permitted thereunder to
purchase or enter into the hybrid instrument.
B-1
<PAGE>
A P P E N D I X C
CFTC EXEMPTION FOR SWAP TRANSACTIONS
SECTION 35.2 EXEMPTION
A swap agreement is exempt from all provisions of the Act and any person or
class of persons offering, entering into, rendering advice, or rendering other
services with respect to such agreement, is exempt for such activity from all
provisions of the Act (except in each case the provisions of Sections
2(a)(1)(B), 4b, and 4o of the Act and Section 32.9 of this chapter as adopted
under Section 4c(b) of the Act, and the provisions of Sections 6(c) and 9(a)(2)
of the Act to the extent these provisions prohibit manipulation of the market
price of any commodity in interstate commerce or for future delivery on or
subject to the rules of any contract market), provided the following terms and
conditions are met:
(a) the swap agreement is entered into solely between eligible swap
participants at the time such persons enter into the swap agreement;
(b) the swap agreement is not part of a fungible class of agreements that
are standardized as to their material economic terms;
(c) the creditworthiness of any party having an actual or potential
obligation under the swap agreement would be a material consideration in
entering into or determining the terms of the swap agreement, including pricing,
cost, or credit enhancement terms of the swap agreement; and
(d) the swap agreement is not entered into and traded on or through a
multilateral transaction execution facility; provided, however, that subsections
(b) and (d) of Rule 35.2 shall not be deemed to preclude arrangements or
facilities between parties to swap agreements, that provide for netting of
payment obligations resulting from such swap agreements nor shall these
subsections be deemed to preclude arrangements or facilities among parties to
swap agreements, that provide for netting of payments resulting from such swap
agreements; provided further, that any person may apply to the Commission for
exemption from any of the provisions of the Act (except 2(a)(1)(B)) for other
arrangements or facilities, on such terms and conditions as the Commission deems
appropriate, including but not limited thereto, the applicability of other
regulatory regimes.
C-1
<PAGE>
OPPENHEIMER REAL ASSET FUND
6803 South Tucson Way
Englewood, Colorado 80112
1-800-525-7048
INVESTMENT ADVISOR
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
DISTRIBUTOR
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
CUSTODIAN OF PORTFOLIO SECURITIES
The Bank of New York
One Wall Street
New York, New York 10015
INDEPENDENT AUDITORS
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202
LEGAL COUNSEL
Myer, Swans on, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
SPECIAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
NO DEALER, BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS OR THE STATEMENT OF ADDITIONAL INFORMATION AND, IF GIVEN OR
MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND, OPPENHEIMERFUNDS, INC., OPPENHEIMER REAL ASSET
MANAGEMENT, INC., OPPENHEIMERFUNDS DISTRIBUTOR, INC. OR ANY AFFILIATE THEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH STATE.
PR0735.001.1297 Printed on Recycled Paper
<PAGE>
OPPENHEIMER REAL ASSET FUND
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 1, 1997
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated September 18, 1997. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217 or by calling the Transfer Agent at the toll-free number shown above.
TABLE OF CONTENTS
PAGE
ABOUT THE FUND
Investment Objective and Policies....................................... 2
Investment Policies and Strategies...................................... 2
Other Investment Techniques and Strategies........................... 16
Other Investment Restrictions........................................ 30
How the Fund is Managed................................................. 31
Organization and History............................................. 31
Trustees and Officers of the Fund.................................... 31
The Manager and Its Affiliates....................................... 37
Brokerage Policies of the Fund.......................................... 38
Performance of the Fund................................................. 40
Distribution and Service Plans.......................................... 43
ABOUT YOUR ACCOUNT
How To Buy Shares....................................................... 45
How To Sell Shares...................................................... 54
How To Exchange Shares.................................................. 59
Dividends, Capital Gains and Taxes...................................... 61
Additional Information About the Fund................................... 63
FINANCIAL INFORMATION ABOUT THE FUND
Independent Auditors' Report............................................ 64
Financial Statements at August 31, 1997................................. 65
APPENDIX A: CORPORATE INDUSTRY CLASSIFICATIONS.......................... A-1
-1-
<PAGE>
ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT POLICIES AND STRATEGIES. The investment objective and policies
of the Fund are discussed in the Prospectus. Set forth below is supplemental
information about those policies and the types of securities in which the Fund
may invest, as well as the strategies the Fund may use to try to achieve its
investment objective. Certain capitalized terms used in this Statement of
Additional Information have the same meanings as those terms have in the
Prospectus.
The objective of the Fund is total return. Current income is not a
consideration in the selection of portfolio securities for the Fund, whether for
appreciation, defensive, or liquidity purposes. The fact that a security has a
low yield or no yield will not be an adverse factor in selecting securities to
try to achieve the Funds' investment objective, unless the Manager believes that
lack of current income might adversely affect appreciation possibilities.
The Fund intends to invest in a portfolio of debt instruments and
commodity-linked instruments, including hybrid instruments, options, futures and
forward contracts, swaps and other securities designed to outperform investments
in traditional equity and debt securities when the value of these traditional
securities is declining due to adverse economic conditions. As an example,
during periods of rising inflation, debt securities tend to decline in value due
to the general increase in interest rates. Conversely, during these same periods
of rising inflation, the prices of certain commodities such as oil and metals
tend to increase.
The reverse may be true during "bull markets," when the value of
traditional securities such as stocks and bonds is increasing. Under such
favorable economic conditions, the Fund's investments are expected to
underperform an investment in traditional securities. Therefore, the returns on
the Fund's investments are expected to exhibit low or negative correlation with
stocks and bonds. As such, investors should not view the Fund as a stand alone
investment, but rather, as part of a diversified portfolio including stocks and
bonds.
The Fund intends to spread its investments among instruments linked to at
least five commodity markets under normal market conditions: energy,
agriculture, livestock, precious metals, and industrial metals. The percentage
of the Fund's assets linked to particular commodity markets will vary from time
to time based on the Manager's assessment of the appreciation possibilities of
particular markets as well as rates of inflation, interest rates, current spot
market prices and other noneconomic and political factors that may affect
specific markets. In addition, the Fund may invest in mortgage-backed
securities, collateralized mortgages, obligations, other debt securities,
equities, real estate investment trusts, money market instruments, and
government securities.
In selecting securities for the Fund's portfolio, Oppenheimer Real Asset
Management, Inc. (the "Manager") evaluates the merits of the securities
primarily through the exercise of its own investment analysis. For instance, for
Hybrid Instruments this may include the evaluation of the underlying commodity,
futures contract, index or other economic variable that is linked to the
instrument, the issuer of the instrument, and whether the principal of the
instrument is protected.
o HYBRID INSTRUMENT. A primary vehicle for gaining exposure to the
commodities markets is through Hybrid Instruments. These are either equity or
debt securities with one or more commodity-dependent components that have
payment features similar to a commodity futures contract, a commodity option
contract, or a combination of both. Therefore, these instruments are
"commodity-linked" and are considered Hybrid Instruments because they have both
commodity-like and security-like characteristics. Hybrid Instruments are
derivative instruments because at least part of their value is derived from the
value of an underlying commodity, futures contract, index or other readily
measurable economic variable.
o QUALIFYING HYBRID INSTRUMENTS. The Fund may invest in Hybrid Instruments
that qualify under Part 34 of the rules under the Commodity Futures Trading
Commission (the "CFTC") for an exemption from all provisions of the Commodity
Exchange Act (the "Act"). See Appendix B in the Prospectus, "CFTC Exemption for
Qualifying Hybrid Instruments."
o PRINCIPAL PROTECTION. Hybrid Instruments may be principal protected,
partially protected, or offer no principal protection. A principal protected
Hybrid Instrument means that the issuer will pay, at a minimum, the par value of
the note at maturity. Therefore, if the commodity value to which the Hybrid
Instrument is linked declines over the life of the note, the Fund will receive
at maturity the face or stated value of the note.
With a principal protected Hybrid Instrument, the Fund will receive at
maturity the greater of the par value of the note or the increase in value of
the underlying commodity or index. This protection is, in effect, an option
whose value is subject to the volatility and price level of the underlying
commodity. This optionality can be added to a hybrid structure, but only for a
cost higher than that of a partially protected (or no protection) Hybrid
Instrument. The Manager's decision on whether to use principal protection
depends on the cost of the protection. Principal protection will be a tactical
decision of the Manager if it represents good value.
With a partially protected or no principal protection Hybrid Instrument,
the Fund may receive at maturity an amount less than the note's par value if the
commodity, index or other economic variable value to which the note is linked
declines over the term of the note. The Manager, at its discretion, may invest
in a partially protected principal structured note or a note without principal
protection. In deciding to purchase a note without principal protection, the
Manager may consider, among other things, the expected performance of the
underlying commodity futures contract, index or other economic variable over the
term of the note, the cost of the note, and any other economic factors which the
Manager believes is relevant.
o COUNTERPARTY RISK. A significant risk of Hybrid Instruments is
counterparty risk. Unlike exchange traded futures and options, which are
standard contracts, hybrid instruments are customized securities, tailor-made by
a specific issuer. With a listed futures or options contract, an investor's
counterparty is the exchange clearinghouse. Exchange clearinghouses are
capitalized by the exchange members and typically have high investment grade
ratings (AAA or AA rated by Standard & Poor's). Therefore, the risk is small
that an exchange clearinghouse might be unable to meet its obligations at
maturity.
However, with a Hybrid Instrument, the Fund will take on the counterparty
credit risk of the issuer. That is, at maturity of the Hybrid Instrument, there
is a risk that the issuer may be unable to perform its obligations under the
structured note. Issuers of Hybrid Instruments are typically large money center
banks, broker-dealers, other financial institutions and large corporations. To
minimize this risk the Fund will transact, to the extent possible, with issuers
who have an investment grade credit rating from a nationally recognized
statistical rating organization ("NRSRO").
o COMMODITY FUTURES CONTRACTS. The Fund intends to invest a portion
of its assets in commodity futures contracts.
o COMPARISON TO FORWARD CONTRACTS. Futures contracts and forward contracts
achieve the same economic effect: both are an agreement to purchase a specified
amount of a specified commodity at a specified future date for a price agreed
upon today. However, there are significant differences in the operation of the
two contracts. Forward contracts are individually negotiated transactions and
are not exchange traded. Therefore, with a forward contract, the Fund would make
a commitment to carry out the purchase or sale of the underlying commodity at
expiration.
For instance, suppose the Fund buys a forward contract to purchase a
certain amount of gold at a set price per ounce for delivery in three months'
time. If, two months later, the Fund wished to liquidate this position, it would
contract for the sale of the gold at a new price per ounce for delivery in one
months' time. At expiration of both forward contracts, the Fund would be
required to buy the gold at the set price under the first forward contract and
sell it at the agreed upon price under the second forward contract. Even though
the Fund has effectively offset its gold position with the purchase and sale of
the two forward contracts, it must still honor the original commitment at
maturity of the two contracts. By contrast, futures exchanges have central
clearinghouses which keep track of all positions. To offset a long position in a
futures contract, the Fund simply needs sell a similar contract on the exchange.
The exchange clearinghouse will record both the original futures contract
purchase and the offsetting sale, and there is no further commitment on the part
of the Fund. Only a very small percentage of commodity futures contracts result
in actual delivery of the underlying commodity. Additionally, any gain or loss
on the purchase and sale of the futures contracts is recognized immediately upon
the offset, while with a forward contract, profit or loss is recognized upon
maturity of the forward contracts.
o PRICE LIMITS. The commodity futures exchanges impose on each commodity
futures contract a maximum permissible price movement for each trading session.
If the maximum permissible price movement is achieved on any trading day, no
further trades may be executed above (or below, if the price has moved downward)
that limit. To the extent that the Fund wishes to execute a trade outside the
daily permissible price movement, it would be prevented from doing so by
exchange rules, and must wait for the another trading session to execute its
transaction.
o PRICE VOLATILITY. Despite the daily price limits on the futures
exchanges, the price volatility of commodity futures contracts has been
historically greater than that for traditional securities such as stocks and
bonds. To the extent that the Fund invests in commodity futures contracts, the
assets of the Fund, and hence the Net Asset Value of Fund shares, may be subject
to greater volatility.
o MARK-TO-MARKET OF FUTURES POSITIONS. The futures clearinghouse marks
every futures contract to market at the end of each trading day, to ensure that
the outstanding futures obligations are limited by the maximum daily permissible
price movement. This process of marking-to-market is designed to prevent losses
from accumulating in any futures account. Therefore, if the Fund's futures
positions have declined in value, the Fund may be required to post additional
margin to cover this decline. Alternatively, if the Fund's futures positions
have increased in value, this increase will be credited to the Fund's account.
o CHARACTERISTICS OF THE COMMODITY FUTURES MARKETS. Commodity futures
contracts are an agreement between two parties for one party to buy an asset
from the other party at a later date at a price and quantity agreed upon today.
Commodity futures contracts are traded on futures exchanges. These futures
exchanges offer a central marketplace in which to transact futures contracts, a
clearing corporation to process trades, a standardization of expiration dates
and contract sizes, and the availability of a secondary market. Futures markets
also specify the terms and conditions of delivery as well as the maximum
permissible price movement during a trading session. Additionally, the commodity
futures exchanges have position limit rules which limit the amount of futures
contracts that any one party may hold in a particular commodity at any point in
time. These position limit rules are designed to prevent any one participant
from controlling a significant portion of the market.
o CLEARING CORPORATION. In the futures markets, the exchange clearing
corporation takes the other side in all transactions, either buying or selling
directly to the market participants. The clearinghouse acts as the counterparty
to all exchange trade futures contracts. That is, the Fund's obligation is to
the clearinghouse, and the Fund will look to the clearinghouse to satisfy the
Fund's rights under the futures contract.
o DELIVERY OF THE UNDERLYING COMMODITY. Unlike stocks or bonds where the
buyer acquires ownership in the security, buyers of futures contracts are not
entitled to ownership of the underlying commodity until and unless they decide
to accept delivery at expiration of the contract. In practice, delivery of the
underlying commodity to satisfy a futures contract rarely occurs because most
futures traders use the liquidity of the central marketplace to sell their
futures contract before expiration.
o FORWARD CURRENCY CONTRACTS. The Fund may invest in Forward Currency
Contracts which are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to try to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has purchased or sold,
or to protect against possible losses from changes in the relative value of the
U.S. dollar and a foreign currency. The Fund may also use "cross hedging," where
the Fund seeks to hedge against changes in currencies other than the currency in
which a security it holds is denominated. The use of Forward Contracts may
reduce the gain that would otherwise result from a change in the relationship
between the U.S. dollar and a foreign currency.
|X| OPTIONS. The Fund may purchase and sell call and put options on
commodity futures contracts, commodity indices, financial indices, currencies,
financial futures, swaps and securities. A call option gives the buyer the
right, but not the obligation, to purchase an underlying asset at a specified
(strike) price. A put option gives the buyer the right, but not the obligation,
to sell an underlying asset at a specified price. Options may be exchange traded
or traded over the counter (off the exchange markets) directly with dealers.
o OVER THE COUNTER OPTIONS. The Fund may trade over the counter options.
Over the counter options are not traded on an exchange and are traded directly
with dealers. To the extent an over the counter option is a tailored investment
for the Fund, it may be less liquid than an exchange traded option. Further,
similar to hybrid instruments, over the counter options contain counterparty
risk. The Fund will take on the credit risk that the seller of an over the
counter option will perform its obligations under the option agreement if the
Fund exercises the option. To minimize this risk, the Fund intends to transact,
to the extent practicable, with issuers that have an investment grade credit
rating. The Fund may trade over the counter options on commodity indices,
individual commodities, commodity futures contracts, securities, financial
indices, interest rates, currencies and swaps.
o EXCHANGE TRADED OPTIONS. The Fund may trade listed options on commodity
futures contracts. Options on commodity futures contracts are exchange traded on
the same exchange where the futures contract is listed. The Fund may purchase
and sell options on commodity futures listed on U.S. and foreign futures
exchanges. Options purchased on foreign listed futures contracts may be exposed
to the risk of foreign currency fluctuations versus the U.S. dollar. The Fund
may also trade exchange listed options on securities, commodity indices,
financial indices, interest rates and currencies.
o OPTIONS ON SWAPS. The Fund may trade options on swap contracts or "swap
options." Call swap options provide the holder of the option with the right to
enter a swap contract with a specified (strike) swap formula, while put swap
options provide the holder with the right to sell or terminate a swap contract.
Swap options are not exchange traded and the Fund will bear the credit risk of
the option seller. Additionally, should the Fund exercise a call swap option
with the option seller, the credit risk of the counterparty is extended to
include the term of the swap agreement.
o SWAPS. The Fund may invest in total return swaps to gain exposure to the
commodity markets. In a total return commodity swap the Fund will receive the
price appreciation of a commodity index, a portion of the index, or a single
commodity in exchange for paying an agreed-upon fee. If the commodity swap is
for one period, the Fund will pay a fixed fee, established at the outset of the
swap. However, if the term of the commodity swap is more than one period, with
interim swap payments, the Fund will pay an adjustable or floating fee. With a
"floating" rate, the fee is pegged to a base rate such as the London Interbank
Offered Rate ("LIBOR"), and is adjusted each period. Therefore, if interest
rates increase over the term of the swap contract, the Fund may be required to
pay a higher fee at each swap reset date.
o COUNTERPARTY RISK. Swap contracts are private transactions which are
customized to meet the specific investment requirements of the Fund. However,
the Fund will be exposed to the performance risk of its counterparty. If, at
maturity of the swap or any interim payment date, the counterparty is unable to
perform its obligations under the swap contract, the Fund may not receive the
payments due it under the swap agreement. To minimize this risk the Fund will
transact, to the extent possible, with counterparties who have an investment
grade rating from an NRSRO.
o CONTRACTUAL LIABILITY. Swaps are privately negotiated transactions
between the Fund and a counterparty. All of the rights and obligations of the
Fund must be detailed in the swap contract which binds the Fund and its
counterparty. Because a swap transaction is a privately negotiated contract, the
Fund remains liable for all obligations under the contract until the swap
contract matures or is purchased by the swap counterparty. Therefore, even if
the Fund were to sell the swap contract to a third party, the Fund would remain
primarily liable for the obligations under the swap transaction. The only way
for the Fund to eliminate its primary obligations under the swap agreement is to
sell the swap contract back to the original counterparty. Additionally, the Fund
must identify liquid assets to its custodian to the extent of the Fund's
obligations to pay the counterparty under the swap agreement.
o PRICE RISK. Total return commodity swaps expose the Fund to the price
risk of the underlying commodity, index, futures contract or economic variable.
If the price of the underlying commodity or index increases in value during the
term of the swap, the Fund will receive the price appreciation. However, if the
price of the commodity or index declines in value during the term of the swap,
the Fund will be required to pay to its counterparty the amount of the price
depreciation. The amount of the price depreciation paid by the Fund to its
counterparty would be in addition to the financing fee paid by the Fund to the
same counterparty.
o LACK OF LIQUIDITY. Although the swap market is well-developed for
primary participants, there is only a limited secondary market. Swaps are not
traded or listed on an exchange and over the counter trading of existing swap
contracts is limited. Therefore, if the Fund wishes to sell its swap contract to
a third party, it may not be able to do so at a favorable price.
o REGULATORY RISK. Qualifying swap transactions are exempt from regulation
by the CFTC. Additionally, swap contracts have never been determined to be
securities by the Securities and Exchange Commission ("SEC"). Consequently, swap
contracts are not regulated by either the CFTC or the SEC, and swap participants
may not be afforded the protection of the Commodity Exchange Act or the
Securities Laws.
To reduce this risk, the Manager will only transact with counterparties
who use standard International Swap and Dealers Association, Inc. ("ISDA")
contract documentation. ISDA establishes industry standards for the
documentation of swap agreements. Virtually all swap participants use ISDA
documentation because it has an established set of definitions, contract terms,
and counterparty obligations.
ISDA documentation also establishes a master netting agreement which
provides that all swaps transacted between the Fund and a counterparty under the
master agreement shall be regarded as parts of an integral agreement. If, on any
date, amounts are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency shall be
paid. In addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the remaining
swaps with that party. Under such agreements, if there is a default resulting in
a loss to one party, the measure of that party's damages is calculated by
reference to the average cost of a replacement swap with respect to each swap
(i.e., the mark-to-market value at the time of the termination of each swap).
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
o DEBT SECURITIES. The Fund may invest in the following types of debt
and fixed income securities.
o U.S. TREASURY OBLIGATIONS. These include Treasury Bills (which have
maturities of one year or less when issued), Treasury Notes (which have
maturities of one to ten years when issued) and Treasury Bonds (which have
maturities generally greater than ten years when issued). U.S. Treasury
obligations are backed by the full faith and credit of the United States.
o U.S. GOVERNMENT AND AGENCY OBLIGATIONS. U.S. government securities are
debt obligations issued by or guaranteed by the United States government or any
of its agencies or instrumentalities. Some of these obligations, including U.S.
Treasury notes and bonds, and mortgage-backed securities (referred to as "Ginnie
Maes") guaranteed by the Government National Mortgage Association, are supported
by the full faith and credit of the United States, which means that the
government pledges to use its taxing power to repay the debt. Other U.S.
government securities issued or guaranteed by Federal agencies or
government-sponsored enterprises are not supported by the full faith and credit
of the United States. They may include obligations supported by the ability of
the issuer to borrow from the U.S. Treasury. However, the Treasury is not under
a legal obligation to make a loan. Examples of these are obligations of Federal
Home Loan Mortgage Corporation (these securities are often called "Freddie
Macs"). Other obligations are supported by the credit of the instrumentality,
such as Federal National Mortgage Association bonds (these securities are often
called "Fannie Maes").
o GNMA CERTIFICATES. Certificates of Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence an
undivided interest in a pool or pools of mortgages ("GNMA Certificates"). The
GNMA Certificates that the Fund may purchase are of the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to the "issuer"
and GNMA, regardless of whether the mortgagor actually makes the payments.
The National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest on securities backed by a pool of mortgages insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and credit
of the U.S. Government. GNMA is also empowered to borrow without limitation from
the U.S. Treasury if necessary to make any payments required under its
guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the Fund has
purchased the certificates at a premium in the secondary market.
o FNMA SECURITIES. The Federal National Mortgage Association ("FNMA") was
established to create a secondary market in mortgages insured by the FHA. FNMA
issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the U.S. Government.
o FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created to promote development of a nationwide secondary market for
conventional residential mortgages. FHLMC issues two types of mortgage
pass-through certificates ("FHLMC Certificates"): mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool. FHLMC guarantees
timely monthly payment of interest on PCs and the ultimate payment of principal.
The FHLMC guarantee is not backed by the full faith and credit of the U.S.
Government.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years. The FHLMC guarantee is not backed by the full faith and
credit of the U.S. Government.
o MORTGAGE-BACKED SECURITIES AND CMO'S. These securities represent
participation interests in pools of residential mortgage loans. Mortgage-backed
securities include collateralized mortgage-backed obligations (referred to as
"CMOs") issued by the U.S. government, its agencies or instrumentalities, or by
private issuers. Mortgage-backed securities and CMOs securities differ from
conventional debt securities which generally provide for periodic payment of
interest in fixed or determinable amounts (usually semi-annually) with principal
payments at maturity or specified call dates.
o MORTGAGE-BACKED SECURITIES. The yield on mortgage-backed securities is
based on the average expected life of the underlying pool of mortgage loans. The
actual life of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally result from
the sale of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by a wide range
of economic, demographic and social factors and, accordingly, it is not possible
to predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by the Fund to differ from the yield calculated on the basis
of the expected average life of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease, as do the values of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise to the extent that the value of other debt securities rise,
because of the prepayment feature of pass-through securities. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments it
receives may occur at times when available investments offer higher or lower
rates than the original investment, thus affecting the yield of the Fund.
Monthly interest payments received by the Fund have a compounding effect which
may increase the yield to the Fund more than debt obligations that pay interest
semi-annually. Because of those factors, mortgage-backed securities may be less
effective than Treasury bonds of similar maturity at maintaining yields during
periods of declining interest rates. The Fund may purchase mortgage-backed
securities at par or at a premium or at a discount. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of their principal amount) and may involve
additional risk of loss of principal because the premium may not have been fully
amortized at the time the obligation is repaid. The opposite is true for
pass-through securities purchased at a discount.
The Fund may invest in "stripped" mortgage-backed securities, in which the
principal and interest portions of the security are separated and sold. Stripped
mortgage-backed securities usually have at least two classes each of which
receives different proportions of interest and principal distributions on the
underlying pool of mortgage assets. One common variety of stripped
mortgage-backed security has one class that receives some of the interest and
most of the principal, while the other class receives most of the interest and
remainder of the principal. In some cases, one class will receive all of the
interest (the "interest-only" or "I/O" class), while the other class will
receive all of the principal (the "principal-only" or "P/O" class).
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the underlying
mortgages. Principal prepayments increase that sensitivity. Stripped securities
that pay "interest only" are therefore subject to greater price volatility when
interest rates change, and they have the additional risk that if the underlying
mortgages are prepaid, the Fund will lose the anticipated cash flow from the
interest on the prepaid mortgages. That risk is increased when general interest
rates fall, and in times of rapidly falling interest rates, the Fund might
receive back less than its investment.
The value of "principal only" securities generally increases as interest
rates decline and prepayment rates rise. The price of these securities is
typically more volatile than that of coupon- bearing bonds of the same maturity.
o MORTGAGE-BACKED SECURITY ROLLS. The Fund may enter into "forward roll"
transactions with respect to mortgage-backed securities issued by GNMA, FNMA or
FHLMC. In a forward roll transaction, the Fund will sell a mortgage security to
a bank or other permitted entity and simultaneously agree to repurchase a
similar security from the institution at a later date at an agreed upon price.
The mortgage securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories than those sold. Risks of mortgage-backed
security rolls include: (i) the risk of prepayment prior to maturity, (ii) the
possibility that the proceeds of the sale may have to be invested in money
market instruments (typically repurchase agreements) maturing not later than the
expiration of the roll, and (iii) the possibility that the market value of the
securities sold by the Fund may decline below the price at which the Fund is
obligated to purchase the securities. Upon entering into a mortgage-backed
security roll, the Fund will be required to place liquid securities in a
segregated account with its Custodian in an amount equal to its obligation under
the roll.
o CMOS. CMOs are fully-collateralized bonds that are the general
obligations of the issuer thereof. Such bonds generally are secured by an
assignment to a trustee (under the indenture pursuant to which the bonds are
issued) of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages are
not passed through to the holders of the CMOs as such (i.e., the character of
payments of principal and interest is not passed through, and therefore payments
to holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment of
interest on and repayment of principal of the CMOs. See "GNMA Certificates,"
"FNMA Securities," and "FHLMC Securities," above. CMOs often are issued in two
or more classes with different characteristics such as varying maturities and
stated rates of interest. Because interest and principal payments on the
underlying mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on which
are used to pay interest on each class and to retire successive maturities
(known as "tranches") in sequence. Unlike other mortgage-backed securities
(discussed above), CMOs are designed to be retired as the underlying mortgages
are repaid. In the event of prepayment on such mortgages, the class of CMO first
to mature generally will be paid down. Therefore, although in most cases the
issuer of CMOs will not supply additional collateral in the event of such
prepayment, there will be sufficient collateral to secure CMOs that remain
outstanding. The value of certain classes or "tranches" may be more volatile
than the value of the pool as a whole, and losses may be more severe than on
other classes.
Mortgage-backed securities and CMOs may be less effective than debt
obligations of similar maturity at maintaining yields during periods of
declining interest rates. As new types of mortgage- related securities are
developed and offered to investors, the Manager will, subject to the direction
of the Board of Trustees and consistent with the Fund's investment objectives
and policies, consider making investments in such new types of mortgage-related
securities.
o PRIVATE LABEL MORTGAGES. The Fund may also invest in private label
mortgages which are real asset-linked mortgages issued by entities other than
United States government agencies. Private label mortgages are offered in
tranches with debt layers ranging in credit quality from AAA to, potentially, B.
These mortgages typically offer superior yields over U.S.
Treasury securities.
o COMMERCIAL PAPER. The Fund may invest in commercial paper
investments including the following:
o VARIABLE AMOUNT MASTER DEMAND NOTES. Master demand notes are
corporate obligations which permit the investment of fluctuating amounts
by the Fund at varying rates of interest pursuant to direct arrangements
between the Fund, as lender, and the borrower. They permit daily changes
in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may prepay up to
the full amount of the note without penalty. These notes may or may not be
backed by bank letters of credit. Because these notes are direct lending
arrangements between the lender and borrower, it is not generally
contemplated that they will be traded. There is no secondary market for
these notes, although they are redeemable (and thus immediately repayable
by the borrower) at principal amount, plus accrued interest, at any time.
Accordingly, the Fund's right to redeem such notes is dependent upon the
ability of the borrower to pay principal and interest on demand. The Fund
has no limitations on the type of issuer from whom these notes will be
purchased; however, in connection with such purchases and on an ongoing
basis, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such
notes made demand simultaneously. Investments in master demand notes are
subject to the limitation on investments by the Fund in illiquid
securities, described in the Prospectus.
o FLOATING RATE/VARIABLE RATE NOTES. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable rates are
adjustable at stated periodic intervals; floating rates are automatically
adjusted according to a specified market rate for such investments, such
as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury
Bill rate. Such obligations may be secured by bank letters of credit or
other credit support arrangements.
o ASSET-BACKED SECURITIES. Asset-backed securities are typically based on
account receivables or consumer loans. The value of an asset-backed security is
affected by changes in the market's perception of the asset backing the
security, the creditworthiness of the servicing agent for the loan pool, the
originator of the loans, or the financial institution providing any credit
enhancement, and is also affected if any credit enhancement has been exhausted.
The risks of investing in asset-backed securities are ultimately dependent upon
payment of consumer loans by the individual borrowers. As a purchaser of an
asset-backed security, the Fund would generally have no recourse to the entity
that originated the loans in the event of default by a borrower. The underlying
loans are subject to prepayments, which may shorten the weighted average life of
asset- backed securities and may lower their return, in the same manner as
described in the Prospectus and in "Mortgage-Backed Securities and CMOs", above,
for prepayments of a pool of mortgage loans underlying mortgage-backed
securities.
o ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities
issued by the U.S. Treasury or by private issuers such as domestic or foreign
corporations. Zero coupon U.S. Treasury securities include: (1) U.S. Treasury
bills without interest coupons, (2) U.S. Treasury notes and bonds that have been
stripped of their unmatured interest coupons and (3) receipts or certificates
representing interests in such stripped debt obligations or coupons. These
securities usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations in market value in response to changing
interest rates than debt obligations of comparable maturities that make current
payments of interest. However, the lack of periodic interest payments means that
the interest rate is "locked in" and the investor avoids the risk of having to
reinvest periodic interest payments in securities having lower rates. An
additional risk of private-issuer zero coupon securities is the credit risk that
the issuer will be unable to make payment at maturity of the obligation.
Because the Fund accrues taxable income from zero coupon securities
without receiving cash, the Fund may be required to sell portfolio securities in
order to pay dividends or redemption proceeds for its shares, which require the
payment of cash. This will depend on several factors: the proportion of
shareholders who elect to receive dividends in cash rather than reinvesting
dividends in additional shares of the Fund, and the amount of cash income the
Fund receives from other investments and the sale of shares. In either case,
cash distributed or held by the Fund that is not reinvested by investors in
additional Fund shares will hinder the Fund from seeking current income.
o BANK OBLIGATIONS AND INSTRUMENTS SECURED THEREBY. The bank obligations
the Fund may invest in include time deposits, certificates of deposit, and
bankers' acceptances if they are: (i) obligations of a domestic bank with total
assets of at least $1 billion or (ii) obligations of a foreign bank with total
assets of at least U.S. $1 billion. The Fund may also invest in instruments
secured by such obligations (e.g., debt which is guaranteed by the bank). For
purposes of this section, the term "bank" includes commercial banks, savings
banks, and savings and loan associations which may or may not be members of the
Federal Deposit Insurance Corporation.
Time deposits are non-negotiable deposits in a bank for a specified period
of time at a stated interest rate, whether or not subject to withdrawal
penalties. However, time deposits that are subject to withdrawal penalties,
OTHER THAN those maturing in seven days or less, are subject to the limitation
on investments by the Fund in illiquid investments, set forth in the Prospectus
under "Illiquid and Restricted Securities."
Banker's acceptances are marketable short-term credit instruments used to
finance the import, export, transfer or storage of goods. They are deemed
"accepted" when a bank guarantees their payment at maturity.
o HIGH YIELD SECURITIES - SPECIAL RISKS. As stated in the Prospectus, the
corporate debt securities in which the Fund will principally invest are
lower-rated debt securities, commonly known as "junk bonds." The Fund may invest
in securities rated as low as "C" by Moody's or "D" by S&P. The Manager will not
rely solely on the ratings assigned by rating services and may invest, without
limitation, in unrated securities which offer, in the opinion of the Manager,
comparable yields and risks as those rated securities in which the Fund may
invest.
Risks of high yield securities may include: (i) limited liquidity and
secondary market support, (ii) substantial market price volatility resulting
from changes in prevailing interest rates, (iii) subordination to the prior
claims of banks and other senior lenders, (iv) the operation of mandatory
sinking fund or call/redemption provisions during periods of declining interest
rates that could cause the Fund to reinvest premature redemption proceeds only
in lower yielding portfolio securities, (v) the possibility that earnings of the
issuer may be insufficient to meet its debt service, and (vi) the issuer's low
creditworthiness and potential for insolvency during periods of rising interest
rates and economic downturn. As a result of the limited liquidity of high yield
securities, their prices have at times experienced significant and rapid decline
when a substantial number of holders decided to sell. A decline is also likely
in the high yield bond market during an economic downturn. An economic downturn
or an increase in interest rates could severely disrupt the market for high
yield bonds and adversely affect the value of outstanding bonds and the ability
of the issuers to repay principal and interest. In addition, there have been
several Congressional attempts to limit the use of tax and other advantages of
high yield bonds which, if enacted, could adversely affect the value of these
securities and the Fund's net asset value. For example, federally insured
savings and loan associations have been required to divest their investments in
high yield bonds.
o RISKS OF DEBT SECURITIES. With the exception of U.S. Government
securities, the debt securities that the Fund may invest in will have one or
more types of investment risk: credit risk, interest rate risk, foreign exchange
rate risk or political risk.
o CREDIT RISK. Credit risk relates to the ability of the issuer to
meet interest or principal payments or both as they become due. Generally,
higher yielding bonds are subject to credit risk to a greater extent than higher
quality bonds.
o INTEREST RATE RISK. Interest rate risk refers to the fluctuations in
value of fixed-income securities resulting solely from the inverse relationship
between the market value of outstanding fixed-income securities and changes in
interest rates. An increase in interest rates will generally reduce the market
value of fixed-income investments, and a decline in interest rates will tend to
increase their value. In addition, debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities subsequent to their
acquisition will not affect the interest payable on those securities, and thus
the cash income from such securities, but will be reflected in the valuations of
those securities used to compute the Fund's net asset values.
o FOREIGN EXCHANGE RATE RISK. Foreign exchange rate risk is the risk that a
foreign currency will depreciate relative to the U.S. dollar. When the Fund
invests in a debt security which is denominated in a foreign currency, the value
of the investment will decline if the foreign currency devalues relative to the
U.S. dollar. Therefore, a strong U.S. dollar may, in fact, be detrimental to the
Fund's investment in foreign securities.
o POLITICAL RISK. Political risk relates to the willingness of a foreign
government or corporation to pay its interest and principal obligations as they
become due. For most industrialized nations such as the United States, Great
Britain, France, Italy, Germany, Canada or Japan, the political risk is small.
However, political risk may be larger for emerging market countries which have a
nascent economy or government.
o FOREIGN SECURITIES. The Fund may invest in securities (which may be
denominated in U.S. dollars or non-U.S. currencies) issued or guaranteed by
foreign corporations, certain supranational entities (described below) and
foreign governments or their agencies or instrumentalities, and in securities
issued by U.S. corporations denominated in non-U.S. currencies. The types of
foreign debt obligations and other securities in which the Fund may invest are
the same types of debt securities identified above. Foreign securities are
subject, however, to additional risks not associated with domestic securities,
as discussed below. These additional risks may be more pronounced as to
investments in securities issued by emerging market countries or by companies
located in emerging market countries.
Investing in foreign securities involves considerations and possible risks
not typically associated with investing in securities in the U.S. The values of
foreign securities will be affected by changes in currency rates or exchange
control regulations or currency blockage, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in the U.S. or abroad) or changed circumstances in dealings
between nations. Costs will be incurred in connection with conversions between
various currencies. Foreign brokerage commissions are generally higher than
commissions in the U.S., and foreign securities markets may be less liquid, more
volatile and less subject to governmental regulation than in the U.S.
Investments in foreign countries could be affected by other factors not
generally thought to be present in the U.S., including expropriation or
nationalization, confiscatory taxation and potential difficulties in enforcing
contractual obligations, and could be subject to extended settlement periods.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and its
income available for distribution. In addition, although a portion of the Fund's
investment income may be received or realized in foreign currencies, the Fund
will be required to compute and distribute its income in U.S. dollars, and
absorb the cost of currency fluctuations. The Fund may engage in foreign
currency exchange transactions for hedging purposes to protect against changes
in future exchange rates. See "Other Investment Techniques and Strategies -
Hedging," below.
The values of foreign investments and the investment income derived from
them may also be affected unfavorably by changes in currency exchange control
regulations. Although the Fund will invest only in securities denominated in
foreign currencies that at the time of investment do not have significant
government-imposed restrictions on conversion into U.S. dollars, there can be no
assurance against subsequent imposition of currency controls. In addition, the
values of foreign securities will fluctuate in response to a variety of factors,
including changes in U.S. and foreign interest rates.
o PORTFOLIO TURNOVER. To the extent that increased portfolio turnover
results in gains from sales of securities held less than three months, the
Fund's ability to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code") may be affected.
Although changes in the value of the Fund's portfolio securities subsequent to
their acquisition are reflected in the net asset value of the Fund's shares,
such changes will not affect the income received by the Fund from such
securities. The dividends paid by the Fund will increase or decrease in relation
to the income received by the Fund from its investments, which will in any case
be reduced by the Fund's expenses before being distributed to the Fund's
shareholders.
OTHER INVESTMENT TECHNIQUES AND STRATEGIES
o BORROWING. From time to time, the Fund may borrow from banks on an
unsecured basis. Such borrowing may be used to fund shareholder redemptions or
for other purposes. Any such borrowing will be made only from banks, and
pursuant to the requirements of the Investment Company Act, will be made only to
the extent that the value of that Fund's total 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 so computed should fail to
meet the 300% asset coverage requirement, the Fund is required within three days
to reduce its bank debt to the extent necessary to meet such requirement and may
have to sell a portion of its investments at a time when independent investment
judgment would not dictate such sale. Since substantially all of the Fund's
assets fluctuate in value, but borrowing obligations are fixed, when the Fund
has outstanding borrowings, its net asset value per share correspondingly will
tend to increase and decrease more when portfolio assets fluctuate in value than
otherwise would be the case. While borrowings from banks may represent up to 33
1/3% of the Fund's total assets, the Fund does not intend to make any investment
purchases while its borrowings exceed 5% of its total assets.
o WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such securities on
a "delayed delivery" basis. Although the Fund will enter into such transactions
for the purpose of acquiring securities for its portfolio or for delivery
pursuant to options contracts it has entered into, the Fund may dispose of a
commitment prior to settlement. "When-issued" or "delayed delivery" refers to
securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery, or to securities to
be delivered at a later date. When such transactions are negotiated, the price
(which is generally expressed in yield terms) is fixed at the time the
commitment is made, but delivery and payment for the securities take place at a
later date. The Fund does not intend to make such purchases for speculative
purposes. The commitment to purchase a security for which payment will be made
on a future date may be deemed a separate security and involve risk of loss if
the value of the security declines prior to the settlement date. During the
period between commitment by the Fund and settlement, no payment is made for the
securities purchased by the purchaser, and no interest accrues to the purchaser
from the transaction. Such securities are subject to market fluctuation; the
value at delivery may be less than the purchase price. The Fund will maintain a
segregated account with its Custodian, consisting of marketable securities at
least equal to the value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure of the buyer or seller to do so may result
in the Fund losing the opportunity to obtain a price and yield considered to be
advantageous. At the time the Fund makes a commitment to purchase or sell a
security on a when-issued or forward commitment basis, it records the
transaction and reflects the value of the security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. If the Fund chooses
to (i) dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss.
The Fund may "roll" these transactions by selling the when-issued security
before the settlement date and purchasing another substantially similar
security. For accounting purposes, the Fund records a "rolled" transaction as a
purchase and sale of securities.
When-issued transactions and forward commitments allow the Fund a
technique to use 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 forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
o PARTICIPATION INTERESTS. The Fund may acquire participation interests in
U.S. dollar-denominated loans that are made to U.S. or foreign companies (the
"borrower"). They may be interests in, or assignments of, the loan, and are
acquired from banks or brokers that have made the loan or are members of the
lending syndicate. The Manager has set certain creditworthiness standards for
issuers of loan participations, and monitors their creditworthiness. Some
borrowers may have senior securities rated as low as "C" by Moody's or "D" by
S&P, but may be deemed acceptable credit risks. Participation interests are
considered investments in illiquid securities (see "Illiquid and Restricted
Securities," above). Their value primarily depends upon the creditworthiness of
the borrower, and its ability to pay interest and principal. Borrowers may have
difficulty making payments. If a borrower fails to make scheduled interest or
principal payments, the Fund could experience a reduction in its income and a
decline in the net asset value of its shares.
The Fund may invest in participation interests, subject to the limitation,
described in "Illiquid and Restricted Securities" in the Prospectus on
investments by the Fund in illiquid investments. Participation interests provide
the Fund an undivided interest in a loan made by the issuing financial
institution in the proportion that the Fund's participation interest bears to
the total principal amount of the loan. No more than 5% of the Fund's net assets
can be invested in participation interests of the same borrower. The issuing
financial institution may have no obligation to the Fund other than to pay the
Fund the proportionate amount of the principal and interest payments it
receives. Participation interests are primarily dependent upon the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan, and there is a risk that such
borrowers may have difficulty making payments. In the event the borrower fails
to pay scheduled interest or principal payments, the Fund could experience a
reduction in its income and might experience a decline in the value of that
participation interest and in the net asset value of its shares. In the event of
a failure by the financial institution to perform its obligation in connection
with the participation agreement, the Fund might incur certain costs and delays
in realizing payment or may suffer a loss of principal and/or interest.
o REPURCHASE AGREEMENTS. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a U.S.
commercial bank, the U.S. branch of a foreign bank or a broker-dealer which has
been designated a primary dealer in U.S. government securities, which must meet
the credit requirements set by the Fund's Board of Trustees from time to time),
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. The majority
of these transactions run from day to day, and delivery pursuant to resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act,
collateralized by the underlying security. The Fund's repurchase agreements
require that at all times while the repurchase agreement is in effect, the
collateral's value must equal or exceed the repurchase price to fully
collateralize the repayment obligation. Additionally, the Manager will impose
creditworthiness requirements to confirm that the vendor is financially sound
and will continuously monitor the collateral's value.
o REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the
Fund sells a security for cash and simultaneously agrees to repurchase the
security at a later date at an agreed upon price. Analogous to "Repurchase
Agreements" discussed above, reverse repurchase agreements are a form of
borrowing. Therefore, the Fund's investment in reverse repurchase agreements
shall be subject to the same borrowing limits discussed under "Borrowing."
o ILLIQUID AND RESTRICTED SECURITIES. To enable the Fund to sell restricted
securities not registered under the Securities Act of 1933, the Fund may have to
cause those securities to be registered. The expenses of registration of
restricted securities may be negotiated by the Fund with the issuer at the time
such securities are purchased by the Fund, if such registration is required
before such securities may be sold publicly. When registration must be arranged
because the Fund wishes to sell the security, a considerable period may elapse
between the time the decision is made to sell the securities and the time the
Fund would be permitted to sell them. The Fund would bear the risks of any
downward price fluctuation during that period. The Fund expects to acquire
Hybrid Instruments having regulatory or contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities and
might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of restricted
and illiquid securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible
for sale to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933, provided that those securities have been determined to
be liquid by the Board of Trustees of the Fund or by the Manager under
Board-approved guidelines. Those guidelines take into account the trading
activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, the Fund's holding of that security may be deemed
to be illiquid.
o LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the market value of the
loaned securities and must consist of cash, bank letters of credit, U.S.
government securities, or other cash equivalents in which the Fund is permitted
to invest. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. In a
portfolio securities lending transaction, the Fund receives from the borrower an
amount equal to the interest paid or the dividends declared on the loaned
securities during the term of the loan as well as the interest on the collateral
securities, less any finders' or administrative fees the Fund pays in arranging
the loan. The Fund may share the interest it receives on the collateral
securities with the borrower as long as it realizes at least a minimum amount of
interest required by the lending guidelines established by its Board of
Trustees. The Fund will not lend its portfolio securities to any officer,
trustee, employee or affiliate of the Fund or its Manager. The terms of the
Fund's loans must meet certain tests under the Internal Revenue Code and permit
the Fund to reacquire loaned securities on five business days' notice or in time
to vote on any important matter.
o HEDGING. As described in the Prospectus, the Fund may employ one or more
types of hedging instruments. When hedging 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 may: (i) sell futures contracts, (ii) buy puts on such futures contracts or
securities, or (iii) write calls on securities held by it or on futures
contracts. When hedging to attempt to protect against the possibility that
portfolio securities are not fully included in a rise in value of the securities
or commodities markets, the Fund may: (i) buy futures contracts, or (ii) buy
calls or write puts on such futures contracts, commodity indices, financial
indices, or on the Fund's securities. Covered calls and puts may also be written
on debt securities to attempt to increase the Fund's income. When hedging to
protect against declines in the dollar value of a foreign currency-denominated
security, the Fund may: (a) buy puts on that foreign currency and on foreign
currency Futures, (b) write calls on that currency or on such futures contracts,
or (c) enter into forward contracts at a higher or lower rate than the spot
("cash") rate.
Additional Information about the hedging instruments the Fund may use is
provided below. In the future, the Fund may employ hedging instruments and
strategies that are not presently contemplated but which may be developed, to
the extent such investment methods are consistent with the Fund's investment
objective, legally permissible and adequately disclosed.
o WRITING COVERED CALL OPTIONS. When the Fund writes a call on a security,
future, index or currency, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call on the same security during
the call period at a fixed exercise price (which may differ from the market
price of the underlying security), regardless of market price changes during the
call period. The Fund has retained the risk of loss should the price of the
underlying security decline during the call period, which may be offset to some
extent by the premium.
The Fund may also write call options on financial and commodity indices.
When writing a call on a index, the Fund receives a premium and agrees to pay to
the call buyer a cash amount equal to the appreciation of the index in excess of
the option strike price over the call period. If the index declines in value the
Fund has no payment obligation and retains the option premium. When writing a
call option on an index, the Fund will segregate liquid assets equal to the
settlement value of the option.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call written is more or
less than the price of the call subsequently purchased. A profit may also be
realized if the call lapses unexercised, because the Fund retains the underlying
investment and the premium received. Any such profits are considered short-term
capital gains for Federal income tax purposes, and when distributed by the Fund
are taxable as ordinary income. An option position may be closed out only on a
market that provides secondary trading for option of the same series, and there
is no assurance that a liquid secondary market will exist for a particular
option. If the Fund could not effect a closing purchase transaction due to lack
of a market, it would have to hold the callable investments until the call
lapsed or was exercised.
The Fund may also write calls on futures contracts without owning a
futures contract or a deliverable security, provided that at the time the call
is written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid assets
if the value of the escrowed assets drops below 100% of the obligation under the
futures contracts. In no circumstances would an exercise notice 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. A put option on securities, futures contracts,
financial and commodity indices, and currencies, 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. A put option on an index gives the
purchaser the right to collect a cash payment and the writer the obligation to
pay the decline in value of the index below the strike price during the option
period. The premium the Fund receives from writing a put option represents a
profit, as long as the price of the underlying investment remains above the
exercise price. However, the Fund has also assumed the obligation during the
option period to either buy the underlying investment from the buyer of the put
at the exercise price or pay the cash value of the decline in the index below
the exercise price, even though the value of the investment may fall below the
exercise price. If the put lapses unexercised, the Fund (as the writer of the
put) realizes a gain in the amount of the premium. If the put is exercised, the
Fund must fulfill its obligation to purchase the underlying investment at the
exercise price or make a cash payment equal to the decline in value of the
index, which will usually exceed the market value of the investment at that
time. In that case, the Fund may incur a loss, equal to the sum of the current
market value of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying asset, the Fund will deposit in escrow liquid assets with a value
equal to or greater than the exercise price of the put option. The Fund
therefore forgoes the opportunity of investing the segregated assets or writing
calls against those assets. As long as the obligation of the Fund as the put
writer continues, it may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring the Fund to take delivery of the
underlying security against payment of 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. This obligation terminates upon
expiration of the put, or such earlier time at which the Fund effects a closing
purchase transaction by purchasing a put of the same series as that previously
sold. Once the Fund has been assigned an exercise notice, it is thereafter not
allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a profit on
an outstanding put option it has written or to prevent an underlying security,
futures contract, swap or index from being put. Furthermore, effecting such a
closing purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited assets,
or to utilize the proceeds from the sale of such assets for other investments by
the Fund. The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from writing the option. As above for writing covered calls, any and
all such profits described herein from writing puts are considered short-term
gains for Federal tax purposes, and when distributed by the Fund, are taxable as
ordinary income.
o PURCHASING CALLS AND PUTS. When the Fund purchases a call (other than in
a closing purchase transaction), it pays a premium and, except as to calls on
indices or futures contracts, 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. When the Fund purchases a call on an index or
future contract, it pays a premium, but settlement is in cash rather than by
delivery of the underlying investment to the Fund. In purchasing a call, the
Fund benefits only if the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
exercise price plus the transaction costs and the premium paid and the call is
exercised. If the call is not exercised or sold (whether or not at a profit), it
will become worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
When the Fund purchases a 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
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on an investment the Fund owns enables the Fund to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price by selling such 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, and the Fund will lose its premium payment and
the right to sell the underlying investment. The put may, however, be sold prior
to expiration (whether or not at a profit.)
Buying a put on an investment it does not own, either a put on an index or
a put on a Future not held by the Fund, permits the Fund either to resell the
put or buy the underlying investment and sell it at the exercise price. The
resale price of the put will vary inversely with the price of the underlying
investment. If the market price of the underlying investment is above the
exercise price and as a result the put is not exercised, the put will become
worthless on its expiration date. When the Fund purchases a put on an index, or
on a Future not held by it, the put protects the Fund to the extent that the
index moves in a similar pattern to the securities held. In the case of a put on
an index or Future, settlement is in cash rather than by delivery by the Fund of
the underlying investment.
Puts and calls on broadly-based indices or futures contracts are similar
to puts and calls on securities except that all settlements are in cash and gain
or loss depends on changes in the index or futures contracts in question (and
thus on price movements in the securities markets generally) rather than on
price movements in individual securities or futures contracts. When the Fund
buys a call on an index or futures contracts, it pays a premium. During the call
period, upon exercise of a call by the Fund, a seller of a corresponding call on
the same investment will pay the Fund an amount of cash to settle the call if
the closing level of the index or Future upon which the call is based is greater
than the exercise price of the call. That cash payment is equal to the
difference between the closing price of the index or futures contracts and the
exercise price of the call times a specified multiple (the "multiplier"), which
determines the total dollar value for each point of difference. When the Fund
buys a put on an index or futures contracts, it pays a premium and has the right
during the put period to require a seller of a corresponding put, upon the
Fund's exercise of its put, to deliver to the Fund an amount of cash to settle
the put if the closing level of the index or futures contracts upon which the
put is based is less than the exercise price of the put. That cash payment is
determined by the multiplier, in the same manner as described above as to calls.
An option position may be closed out only on a market which 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's
option activities may affect its turnover rate and brokerage commissions. The
exercise by the Fund of puts on securities will cause the sale of related
investments, increasing portfolio turnover. Although such exercise is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons which would not exist in the absence of the put. The
Fund will pay a brokerage commission each time it buys a put or call, sells a
put or call, or buys or sells an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher than those which would
apply to direct purchases or sales of such underlying investments. Premiums paid
for options are small in relation to the market value of the related
investments, and consequently, put or call options offer large amounts of
leverage. The leverage offered by trading in options could result in the Fund's
net asset value being more sensitive to changes in the value of the underlying
investments.
o OPTIONS ON FOREIGN CURRENCIES. The Fund intends to write and purchase
calls and puts on foreign currencies. The Fund may purchase and write puts and
calls on foreign currencies that are traded on a securities or commodities
exchange or over-the-counter markets or are quoted by major recognized dealers
in such options. It does so to protect against declines in the dollar value of
foreign securities and against increases in the dollar cost of foreign
securities to be acquired. If the Manager anticipates a rise in the dollar value
of a foreign currency in which securities to be acquired are denominated, the
increased cost of such securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If a decline in the dollar value of a
foreign currency is anticipated, the decline in value of portfolio securities
denominated in that currency may be partially offset by writing calls or
purchasing puts on that foreign currency. However, in the event of currency rate
fluctuations adverse to the Fund's position, it would lose the premium it paid
and transaction costs.
A call written on a foreign currency by the Fund is covered if the Fund
owns an underlying security denominated in the foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its Custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call may be written by the Fund on a
foreign currency to provide a hedge against a decline 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 due to an expected adverse
change in the exchange rate. In such circumstances, the Fund covers the option
by maintaining in a segregated account with the Fund's Custodian, cash or U.S.
government securities or other liquid securities in an amount equal to the
exercise price of the option.
o INTEREST RATE FUTURES. No price is paid or received upon the purchase or
sale of an Interest Rate Future. Interest Rate Futures obligate one party to
deliver and the other party to take a specific debt security or amount of
foreign currency, respectively, at a specified price on a specified date. 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"). The initial margin will be deposited with the Fund's Custodian in an
account registered in the futures broker's name; however the futures broker can
gain access to that account only under specified conditions. As the futures
contract is marked to market to reflect changes in its market value, subsequent
margin payments, called variation margin, will be made to and from the futures
broker on a daily basis. Prior to expiration of the futures contract, if the
Fund elects to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to be
paid by or released to the Fund, and any loss or gain is realized for tax
purposes. Although Interest Rate Futures by their terms call for settlement by
delivery or acquisition of debt securities, in most cases the obligation is
fulfilled by entering into an offsetting position. All futures transactions are
effected through a clearinghouse associated with the exchange on which the
contracts are traded.
o COMMODITY FUTURES. No price is paid upon the purchase or sale of a
commodity futures contract. Commodity futures contracts obligate one party to
deliver and another party to purchase a specific commodity at a specified price
on a specified date. Commodity futures contracts are traded on domestic and
international commodity exchanges and have standardized contract terms. Similar
to Interest Rate Futures, the Fund will deposit an initial margin requirement
with its Custodian in an account registered in the futures broker's name.
Commodity futures contracts are marked to market daily to reflect changes in
market value.
o FINANCIAL FUTURES. Financial Futures are similar to Interest Rate Futures
except that settlement is made in cash, and net gain or loss on options on
Financial Futures depends on price movements of the securities included in the
index. The strategies which the Fund employs regarding Financial Futures are
similar to those described above with regard to Interest Rate Futures.
o FOREIGN CURRENCY FORWARD CONTRACTS. A Forward Contract involves bilateral
obligations of one party to purchase, and another party to sell, a specific
currency at a future date (which may be any fixed number of days from the date
of the contract agreed upon by the parties), at a price set at the time the
contract is entered into. These contracts typically, although not exclusively,
relate to foreign currency transactions, and are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. The Fund may enter into a Forward Contract to "lock in" the
U.S. dollar price of an investment denominated in a foreign currency which it
has purchased or sold but which has not yet settled, or to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and a foreign currency.
The Fund may use Forward Contracts to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying investments the Fund owns or
intends to acquire, but it does fix a rate of exchange in advance. In addition,
although Forward Contracts limit the risk of loss due to a decline in the value
of the hedged currencies, at the same time they limit any potential gain that
might result should the value of the currencies increase.
The Fund may also enter into a forward contract to sell a foreign currency
other than that in which the underlying investment is denominated. This
technique is referred to as "cross hedging," and is done when the foreign
currency sold through the forward contract is correlated with the foreign
currency or currencies in which the underlying investment positions are
denominated. The foreign currency sold through the forward contract may be sold
for a fixed U.S. dollar amount or for a fixed amount of another currency
correlated with the U.S. dollar.
The success of cross hedging is dependent on many factors, including the
ability of the Manager to correctly identify and monitor the correlation among
foreign currencies and between foreign currencies and the U.S. dollar. To the
extent that these correlations are not identical, the Fund may experience losses
or gains on both the underlying security and the cross currency hedge. However,
the Manager shall determine that any cross hedge is a bona fide hedge in that it
is expected to reduce the volatility of the Fund's total return.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of an investment denominated in a foreign currency, or when the Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment. To do so, the Fund enters into a Forward Contract,
for a fixed amount of U.S. dollars per unit of foreign currency, for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction ("transaction hedge"). The Fund will thereby be able to protect
itself against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between the
date on which the investment is purchased or sold, or on which the payment is
declared, and the date on which such payments are made or received.
The Fund may also use Forward Contracts to lock in the value of portfolio
positions ("position hedges"). In a position hedge, for example, when the Fund
believes that a foreign currency in which the Fund has investment holdings may
suffer a substantial decline against the U.S. dollar, the Fund may enter into a
forward sale contract to sell an amount of that foreign currency for a fixed
U.S. dollar amount. Additionally, when the Fund believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed U.S. dollar
amount.
The Fund may also cross hedge its portfolio positions by entering into a
forward contract to buy or sell a foreign currency other than the currency in
which its underlying investments are denominated for a fixed amount in U.S.
dollars or a fixed amount in another currency which is correlated with the U.S.
dollar. If the Fund does not own portfolio securities denominated in the
currency on the long side of the cross hedge, the Fund will not be required to
later purchase portfolio securities denominated in that currency. Instead, the
Fund may unwind the cross hedge by reversing the original transaction, that is,
by transacting in a forward contract that is opposite to the original cross
hedge or it may extend the hedge by "rolling" the hedge forward.
The Fund's Custodian will place cash or U.S. Government securities or
other liquid high-quality debt securities in a separate account of the Fund
having a value equal to the aggregate amount of the Fund's commitment under
Forward Contracts to cover its short positions. The Fund will not enter into
such Forward Contracts or maintain a net exposure to such contracts where 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 a closely-correlated currency. The
Fund, however, in order to avoid excess transactions and transaction costs, may
maintain a net exposure to Forward Contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency or a
closely-correlated currency provided the excess amount is "covered" by liquid,
high-grade debt securities, denominated in any currency, at least equal at all
times to the amount of such excess. As an alternative, the Fund may purchase a
call option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the forward contract
price or the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than if it
had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward Contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring the Fund to sell
a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because Forward Contracts are usually entered
into on a principal basis, no fees or commissions are involved. Such contracts
are not traded on an exchange. Therefore, the Fund must evaluate the credit and
performance risk of each particular counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
In addition to foreign currency contracts, the Fund may enter into forward
contracts for the purchase or sale of commodities, securities or indices.
Forward contracts for these underlying cash instruments operate the same as
exchange traded futures contracts with two important differences. First, forward
contracts are individually negotiated while futures contracts are standardized
in terms of amount, maturity and underlying cash instrument. Second, forward
contracts expose the investor to the credit risk of the counterparty while
futures contracts are settled by the exchange clearinghouse.
o INTEREST RATE SWAP TRANSACTIONS. In an interest rate swap, the Fund and
another party exchange their right to receive, or their obligation to pay,
interest on a security. For example, they may swap a right to receive floating
rate interest payments for fixed rate payments. The Fund enters into swaps only
on securities it owns. The Fund may not enter into an interest swap for hedging
purposes with respect to more than 25% of its total assets. The Fund will
segregate liquid assets (such as cash or U.S. Government securities) to cover
any amounts it could owe under swaps that exceed the amounts it is entitled to
receive, and it will adjust that amount daily, as needed. Interest rate swap
agreements entail both interest rate risk and credit risk. There is a risk that,
based on movements of interest rates in the future, the payments made by the
Fund under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will default. If
the counterparty to an interest rate swap defaults, the Fund's loss will consist
of the net amount of contractual interest payments that the Fund has not yet
received. The Manager will monitor the creditworthiness of counterparties to the
Fund's interest rate swap transactions on an ongoing basis. The Fund will enter
into swap transactions with appropriate counterparties pursuant to master
netting agreements.
o ADDITIONAL INFORMATION ABOUT HEDGING INSTRUMENTS AND THEIR USE. The
Fund's Custodian, or a securities depository acting for the Custodian, will act
as the Fund's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the investments on which the Fund has written options
traded on exchanges or as to other acceptable escrow securities, so that no
margin will be required for such transactions. OCC will release the securities
on the expiration of the option or upon the Fund's entering into a closing
transaction. An option position may be closed out only on a market which
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.
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
would establish a formula price at which the Fund would have the absolute right
to repurchase that OTC option. That formula price would 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 extent to which the option is "in-the-money"). When the Fund writes an
OTC option, it will treat as illiquid (for purposes of the limit on its assets
that may be invested in illiquid securities, stated in the Prospectus) the
mark-to-market value of any OTC option held by it. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities, and the procedure described above could be affected by the outcome
of that evaluation.
The Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise of calls written by the Fund may cause the Fund to
sell related portfolio securities, thus increasing its turnover rate in a manner
beyond the Fund's control. The exercise by the Fund of puts on securities or
Futures may cause the sale of related investments, also increasing portfolio
turnover. Although such exercise is within the Fund's control, holding a put
might cause the Fund to sell the related investments for reasons which would not
exist in the absence of the put. The Fund will pay a brokerage commission each
time it buys or sells a put, a call, or an underlying investment in connection
with the exercise of a put or call. Such commissions may be higher than those
which would apply to direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value of the
related investments, and consequently, put and call options offer large amounts
of leverage. The leverage offered by trading in options could result in the
Fund's net asset value being more sensitive to changes in the value of the
underlying investments.
o REGULATORY ASPECTS OF HEDGING INSTRUMENTS. The Fund is required to
operate within certain guidelines and restrictions with respect to its use of
Futures and options on Futures established by the Commodity Futures Trading
Commission ("CFTC"). In particular, the Fund is exempted from registration with
the CFTC as a "commodity pool operator" if the Fund complies with the
requirements of the Rule 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 Futures margin and related options premiums to no
more than 5% of the Fund's net assets for hedging strategies that are not
considered BONA FIDE hedging strategies under the Rule.
Transactions in options by the Fund are subject to limitations established
by option exchanges governing the maximum number of options that may be written
or held by a single investor or group of investors acting in concert, regardless
of whether the options were written or purchased on the same or different
exchanges or are held in one or more accounts or through one or more different
exchanges or through one or more brokers. Thus, the number of options which the
Fund may write or hold may be affected by options written or held by other
entities, including other investment companies having the same 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 which apply to Futures. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the Fund buys
or sells a Future, the Fund will maintain, in a segregated account or accounts
with its Custodian, cash or readily-marketable, short-term (maturing in one year
or less) debt instruments in an amount equal to the net exposure between the
market value and the contract price of the Future, less the margin deposit
applicable to it.
o TAX ASPECTS OF COVERED CALLS AND HEDGING INSTRUMENTS. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right
not to qualify). That qualification enables the Fund to "pass through" its
income and realized capital gains to shareholders without having to pay tax on
them. This avoids a "double tax" on that income and capital gains, since
shareholders normally will be taxed on the dividends and capital gains they
receive from the Fund (unless the Fund's shares are held in a retirement account
or the shareholder is otherwise exempt from tax).
Certain foreign currency exchange contracts ("Forward Contracts") in which
the Fund may invest are treated as "section 1256 contracts." Gains or losses
relating to section 1256 contracts generally are characterized under the
Internal Revenue Code as 60% long-term and 40% short-term capital gains or
losses. However, foreign currency gains or losses arising from certain section
1256 contracts (including Forward Contracts) generally are treated as ordinary
income or loss. In addition, section 1256 contracts held by the Fund at the end
of each taxable year are "marked-to- market" with the result that unrealized
gains or losses are treated as though they were realized. These contracts also
must be marked-to-market for purposes of the excise tax applicable to investment
company distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt these
transactions from this marked-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
character 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 such loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates 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 generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of foreign currency forward contracts, gains
or losses attributable to fluctuations in the value of a foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. Currency gains and losses
are offset against market gains and losses on each trade before determining a
net "Section 988" gain or loss under the Internal Revenue Code for that trade,
which may increase or decrease the amount of the Fund's investment company
income available for distribution to its shareholders.
o RISKS OF HEDGING WITH OPTIONS AND FUTURES. An option position may be
closed out only on a market that provides secondary trading for options of the
same series, and there is no assurance that a liquid secondary market will exist
for any particular option. In addition to the risks associated with hedging that
are discussed in the Prospectus and above, there is a risk in using short
hedging by selling futures contracts to attempt to protect against decline in
value of the Fund's portfolio securities (due, for example, to an increase in
interest rates) that the prices of such futures contracts will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of the
Fund's securities. The ordinary spreads between prices in the cash and futures
markets are subject to distortions due to differences in the natures of those
markets. First, all participants in the futures markets are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures markets depend on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
investments being hedged and movements in the price of the hedging instruments,
the Fund may use hedging instruments in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of the prices of
the securities being hedged is more than the historical volatility of the
applicable index. It is also possible that if the Fund has used hedging
instruments in a short hedge, the market may advance and the value of securities
held in the Fund's portfolio may decline. If that occurred, the Fund would lose
money on the hedging instruments and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the indices upon which the
hedging instruments are based.
If the Fund uses hedging instruments to establish a position in the
commodities markets as a temporary substitute for the purchase of
commodity-linked securities (long hedging) by buying futures contracts and/or
calls on such futures contracts or on debt securities, it is possible that the
market may decline; if the Fund then concludes not to invest in such securities
at that time because of concerns as to possible further market decline or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the commodity-linked securities
purchased.
OTHER INVESTMENT RESTRICTIONS
The Fund's most significant investment restrictions are set forth in the
Prospectus. The following are fundamental policies, and together with the Funds
fundamental policies described in the Prospectus, cannot be changed without the
vote of a "majority" of the Fund's outstanding voting securities. Such a
"majority" vote is defined in the Investment Company Act of 1940 as the vote of
the holders of the lesser of: (1) 67% or more of the shares present or, at a
shareholder meeting if the holders of more than 50% of the outstanding shares
are present, or (2) more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
o buy or sell real estate; however, the Fund may invest in debt securities
secured by real estate or interests therein or issued by companies, including
real estate investment trusts, which invest in real estate or interests therein,
and also invest in real estate operating companies and shares of companies
engaged in other real estate related businesses;
o buy securities on margin, except that the Fund may make margin deposits
in connection with any of the Hedging Instruments which it may use;
o underwrite securities issued by other persons except to the extent that,
in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter for purposes of the Securities Act of 1933;
o buy securities of any issuer if those officers, Trustees or Directors of
the Fund or the Manager who beneficially own more than 0.5% of the securities of
such issuer together own more than 5% of the securities of such issuer;
o invest in oil, gas, or other mineral exploration or development programs
or leases, except that the Fund may invest in Hybrid Instruments, options swaps,
futures contracts and other investments which are linked to oil, gas and mineral
values; or
o buy the securities of any company for the purpose of exercising
management control, except in connection with a merger, consolidation,
reorganization or acquisition of assets.
The percentage restrictions described above and in the Fund's Prospectus
(other than the percentage limitations that apply on an on-going basis) apply
only at the time of investment and require no action by the Fund as a result of
subsequent changes in relative values.
For purposes of the Fund's policy not to concentrate its assets as
described in the Fund's Prospectus, the Fund has adopted the corporate 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. As a Massachusetts business trust, the Fund is not
required to hold, and does not plan to hold, regular annual meetings of
shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder meeting is
called by the Trustees or upon proper request of the shareholders. Shareholders
have the right, upon the declaration in writing or vote of two-thirds of the
outstanding shares of the Fund, to remove a Trustee. The Trustees will call a
meeting of shareholders to vote on the removal of a Trustee upon the written
request of the record holders of 10% of its outstanding shares. In addition, if
the Trustees receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued at
$25,000 or more or holding at least 1% of the Fund's outstanding shares,
whichever is less, stating that they wish to communicate with other 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 communications
to all other shareholders at the applicants' expense, or the Trustees may take
such other action as set forth under Section 16(c) of the Investment Company
Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides for
indemnification and reimbursement of expenses out of its property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any shareholder
of the Trust, agrees under the Trust's Declaration of Trust to look solely to
the assets of the Trust for satisfaction of any claim or demand which may arise
out of any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
TRUSTEES AND OFFICERS OF THE FUND. The Fund's Trustees and officers are listed
below, together with their principal occupations and business affiliations and
occupations during the past five years. All of the Trustees are also Trustees,
Directors or Managing General Partners of Daily Cash Accumulation Fund, Inc.,
Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial
Government Trust, Centennial New York Tax Exempt Trust, Centennial California
Tax Exempt Trust, Centennial America Fund, L.P., Oppenheimer Total Return Fund,
Inc., Oppenheimer Equity Income Fund, Oppenheimer Champion Income Fund,
Oppenheimer High Yield Fund, Oppenheimer International Bond Fund, Oppenheimer
Cash Reserves, Oppenheimer Variable Account Funds, Oppenheimer Main Street
Funds, Inc., Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund,
Oppenheimer Municipal Fund, Oppenheimer Limited-Term Government Fund, Panorama
Series Fund, Inc. and The New York Tax-Exempt Income Fund, Inc. (all of the
foregoing are collectively referred to as the "Denver-based Oppenheimer funds")
except for Ms. Macaskill who is a Trustee, Director or Managing General Partner
of all of the Denver-based Oppenheimer funds except Oppenheimer Integrity Funds,
Oppenheimer Strategic Income Fund, Panorama Series Fund, Inc. and Oppenheimer
Variable Account Funds and Mr. Fossel, who is a Trustee, Director or Managing
General Partner of all the Denver-based Oppenheimer funds except of Centennial
New York Tax Exempt Trust and of Centennial America Fund, L.P. Messrs. Bishop,
Bowen, Donohue, Farrar and Zack hold similar positions as officers of all such
funds. Ms. Macaskill is President and Mr. Swain is Chairman and Chief Executive
Officer of the Denver-based Oppenheimer funds. As of November 1, 1997, the
Trustees and officers of the Fund as a group owned less than 1% of each class of
shares of the Fund, not including shares held of record by an employee benefit
plan for employees of the Adviser (for which two of the officers listed below,
Ms. Macaskill and Mr. Donohue, are trustees), other than shares beneficially
owned under that plan by the officers of the Fund listed above.
ROBERT G. AVIS, TRUSTEE, Age: 66
ONE NORTH JEFFERSON AVE., ST. LOUIS, MISSOURI 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, TRUSTEE; AGE: 82
197 DESERT LAKES DRIVE, PALM SPRINGS, CALIFORNIA 92264
Management Consultant.
CHARLES CONRAD, JR., TRUSTEE; AGE: 67
1501 QUAIL STREET, NEWPORT BEACH, CALIFORNIA 92660
Chairman and CEO of Universal Space Lines, Inc. (a space services
management company); formerly Vice President of McDonnell Douglas Space
Systems, Co. and associated with the National Aeronautics and Space
Administration.
JON S. FOSSEL, TRUSTEE: Age: 55
BOX 44, MEAD STREET, WACCABUC, NEW YORK 10597
Member of the Board of Governors of the Investment Company Institute (a
national trade association of investment companies); Chairman of the
Investment Company Institute Education Foundation; formerly Chairman and
Director of OppenheimerFunds, Inc. ("OFI"); President and a Director of
Oppenheimer Acquisition Corp. ("OAC"), OFI's parent holding company,
Shareholder Services, Inc. ("SSI") and Shareholder Financial Services, Inc.
("SFSI"), transfer agent subsidiaries of OFI.
SAM FREEDMAN, TRUSTEE; AGE: 57
4975 LAKESHORE DRIVE, LITTLETON, COLORADO 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services; Chairman, Chief Executive Officer and a director of SSI and
Chairman, Chief Executive Officer and Director of SFSI; Vice President and
a director of OAC and a director of OFI.
RAYMOND J. KALINOWSKI, TRUSTEE; AGE: 68
44 PORTLAND DRIVE, ST. LOUIS, MISSOURI 63131
Director of Wave Technologies International, Inc. (a computer products
training company).
C. HOWARD KAST, TRUSTEE; AGE: 76
2552 EAST ALAMEDA, DENVER, COLORADO 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, TRUSTEE; AGE: 76
7500 EAST ARAPAHOE ROAD, ENGLEWOOD, COLORADO 80112
President of The Kirchner Company (management consultants).
BRIDGET A. MACASKILL, PRESIDENT AND TRUSTEE: Age: 49
President (since June 1991), Chief Executive Officer (since September 1995)
and a Director (since December 1994) of OFI; President and director (since
June 1991) of HarbourView; Chairman and a director of SSI (since August
1994), and SFSI (September 1995); President (since September 1995) and a
director (since October 1990) of OAC; President (since September 1995) and
a director (since November 1989) of Oppenheimer Partnership Holdings, Inc.,
a holding company subsidiary of OFI; a director of the Manager (since July
1996); President and a director (since October 1997) of OppenheimerFunds
International Ltd., an offshore fund manager subsidiary of OFI ("OFIL") and
Oppenheimer Millennium Funds plc (since October 1997); President and a
director of other Oppenheimer funds; a director of the NASDAQ Stock Market,
Inc. and of Hillsdown Holdings plc (a U.K. food company); formerly an
Executive Vice President of OFI.
NED M. STEEL, TRUSTEE; AGE: 82
3416 SOUTH RACE STREET, ENGLEWOOD, COLORADO 80110
Chartered Property and Casualty Underwriter; a Director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a Director of
Van Gilder Insurance Corp. (insurance brokers).
JAMES C. SWAIN, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND TRUSTEE*; AGE: 64
6803 SOUTH TUCSON WAY, ENGLEWOOD, COLORADO 80112
Vice Chairman of OFI; formerly President and a director of Centennial Asset
Management Corporation ("Centennial"), an investment adviser subsidiary of
OFI, and Chairman of the Board of SSI.
MARK J.P. ANSON, VICE PRESIDENT AND PORTFOLIO MANAGER; AGE: 39 TWO WORLD
TRADE CENTER, NEW YORK, NEW YORK 10048-0203
Vice President of the Manager (since March, 1997) and OFI (since January,
1996); formerly a Registered Options Principal on the equity derivatives
desk at Solomon Brothers, Inc.; and formerly an attorney with Chapman and
Cutler.
RUSSELL READ, VICE PRESIDENT AND PORTFOLIO MANAGER; AGE: 34 TWO WORLD
TRADE CENTER, NEW YORK, NEW YORK 10048-0203 Vice President of the Manager
(since March, 1997) and OFI (since July, 1995); formerly an investment
manager for The Prudential and Associate Economist for the First National
Bank of Chicago.
ANDREW J. DONOHUE, VICE PRESIDENT AND SECRETARY; AGE: 47
Executive Vice President (since January 1993), General Counsel (since
October 1991) and a Director (since September 1995) of OFI; Executive Vice
President (since September 1993), and a director (since January 1992) of
the Distributor; Executive Vice President, General Counsel and a director
of HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc. since
(September 1995) and MultiSource Services, Inc. (a broker-dealer) (since
December 1995); President and a director of Centennial (since September
1995); President and a director of the Manager (since July 1996); General
Counsel (since May 1996) and Secretary (since April 1997) of OAC; Vice
President of OFIL and Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds.
GEORGE C. BOWEN, VICE PRESIDENT, TREASURER, AND ASSISTANT SECRETARY;
AGE: 61
6803 SOUTH TUCSON WAY, ENGLEWOOD, COLORADO 80112
Senior Vice President (since September 1987) and Treasurer (since March
1985) of OFI; 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; Senior Vice President (since
February 1992), Treasurer (since July 1991) and a director (since December
1991) of Centennial; President, Treasurer and a director of Centennial
Capital Corporation (since June 1989); Vice President and Treasurer (since
August 1978) and Secretary (since April 1981) of SSI; Vice President,
Treasurer and Secretary of SFSI (since November 1989); Treasurer of OAC
(since June 1990); Treasurer of Oppenheimer Partnership Holdings, Inc.
(since November 1989); Vice President and Treasurer of the Manager (since
July 1996); Chief Executive Officer, Treasurer and a director of
MultiSource Services, Inc., a broker-dealer (since December 1995); an
officer of other Oppenheimer funds.
ROBERT G. ZACK, ASSISTANT SECRETARY; AGE: 49
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel
(since May 1981) of OFI; Assistant Secretary of SSI (since May 1985) and
SFSI (since November 1989); Assistant Secretary of Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
ROBERT J. BISHOP, ASSISTANT TREASURER; AGE: 38
6803 SOUTH TUCSON WAY, ENGLEWOOD, COLORADO 80112
Vice President of OFI/Mutual Fund Accounting (since May 1996); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of
OFI/Mutual Fund Accountant (April, 1994 to May, 1996); and Fund Controller
for OFI.
SCOTT FARRAR, ASSISTANT TREASURER; AGE: 32
6803 SOUTH TUCSON WAY, ENGLEWOOD, COLORADO 80112
Vice President of OFI/Mutual Fund Accounting (since May 1996), Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October, 1997); an
officer of other Oppenheimer funds; formerly an Assistant Vice President
of OFI/Mutual Fund Accountant (April, 1994 to May, 1996); and a Fund
Controller for OFI.
- --------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
+Not a Trustee of Centennial New York Tax Exempt Trust nor a Managing General
Partner of Centennial America Fund, L.P.
#Not a Trustee of Oppenheimer Integrity Funds, Oppenheimer Strategic Income
Fund, Panorama Series Fund, Inc. and Oppenheimer Variable Account Funds.
o REMUNERATION OF TRUSTEES. The Trustees of the Fund and certain Trustees
(Ms. Macaskill and Mr. Swain) are affiliated with OFI and receive no salary or
fee from the Fund. Mr. Fossel did not receive any salary or fees from the Fund
prior to January 1, 1997. The remaining Trustees received the compensation shown
below. The compensation from the Fund was paid for the fiscal period March 31,
1997 (commencement of operations) to August 31, 1997, the Fund's fiscal year
end. The compensation from all of the Denver-based Oppenheimer funds includes
the Fund and is compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year ended
December 31, 1996.
COMPENSATION
TOTAL AGGREGATE FROM ALL
COMPENSATION DENVER-BASED
NAME AND POSITION FROM THE FUND OPPENHEIMERFUNDS1
Robert G. Avis, Trustee $52 $58,003
William A. Baker,
Audit and Review $72 $79,715
Committee Ex-Officio Member(2)
and Trustee
Charles Conrad, Jr., Trustee(3) $67 $74,717
Jon S. Fossel, Trustee $0 None
Sam Freedman, Audit and Review $27 $29,502
Committee Member(2) and Trustee
Raymond J. Kalinowski, Audit and $67 $74,173
Review Committee Member(2) and Trustee
C. Howard Kast, Audit and Review $67 $74,173
Committee Chairman(2) and Trustee
Robert M. Kirchner, Trustee(3) $67 $74,717
Ned M. Steel, Trustee $52 $58,003
- ----------------
1For the 1996 calendar year.
2Committee positions effective July 1, 1997
3Prior to July 1, 1997, Messrs. Conrad and Kirchner were also members of the
Audit and Review Committee.
o MAJOR SHAREHOLDERS. As of November 1, 1997, no person or entity owned of
record or was known by the Fund to own beneficially 5% or more of the Fund as a
whole or the Fund's outstanding Class A, Class B, Class C or Class Y shares
except as shown below (as to such Class A, Class B and Class C shares, the Fund
understands that these shares are held by Charles Schwab or Merrill Lynch as
record owner for the benefit of their clients, none of whom owns 5% or more of
such shares):
CLASS A SHARES: Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, CA 94104, who owns 1,145,924,504 Class A shares (representing
approximately 23.62% of the Funds outstanding Class A shares).
CLASS B SHARES: Merrill Lynch Pierce Fenner & Smith, For the Sole Benefit
of Its Customers, 4800 Deer Lake Drive East, Floor 3, Jacksonville,
Florida 32246, who owns 443,406.010 Class B shares (representing 19.65% of
the Fund's outstanding Class B shares).
CLASS C SHARES: Merrill Lynch Pierce Fenner & Smith, For the Sole Benefit
of Its Customers, 4800 Deer Lake Drive East, Floor 3, Jacksonville,
Florida 32246, who owns 457,783.031 Class C shares (representing 35.92% of
the Fund's outstanding Class C shares).
CLASS Y SHARES: OppenheimerFunds, Inc., 3410 South Galena Street, Denver,
Colorado 80231, who owns 100.000 Class Y shares (representing 100% of the
Fund's outstanding Class Y shares).
THE MANAGER AND ITS AFFILIATES. The Manager is wholly-owned by OppenheimerFunds,
Inc. ("OFI"), which is wholly-owned by Oppenheimer Acquisition Corp. ("OAC"), a
holding company controlled by Massachusetts Mutual Life Insurance Company. OAC
is also owned in part by certain of OFI's directors and officers, some of whom
may also serve as officers of the Fund, and two of whom may (Ms. Macaskill and
Mr. Swain) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to detect
and prevent improper personal trading by certain employees, including portfolio
managers, that would compete with or take advantage of the Fund's portfolio
transactions. Compliance with the Code of Ethics is carefully monitored and
strictly enforced by the Manager.
o THE INVESTMENT ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT. The
Investment Advisory Agreement (the "Advisory Agreement") between OFI and the
Fund requires OFI, at its expense, to provide the Fund with adequate office
space, facilities and equipment, and to provide and supervise the activities of
all administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation and maintenance
of records with respect to its operations, the preparation and filing of
specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by OFI or the Manager under the Advisory
Agreement or the Sub-Advisory Agreement or by the Distributor under the General
Distributor's Agreement are paid by the Fund. The Advisory Agreement and the
Sub-Advisory Agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, brokerage commissions, fees to
certain Trustees, legal and audit expenses, custodian and transfer agent and
custodian expenses, share issuance costs, certain printing and registration
costs and non-recurring expenses, including litigation costs.
For the fiscal period March 31, 1997 (commencement of operations) to
August 31, 1997, the fees paid by the Fund to OFI were $65,263. For that same
period, fees paid by OFI to the Manager were $65,262.
The advisory agreement and the sub-advisory agreement provide that in the
absence of willful misfeasance, bad faith or gross negligence in the performance
of its duties, or reckless disregard for its obligations and duties under the
advisory agreement, OFI and the Manager are not liable for any loss resulting
from a good faith error or omission on their part with respect to any of its
duties thereunder. The advisory agreement and sub-advisory agreement permit OFI
and 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 OFI or the Manager shall no longer act as an investment adviser
to the Fund, the right of the Fund to use the name "Oppenheimer" as part of its
name may be withdrawn.
o THE DISTRIBUTOR. Under its General Distributor's Agreement with the Fund,
the Distributor acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A, Class B, Class C and Class Y shares, but
is not obligated to sell a specific number of shares. Expenses normally
attributable to sales (other than those paid under the Distribution and Service
Plans but including advertising and the cost of printing and mailing
prospectuses other than those furnished to existing shareholders), are borne by
the Distributor. For additional information about distribution of the Fund's
shares and the expenses connected with such activities, please refer to
"Distribution and Service Plans," below.
For the fiscal period March 31, 1997 (commencement of operations) to
August 31, 1997, the aggregate amount of sales charges on sales of the Fund's
Class A shares was $437,358, of which the Distributor and an affiliated
broker/dealer retained in the aggregate $109,980. The contingent deferred sales
charges collected by the Distributor on the redemption of Class B shares and
Class C shares for the fiscal period March 31, 1997 to August 31, 1997 totaled
$847 and $1,580, respectively. No sales charges are assessed by the Distributor
on Class Y shares.
o THE TRANSFER AGENT. OppenheimerFunds Services, the Fund's Transfer Agent,
is responsible for maintaining the Fund's shareholder registry and shareholder
accounting records, and for shareholder servicing and administrative functions.
BROKERAGE POLICIES OF THE FUND
BROKERAGE PROVISIONS OF THE INVESTMENT ADVISORY AGREEMENT. One of the duties of
the Manager under the Sub-Advisory Agreement is to arrange the portfolio
transactions for the Fund. The Sub-Advisory Agreement contains provisions
relating to the employment of broker-dealers ("brokers") to effect the Fund's
portfolio transactions in securities and futures contracts. In doing so, the
Manager is authorized by the sub-advisory agreement to employ
broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company Act, as
may, in its best judgment based on all relevant factors, implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" (prompt and
reliable execution at the most favorable price obtainable) of such transactions.
The Manager need not seek competitive commission bidding but is expected to be
aware of the current rates of eligible brokers and to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the Sub-Advisory Agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund and/or the
other accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to such brokers may be higher than another
qualified broker would have charged if a good faith determination is made by the
Manager that the commission is fair and reasonable in relation to the services
provided. Subject to the foregoing considerations, the Manager may also consider
sales of shares of the Fund and other investment companies managed by the
Manager or their affiliates as a factor in the selection of brokers for the
Fund's portfolio transactions.
DESCRIPTION OF BROKERAGE PRACTICES FOLLOWED BY THE MANAGER. Subject to the
provisions of the Sub-Advisory Agreement, and the procedures and rules described
above, allocations of brokerage generally are made by the Manager's portfolio
traders based upon recommendations from the Manager's portfolio managers. In
certain instances, portfolio managers may directly place trades and allocate
brokerage, also subject to the provisions of the Sub-Advisory Agreement and the
procedures and rules described above. In either case, brokerage is allocated
under the supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market are
generally done with principals or market makers. Brokerage commissions are paid
primarily for effecting transactions in listed securities and futures and/or for
certain fixed-income agency transactions in the secondary market and are
otherwise paid only if it appears likely that a better price or execution can be
obtained. When the Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any transaction
in the securities or futures contract to which the option relates. When
possible, concurrent orders to purchase or sell the same security or futures
contract by more than one of the accounts managed by the Manager or its
affiliates are combined. The transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account.
Most purchases of money market instruments and 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 it determines that a better price or execution
can be obtained by using a broker. Purchases of these 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. Options commissions may be relatively higher than those
which would apply to direct purchases and sales of portfolio securities.
The research services provided by a particular broker may be useful only
to one or more of the advisory accounts of OFI, the Manager or their affiliates,
and investment research received for the commissions of those other accounts may
be useful both to the Fund and one or more of such other accounts. Such
research, which may be supplied by a third party at the instance of a broker,
includes information and analyses on particular companies and industries as well
as market or economic trends and portfolio strategy, receipt of market
quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Advisor or
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 Advisor or the Manager in the investment decision-making
process may be paid for in commission dollars. The Board of Trustees permits the
Advisor and the Manager to use concessions on fixed-price offerings to obtain
research, in the same manner as is permitted for agency transactions. The Board
also permits the Advisor and the Manager to use stated commissions on secondary
fixed-income agency trades to obtain research where the broker has represented
to the Advisor or the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency
basis at the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Advisor and the Manager, by making available
additional views for consideration and comparisons, and by enabling the Advisor
and the Manager to obtain market information for the valuation of securities
held in the Fund's portfolio or being considered for purchase. The Manager
provides information as to 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.
For the fiscal period March 31, 1997 (commencement of operations) to
August 31, 1997, total brokerage commissions paid by the Fund (not including any
spreads or concessions on principal transactions on a net trade basis) amounted
to $33,431. For that same period, no payments were made to brokers as
commissions in return for research services.
The transactions giving rise to those commissions were allocated in accordance
with OFI's internal allocation procedures.
PERFORMANCE OF THE FUND
TOTAL RETURN INFORMATION. As described in the Prospectus, from time to time the
"average annual total return," "cumulative total return," "average annual total
return at net asset value" and "cumulative total return at net asset value" of
an investment in a class of shares of the Fund may be advertised. An explanation
of how these total returns are calculated for each class and the components of
those calculations is set forth below.
The Fund's advertisements of its performance data must, under applicable
rules of the Securities and Exchange Commission, include the average annual
total returns for each advertised class of shares of the Fund for the 1, 5, and
10-year periods (or the life of the class, if less) ending as of the most
recently-ended calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be
considered before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its returns and share
prices are not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their original
cost. Returns for any given past period are not a prediction or representation
by the Fund of future returns. The returns of each class of shares of the Fund
are affected by portfolio quality, the type of investments the Fund holds and
its operating expenses allocated to the particular class.
o TOTAL RETURN INFORMATION.
o AVERAGE ANNUAL TOTAL RETURNS. 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") to achieve an Ending Redeemable Value ("ERV") of
that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
o CUMULATIVE TOTAL RETURNS. The cumulative "total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
described below). For Class B shares, payment of the contingent deferred sales
charge (5.0% for the first year, 4.0% for the second year, 3.0% for the third
and fourth years, 2.0% for the fifth year, and 1.0% for the sixth year, and none
thereafter) is applied, as described in the Prospectus. For Class C shares, the
payment of the 1% contingent deferred sales charge for the first 12 months is
applied, as described in the Prospectus. Class Y shares are not subject to a
sales charge. Total returns also assume that all dividends and capital gains
distributions during the period are reinvested to buy additional shares, at net
asset value per share, and that the investment is redeemed at the end of the
period. The cumulative total return on an investment in Class A, Class B, Class
C and Class Y shares for the period March 31, 1997 (commencement of operations)
to August 31, 1997 were (2.83%), (2.30%), 1.60% and 3.10%, respectively.
o TOTAL RETURNS AT NET ASSET VALUE. From time to time the Fund may also
quote an average annual total return at net asset value or a cumulative total
return at net asset value for Class A, Class B, Class C or Class Y 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
cumulative total return at net asset value on an investment in Class A, Class B,
Class C and Class Y shares for the period March 31, 1997 (commencement of
operations) to August 31, 1997 were 3.10%, 2.70%, 2.60% and 3.10%, respectively.
OTHER PERFORMANCE COMPARISONS. From time to time the Fund may publish the
ranking of its Class A, Class B, Class C or Class Y shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated investment
companies, including the Fund, and ranks their performance for various periods
based on categories relating to investment objectives. The performance of the
Fund's classes are ranked against (i) all other funds, (ii) all other
miscellaneous fixed income funds, and (iii) all other fixed-income funds,
excluding money market funds. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gains distributions and income
dividends but do not take sales charges or taxes into consideration.
From time to time, the Fund may include in its advertisements and sales
literature performance information about the Fund cited in other newspapers and
periodicals, such as THE NEW YORK TIMES, which may include performance
quotations from other sources, including Lipper.
From time to time the Fund may publish the ranking of the performance of
its Class A, Class B, Class C or Class Y 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 funds, municipal bond funds and hybrid funds) based on risk- adjusted
total returns. The Fund is ranked among hybrid funds. 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%), 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 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 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 comparison by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
The total return on an investment in the Fund's Class A, Class B, Class C
or Class Y shares may be compared with the performance for the same period of
one or more of the indices, including the Goldman Sachs Commodity Index (GSCI).
Whereas the Consumer Price Index is generally considered to be a measure of
inflation, the GSCI is a commodity index which tracks the prices in five major
commodity markets: energy, agriculture, livestock, precious metals, and
industrial metals. The index is a total return index. Its value is based on the
total return of fully collateralized near-term futures positions. The
performance of the Fund's Class A, Class B, Class C or Class Y shares may also
be compared in publications to (i) the performance of various market indices or
to other investments for which reliable performance data is available, and (ii)
to averages, performance rankings or other benchmarks prepared by recognized
mutual fund statistical services.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B, Class C or Class Y shares. However,
when comparing total return of an investment in Class A, Class B, Class C or
Class Y shares of the Fund, a number of factors should be considered before
using such information as a basis for comparison with other investments. The
total return through a diversified portfolio of commodity-link instruments,
securities, futures contracts and other investments, is designed as an attempt
to outperform more traditional investments in debt and equity securities when
the value of these traditional securities is declining due to adverse economic
consequences.
From time to time, the Fund's Manager may publish rankings or ratings of
the Manager or Transfer Agent or the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of shareholder/investor
services by third parties may compare the Oppenheimer funds' services to those
of other mutual fund families selected by the rating or ranking services and may
be based upon the opinions of the rating or ranking service itself, based on its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares of the Fund under Rule 12b-1 of the
Investment Company Act pursuant to which the Fund makes payments to the
Distributor in connection with the distribution and/or servicing of the shares
of that class, as described in the Prospectus. There is no such Plan for Class Y
shares. Each Plan has been approved by a vote of (i) the Board of Trustees of
the Fund, including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on that Plan, and (ii) the holders of a
"majority" of the outstanding voting securities (as defined in the Investment
Company Act) of the shares of each class in each instance that vote having been
cast by OFI as the sole initial holder of shares of that class.
In addition, under the Plans, the Manager and the Distributor, in their
sole discretion, from time to time, may use their own resources (which, in the
case of the Manager, may include profits from the advisory fee it receives from
the Fund), to make payments to brokers, dealers or other financial institutions
(each is referred to as a "Recipient" under the Plans) for distribution and
administrative services they perform, at no cost to the Fund. The Distributor
and the Manager may, in their sole discretion, increase or decrease the amount
of payments they make from their own resources to Recipients.
Unless terminated as described below, each Plan continues in effect from
year to year but only as long as its continuance is specifically approved at
least annually by the Fund's Board of Trustees and its Independent Trustees by a
vote cast in person at a meeting called for the purpose of voting on such
continuance. Each 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.
None of the Plans may be amended to increase materially the amount of payments
to be made unless such amendment is approved by shareholders of the class
affected by the amendment. In addition, because Class B shares automatically
convert into Class A shares after six years, the Fund is required by a
Securities and Exchange Commission rule to obtain the approval of Class B as
well as Class A shareholders for a proposed amendment to the Class A Plan that
would materially increase payments under the Plan. Such approval must be by a
"majority" of the Class A and Class B shares (as defined in the Investment
Company Act), voting separately by class. All material amendments must be
approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports to the Fund's Board of Trustees at least quarterly for
its review, detailing the services rendered in connection with the distribution
of the Fund's shares, the amount of all payments made pursuant to each Plan and
the purpose for which payments were made. The reports shall also include the
distribution costs for that quarter. Those reports, including the allocations on
which they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan further
provides that while it is in effect, the selection and nomination of those
Trustees of the Fund who are not "interested persons" of the Fund is committed
to the discretion of the Independent Trustees. This does not prevent the
involvement of others in such selection and nomination if the final decision on
any such selection or nomination is approved by a majority of the Independent
Trustees.
Under the Plans, no payment will be made to any Recipient in any quarter
if the aggregate net asset value of all Fund shares held by the Recipient for
itself and its customers does not exceed a minimum amount, if any, that may be
determined from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fee at the maximum rate and set no
minimum amount of assets to qualify for payment.
For the period March 31, 1997 (commencement of operations) to August 31,
1997, payments under the Class A Plan totaled $12,308. Any unreimbursed expenses
incurred by the Distributor with respect to Class A shares for any fiscal year
may not be recovered in subsequent fiscal years. Payments received by the
Distributor under the Plan for Class A shares will not be used to pay any
interest expense, carrying charges, or other financial costs, or allocation of
overhead by the Distributor.
The Class B and the Class C Plans allow the service fee payment to be paid
by the Distributor to Recipients in advance for the first year such shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net asset value of Class B and
Class C shares sold. An exchange of shares does not entitle the Recipient to an
advance service fee payment. In the event Class B or Class C shares are redeemed
during the first year that the shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of the advance payment for those shares to
the Distributor.
Payments made under the Class B Plan during the period March 31, 1997
(commencement of operations) to August 31, 1997, totaled $30,711, of which
$27,304 was retained by the Distributor. Payments made under the Class C Plan
during that same period, totaled $23,276, of which $21, 022 was retained by the
Distributor.
Although the Class B and the Class C Plans permit the Distributor to
retain both the asset-based sales charges and the service fee on such shares, or
to pay Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be established from
time to time under the Class B Plan and the Class C Plan by the Board.
Initially, the Board has set no minimum holding period. All payments under the
Class B Plan and the Class C Plan are subject to the limitations imposed by the
Conduct Rules of the National Association of Securities Dealers, Inc. on
payments of asset-based sales charges and service fees.
The Class B and Class C Plans provide for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution expenses are
more or less than the amounts paid by the Fund during that period. Such payments
are made in recognition that the Distributor (i) pays sales commissions to
authorized brokers and dealers at the time of sale and pays service fees as
described in the Prospectus, (ii) may finance such commissions and/or the
advance of the service fee payment to Recipients under those Plans, or may
provide such financing from its own resources, or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) may bear the costs
of sales literature, advertising and prospectuses (other than those furnished to
current shareholders), state "blue sky" registration fees and certain other
distribution expenses.
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES
ALTERNATIVE SALES ARRANGEMENTS - CLASS A, CLASS B AND CLASS C SHARES. The
availability of three classes of shares permits an investor to choose the method
of purchasing shares that is more beneficial to the investor depending on the
amount of the purchase, the length of time the investor expects to hold shares
and other relevant circumstances. Investors should understand that the purpose
and function of the deferred sales charge and asset-based sales charge with
respect to Class B and Class C shares are the same as those of the initial sales
charge with respect to Class A shares. Any salesperson or other person entitled
to receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other. The Distributor
normally will not accept any order for $500,000 or more of Class B shares or any
order for $1 million or more of Class C shares, on behalf of a single investor
(not including dealer "street name" or omnibus accounts) because generally it
will be more advantageous for that investor to purchase Class A shares of the
Fund instead. a fourth class of shares may be purchased only by certain
institutional investors at net asset value per share (the "Class Y shares").
The four classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B and Class C
shares and the dividends payable on Class B and Class C shares will be reduced
by incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B and Class C shares are subject.
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 the Fund's counsel or tax adviser, to
the effect that the conversion of Class B shares does not constitute a taxable
event for the holder under Federal income tax law. If such a revenue ruling or
opinion is no longer available, the automatic conversion feature may be
suspended, in which event no further conversions of Class B shares would occur
while such suspension remained in effect. Although Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B, Class C and Class Y shares
recognizes two types of expenses. General expenses that do not pertain
specifically to any one class are allocated pro rata to the shares of each
class, based on the percentage of the net assets of such class to the Fund's
total assets, and then equally to each outstanding share within a given class.
Such general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent Trustees, (v) custodian expenses,
(vi) share issuance costs, (vii) organization and start-up costs, (viii)
interest, taxes and brokerage commissions, and (ix) non-recurring expenses, such
as litigation costs. Other expenses that are directly attributable to a class
are allocated equally to each outstanding share within that class. Such expenses
include (a) Distribution and Service Plan fees, (b) incremental transfer and
shareholder servicing agent fees and expenses, (c) registration fees and (d)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
None of the instructions described elsewhere in the Prospectus or Statement
of Additional Information for the purchase, redemption, reinvestment, exchange,
or transfer of shares of the Fund, the selection of classes of shares, or the
reinvestment of dividends apply to Class Y shares. Clients of Class Y Sponsors
must request their Sponsor to effect all transactions in Class Y shares on their
behalf.
DETERMINATION OF NET ASSET VALUE PER SHARE. The net asset values per share of
Class A, Class B, Class C and Class Y shares of the Fund are determined as of
the close of business of The New York Stock Exchange (the "Exchange") on each
day that the Exchange is open, by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class that are
outstanding. The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some other days (for example, in case of weather emergencies or
on days falling before a holiday). The Exchange's most recent annual holiday
announcement (which is subject to change) states that it will close on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may
also close on other days. The Fund may invest a portion of its assets in foreign
securities primarily listed on foreign exchanges which may trade on Saturdays or
customary U.S. business holidays on which the Exchange is closed. Because the
Fund's price and net asset value will not be calculated on those days, the
Fund's net asset values per share may be significantly affected on such days
when shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the valuation
of the Fund's securities, generally as follows:
(i) equity securities traded on a U.S. securities exchange or on the
Automated Quotation System ("NASDAQ") of the Nasdaq Stock Market, Inc. for
which last sale information is regularly reported are valued at the last
reported sale price on the principal exchange for such security or NASDAQ
that day (the "Valuation Date") or, in the absence of sales that day, 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, the closing "bid" price on the Valuation Date;
(ii) equity securities traded on a foreign securities exchange are valued
generally at the last sales price available to the pricing service
approved by the Fund's Board of Trustees or to the Manager as reported by
the principal exchange on which the security is traded at its last trading
session on or immediately preceding the Valuation Date, or, if
unavailable, at the mean between "bid" and "asked" prices obtained from
the principal exchange or two active market makers in the security on the
basis of reasonable inquiry;
(iii) a non-money market fund will value (x) debt instruments that had a
maturity of more than 397 days when issued, (y) debt instruments that had
a maturity of 397 days or less when issued and have a remaining maturity
in excess of 60 days , and (z) non-money market type debt instruments that
had a maturity of 397 days or less when issued and have a remaining
maturity of sixty days or less, at the mean between "bid" and "asked"
prices determined by a pricing service approved by the Fund's Board of
Trustees or, if unavailable, obtained by the Manager from two active
market makers in the security on the basis of reasonable inquiry;
(iv) money market-type debt securities held by a non-money market fund
that had a maturity of less than 397 days when issued and have a remaining
maturity of 60 days or less , and debt instruments held by a money market
fund that have a remaining maturity of 397 days or less , shall be valued
at cost, adjusted for amortization of premiums and accretion of discount;
and
(v) securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined
under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes (see (ii) and (iii) above), the 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) provided that the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect the current
market value.
Trading in securities on European and Asian exchanges and over-the-counter
markets is normally completed before the close of The New York Stock Exchange.
Events affecting the values of foreign securities traded in securities markets
that occur between the time their prices are determined and the close of the
Exchange will not be reflected in the Fund's calculation of net asset value
unless the Board of Trustees or the Manager, under procedures established by the
Board of Trustees, determines that the particular event would materially affect
the Fund's net asset value, in which case an adjustment would be made. Foreign
currency, including forward contracts, will be valued at the closing price in
the London foreign exchange market that day as provided by a reliable bank,
dealer or pricing service. Foreign securities priced in a foreign currency as
well as foreign currency reflect prevailing rates of exchange and have their
value converted to U.S. dollars at the closing price in the London foreign
exchange market as provided by a reliable bank, dealer or pricing service.
In the case of U.S. Government Securities, mortgage-backed securities and
corporate bonds, where last sale information is not generally available, such
pricing procedures may include "matrix" comparisons to the prices for comparable
instruments on the basis of quality, yield, maturity, and other special factors
involved. The Fund's Board of Trustees has authorized the Manager to employ a
pricing service to price U.S. Government Securities, mortgage-backed securities,
and foreign government and corporate bonds for which last sale information is
not generally available. The Manager will monitor the accuracy of such pricing
services which may include comparing prices used for portfolio evaluation to
actual sales prices of selected securities.
Puts, calls and Futures are valued at the last sales price on the
principal exchange on which they are traded, or on NASDAQ as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, value shall be the last sale price on
the preceeding 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, or,
if not, value shall be the closing "bid" price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between "bid" and "asked"
prices obtained by the Manager from two active market makers (which in certain
cases may be the "bid" price if no "asked" price is available).
When the Fund writes an option, an amount equal to the premium received by
the Fund is included in the Fund's Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability section.
The credit is adjusted ("marked-to-market") to reflect the current market value
of the call or put. In determining the Fund's gain on investments, if a call or
put written by the Fund is exercised, the proceeds are increased by the premium
received. If a call or put written by the Fund expires, the Fund has a gain in
the amount of the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss depending on whether the premium
received was more or less than the cost of the closing transaction. If the Fund
exercises a put it holds, the amount the Fund receives on its sale of the
underlying investment is reduced by the amount of the premium paid by the Fund.
In the case of foreign securities and corporate bonds, when last sale
information is not generally available, such pricing procedures may include
"matrix" comparisons to the prices for comparable instruments on the basis of
quality, yield, maturity and other special factors involved. The Manager may use
pricing services approved by the Board of Trustees to price any of the types of
securities described above. The Manager will monitor the accuracy of such
pricing services, which may include comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
ACCOUNTLINK. When shares are purchased through AccountLink, each purchase must
be at least $25.00. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy shares. Dividends will begin to accrue on such day the Fund
receives Federal Funds for the purchase through the ACH system before the close
of The New York Stock Exchange that day, which is normally three days after the
ACH transfer is initiated. 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 Distributor and the Fund
are not responsible for any delays in purchasing shares resulting from delays in
ACH transmissions.
REDUCED SALES CHARGES. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor or dealer or broker incurs little or no selling
expenses. The term "immediate family" refers to one's spouse, children,
grandchildren, grandparents, parents, parents-in- law, brothers and sisters,
sons- and daughters-in-law, siblings, a sibling's spouse, a spouse's siblings,
aunts, uncles, nieces and nephews.
o THE OPPENHEIMER FUNDS. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
include the following:
Limited-Term New York Municipal Fund
Oppenheimer Bond Fund
Oppenheimer Bond Fund for Growth
Oppenheimer California Municipal Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Champion Income Fund
Oppenheimer Developing Markets Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer Disciplined Value Fund
Oppenheimer Discovery Fund
Oppenheimer Enterprise Fund
Oppenheimer Equity Income Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer International Bond Fund
Oppenheimer International Growth Fund
Oppenheimer International Small Company Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Growth Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer MidCap Fund
Oppenheimer Multiple Strategies Fund
Oppenheimer Municipal Bond Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer New York Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Real Asset Fund
Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer U.S. Government Trust
Rochester Fund Municipals
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except Money Market Funds (under certain circumstances
described herein, redemption proceeds of Money Market Fund shares may be subject
to a contingent deferred sales charge).
o LETTERS OF INTENT. a Letter of Intent (referred to as a "Letter") is an
investor's statement in writing to the Distributor of the intention to purchase
Class A shares of the Fund or Class A and Class B shares of the Fund (and other
Oppenheimer funds) during a 13-month period (the "Letter of Intent period"),
which may, at the investor's request, include purchases made up to 90 days prior
to the date of the Letter. The Letter states the investor's intention to make
the aggregate amount of purchases 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 under the Letter will be made at the
public offering price applicable to a single lump-sum purchase of shares in the
intended purchase amount, as described in the Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of Intent
period, when added to the value (at offering price) of the investor's holdings
of shares on the last day of that period, do not equal or exceed the intended
purchase amount, the investor agrees to pay the additional amount of sales
charge applicable to such purchases, as set forth in "Terms of Escrow," below
(as those terms may be amended from time to time). The investor agrees that
shares equal in value to 5% of the intended purchase amount will be held in
escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor
agrees to be bound by the terms of the Prospectus, this Statement of Additional
Information and the Application used for such Letter of Intent, and if such
terms are amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the Transfer
Agent will not hold shares in escrow. If the intended purchase amount under the
Letter entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
purchases. If total eligible purchases during the Letter of Intent period exceed
the intended purchase amount and exceed the amount needed to qualify for the
next sales charge rate reduction set forth in the applicable prospectus, the
sales charges paid will be adjusted to the lower rate, but only if and when the
dealer returns to the Distributor the excess of the amount of commissions
allowed or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the Distributor
will be used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
o TERMS OF ESCROW THAT APPLY TO LETTERS OF INTENT.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value 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 intended purchase amount specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. Such sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If such
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include (a) Class A shares
sold with a front-end sales charge or subject to a Class A contingent deferred
sales charge, (b) Class B shares of other Oppenheimer funds acquired subject to
a contingent deferred sales charge, and (c) Class A shares or Class B shares
acquired in exchange for either (i) Class A shares of one of the other
Oppenheimer funds that were acquired subject to a Class A initial or contingent
deferred sales charge or (ii) Class B shares of one of the other Oppenheimer
funds that were acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares," and the escrow will
be transferred to that other fund.
ASSET BUILDER PLANS. To establish an Asset Builder Plan from a bank account, a
check (minimum $25) for the initial purchase must accompany the application.
Shares purchased by Asset Builder Plan payments from bank accounts are subject
to the redemption restrictions for recent purchases described in "How to Sell
Shares" in the Prospectus. Asset Builder Plans also enable shareholders of
Oppenheimer Cash Reserves to use those accounts for monthly automatic purchases
of shares of up to four other Oppenheimer funds. 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 Account 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.
There is a front-end sales charge on the purchase of certain Oppenheimer
funds, or a contingent deferred sales charge may apply to shares purchased by
Asset Builder payments. An application should be obtained from the Distributor,
completed and returned, and a prospectus of the selected fund(s) should be
obtained from the Distributor or your financial advisor before initiating Asset
Builder payments. The amount of the Asset Builder investment may be changed or
the automatic investments may be terminated at any time by writing to the
Transfer Agent. a reasonable period (approximately 15 days) is required after
the Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans at any
time without prior notice.
CANCELLATION OF PURCHASE ORDERS. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
RETIREMENT PLANS. In describing certain types of employee benefit plans that may
purchase Class A shares without being subject to the Class A contingent deferred
sales charge, the term "employee benefit plan" means any plan or arrangement,
whether or not "qualified" under the Internal Revenue Code, including, medical
savings accounts, payroll deduction plans or similar plans in which Class A
shares are purchased by a fiduciary or other person for the account of
participants who are employees of a single employer or of affiliated employers,
if the Fund account is registered in the name of the fiduciary or other person
for the benefit of participants in the plan.
The term "group retirement plan" means any qualified or non-qualified
retirement plan (including 457 plans, SEPs, SARSEPs, 403(b) plans other than
public school 403(b) plans, and SIMPLE plans) for employees of a corporation or
a sole proprietorship, members and employees of a partnership or association or
other organized group of persons (the members of which may include other
groups), if the group or association has made special arrangements with the
Distributor and all members of the group or association participating in or who
are eligible to participate in the plan(s) purchase Class A shares of the Fund
through a single investment dealer, broker, or other financial institution
designated by the group. "Group retirement plan" also includes qualified
retirement plans and non-qualified deferred compensation plans and IRAs that
purchase Class A shares of the Fund through a single investment dealer, broker,
or other financial institution, if that broker-dealer has made special
arrangements with the Distributor enabling those plans to purchase Class A
shares of the Fund at net asset value but subject to a contingent deferred sales
charge.
In addition to the discussion in the Prospectus relating to the ability of
Retirement Plans to purchase Class A shares at net asset value in certain
circumstances, there is no initial sales charge on purchases of Class A shares
of any one or more of the Oppenheimer funds by a Retirement Plan in the
following cases:
(i) the recordkeeping for the Retirement Plan is performed on a daily
valuation basis by Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill
Lynch") and, on the date the plan sponsor signs the Merrill Lynch
recordkeeping service agreement, the Retirement Plan has $3 million or
more in assets invested in mutual funds other than those advised or
managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between Merrill Lynch and the
mutual fund's principal underwriter or distributor and in funds advised or
managed by MLAM (collectively, the "Applicable Investments"); or
(ii) the recordkeeping for the Retirement Plan is performed on a daily
valuation basis by an independent 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 Merrill Lynch record
keeping service agreement, the Plan must have $3 million or more in
assets, excluding assets held in money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by the
Merrill Lynch plan conversion manager on the date the plan sponsor signs
the Merrill Lynch
record keeping service agreement.
If a Retirement Plan's records are maintained on a daily valuation basis
by Merrill Lynch or an independent record keeper under a contract or alliance
arrangement with Merrill Lynch, and if on the date the plan sponsor signs the
Merrill Lynch record keeping service agreement the Retirement Plan has less than
$3 million in assets, excluding money market funds, invested in Applicable
Investments, then the Retirement Plan may purchase only Class B shares of one or
more of the Oppenheimer funds. Otherwise, the Retirement Plan will be permitted
to purchase Class A shares of one or more of the Oppenheimer funds. Any of those
Retirement Plans that currently invest in Class B shares of the Fund will have
their Class B shares be converted to Class A shares of the Fund once the Plan's
Applicable Investments have reached $5 million.
Any redemptions of shares of the Fund 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 that are currently
invested in Class B shares of the Fund shall not be subject to the Class B CDSC.
HOW TO SELL SHARES
Information on how to sell shares of the Fund is stated in the
Prospectus. The information
below supplements the terms and conditions for redemptions set forth in the
Prospectus.
o 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 of Trustees will not cause the
involuntary redemption of shares in an account if the aggregate net asset value
of the shares has fallen below the stated minimum solely as a result of market
fluctuations. Should the Board elect to exercise this right, it may also fix, in
accordance with the Investment Company Act, the requirements for any notice to
be given to the shareholders in question (not less than 30 days), or the Board
may set requirements for granting permission to the shareholder to increase the
investment, and set other terms and conditions so that the shares would not be
involuntarily redeemed.
o PAYMENTS "IN KIND". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Trustees of the Fund may determine that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment of a
redemption order wholly or partly in cash. In that case the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of
securities from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. The Fund has elected
to be governed by Rule 18f-1 under the Investment Company Act, pursuant to which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any
one shareholder. If shares are redeemed in kind, the redeeming shareholder might
incur brokerage or other costs in selling the securities for cash. The method of
valuing securities used to make redemptions in kind will be the same as the
method the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be made as
of the time the redemption price is determined.
REINVESTMENT PRIVILEGE. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (i) Class A shares that were
purchased subject to an initial sales charge or Class A contingent deferred
sales charge, which was paid, or (ii) Class B shares that were subject to the
Class B contingent deferred sales charge when redeemed. This privilege does not
apply to Class C or Class Y shares. The reinvestment may be made without sales
charge only in Class A shares of the Fund or any of the other Oppenheimer funds
into which shares of the Fund are exchangeable as described in "How to Exchange
Shares" below, at the net asset value next computed after the Transfer Agent
receives the reinvestment order. The shareholder must ask the Distributor for
that privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter any
capital gains tax payable on that gain. If there has been a capital loss on the
redemption, some or all of the loss may not be tax deductible, depending on the
timing and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer funds within 90
days of payment of the sales charge, the shareholder's basis in the shares of
the Fund that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the redemption.
However, in that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds. The Fund may amend,
suspend or cease offering this reinvestment privilege at any time as to shares
redeemed after the date of such amendment, suspension or cessation.
TRANSFERS OF SHARES. Shares are not subject to the payment of a contingent
deferred sales charge of any class at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute assignment,
gift or bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the transferred shares
in the same manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not all shares
in the account would be subject to a contingent deferred sales charge if
redeemed at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B and 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: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the plan and
the Fund's other redemption requirements. Participants other than self- employed
persons maintaining a plan account in their own name in
OppenheimerFunds-sponsored prototype pension or profit-sharing or 401(k) plans
may not directly redeem or exchange shares held for their account under those
plans. The employer or plan administrator must sign the request. Distributions
from pension and profit sharing plans are subject to special requirements under
the Internal Revenue Code and certain documents (available from the Transfer
Agent) must be completed before the distribution may be made. Distributions from
retirement plans are subject to withholding requirements under the Internal
Revenue Code, and IRS Form W-4P (available from the Transfer Agent) must be
submitted to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the Transfer
Agent with a certified tax identification number, the Internal Revenue Code
requires that tax be withheld from any distribution even if the shareholder
elects not to have tax withheld. The Fund, the Manager, the Distributor, the
Trustee and the Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not be
responsible for any tax penalties assessed in connection with a distribution.
SPECIAL ARRANGEMENTS FOR REPURCHASE OF SHARES FROM DEALERS AND BROKERS. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. The shareholder should contact the
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
the order placed by the dealer or broker, except that if the Distributor
receives a repurchase order from a dealer or broker after the close of The New
York Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker from its
customers prior to the time the Exchange closes (normally, that is 4:00 P.M.,
but may be earlier on some days) and the order was transmitted to and received
by the Distributor prior to its close of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form, with the signature(s) of the registered owners guaranteed on the
redemption document as described in the Prospectus.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Withdrawal Plan. Shares will be redeemed three business days
prior to the date requested by the shareholder for receipt of the payment.
Automatic withdrawals of up to $1,500 per month may be requested by telephone if
payments are to be made by check payable to all shareholders of record and sent
to the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-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 OppenheimerFunds
New Account Application or signature-guaranteed instructions. Shares are
normally redeemed pursuant to an Automatic Withdrawal Plan three business days
before the date selected 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 and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans, because of the imposition of the contingent deferred sales
charges on such withdrawals (except where the Class B and Class C contingent
deferred sales charges are waived as described in the Prospectus under "Waivers
of Class B and Class C Sales Charges".
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated below, as
well as in the Prospectus. These provisions may be amended from time to time by
the Fund and/or the Distributor. When adopted, such amendments will
automatically apply to existing Plans.
o AUTOMATIC EXCHANGE PLANS. Shareholders can authorize the Transfer Agent
(on the OppenheimerFunds Application or signature-guaranteed instructions) to
exchange a pre-determined amount of shares of the Fund for shares (of the same
class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Exchanges made under
these plans are subject to the restrictions that apply to exchanges as set forth
in "How to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
o AUTOMATIC WITHDRAWAL PLANS. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
such plans should not be considered as a yield or income on your investment. It
may not be desirable to purchase additional Class A shares while making
automatic withdrawals because of the sales charges that apply to purchases when
made. Accordingly, a shareholder normally may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases of Class A shares.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent. Neither the
Transfer Agent nor the Fund shall incur any liability to the Planholder for any
action taken or omitted by the Transfer Agent in good faith to administer the
Plan. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Transfer Agent will credit all such shares to the
account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made at
the net asset value per share determined on the redemption date. Checks or
AccountLink payments of the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment (receipt of payment on the date selected cannot be guaranteed),
according to the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time in mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice (in proper form in accordance with
the requirements of the then-current Prospectus of the Fund) to redeem all, or
any part of, the shares held under the Plan. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per share in
effect in accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to the
Transfer Agent. a Plan may also be terminated at any time by the Transfer Agent
upon receiving directions to that effect from the Fund. The Transfer Agent will
also terminate a Plan upon receipt of evidence satisfactory to it of the death
or legal incapacity of the Planholder. Upon termination of a Plan by the
Transfer Agent or the Fund, shares that have not been redeemed from the account
will be held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend- reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use 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 because of exhaustion of uncertificated shares needed
to continue payments. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
HOW TO EXCHANGE SHARES
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of the Oppenheimer funds that
have a single class without a class designation are deemed "Class A" shares for
this purpose. Shares of Oppenheimer funds that have a single Class without a
class designation are deemed "Class A" shares for this purpose. All of the
Oppenheimer funds offer Class A Class B and Class C shares except Oppenheimer
Money Market Fund, Inc., Centennial Money Market Trust, Centennial Tax Exempt
Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust and Centennial America Fund, L.P., which
only offer Class A shares and Oppenheimer Main Street California Tax- Exempt
Fund, which only offers Class A and Class B shares (Class B and Class C shares
of Oppenheimer Cash Reserves are generally available only by exchange from the
same class of shares of other Oppenheimer funds or through OppenheimerFunds
sponsored 401(k) plans). A current list showing which funds offer which class
can be obtained by calling the Distributor at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Bond Fund for Growth, Class M shares can be exchanged only for
Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Bond Fund for Growth are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange from Class M shares. Otherwise no exchanges of any class of
any Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge (or, if applicable, may be
used to purchase shares of Oppenheimer funds subject to a contingent deferred
sales charge). However, shares of Oppenheimer Money Market Fund, Inc., purchased
with the redemption proceeds of shares of other mutual funds (other than funds
managed by the Manager or its subsidiaries) redeemed within the 12 months prior
to that purchase may subsequently be exchanged for shares of other Oppenheimer
funds without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for 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, and
if requested, must supply proof of entitlement to this privilege.
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. 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 12 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares (18 months if the shares were initially purchased prior
to May 1, 1997), the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus. The Class B contingent deferred sales charge is imposed on Class B
shares acquired by exchange if they are redeemed within six 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. Shareholders should
take into account the effect of any exchange on the applicability and rate of
any contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. SHAREHOLDERS OWNING SHARES OF MORE THAN ONE
CLASS MUST SPECIFY WHETHER THEY INTEND TO EXCHANGE CLASS A, CLASS B OR CLASS C
SHARES.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of more than one account. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available
for exchange without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans, Automatic Withdrawal Plans and retirement plan contributions will be
switched to the new account unless the Transfer Agent is instructed otherwise.
If all telephone lines are busy (which might occur, for example, during periods
of substantial market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate
transfer of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it (for
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
DIVIDENDS, CAPITAL GAINS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value. The Fund intends
to pay any dividends annually. Dividends on newly purchased shares will not be
declared or paid until such time as Federal Funds (funds credited to a member
bank's account at the Federal Reserve Bank) are available from the purchase
payment for such shares. Normally, purchase checks received from investors are
converted to Federal Funds on the next business day. Dividends will be declared
on shares repurchased by a dealer or broker for four business days following the
trade date (i.e., to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds. However, the investment objective of the Fund is total
return and not income generation. Consequently, the amount of dividends
distributed by the Fund is expected to be small.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.,
as promptly as possible after the return of such checks to the Transfer Agent,
to enable the investor to earn a return on otherwise idle funds.
The amount of a class's distributions may 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, as described in "Alternative
Sales Arrangements -- Class A, Class B and Class C Shares," above. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A or Class Y shares as a result of the
asset-based sales charges on Class B and Class C shares, and Class B and Class C
dividends will also differ in amount as a consequence of any difference in net
asset value between the classes.
TAX STATUS OF THE FUND'S DIVIDENDS AND DISTRIBUTIONS. The Federal tax treatment
of the Fund's dividends and capital gains distributions is explained in the
Prospectus under the caption "Dividends, Capital Gains and Taxes." Special
provisions of the Internal Revenue Code govern the eligibility of the Fund's
dividends for the dividends received deduction for corporate shareholders.
Long-term capital gains distributions are not eligible for the deduction. In
addition, the amount of dividends paid by the Fund which may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from its portfolio investments that the Fund has held for a minimum
period, usually 46 days either before or immediately after the Fund becomes
entitled to the dividend. 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.
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, and intends to qualify in future
years, but reserves the right not to qualify. The Internal Revenue Code contains
a number of complex tests relating to qualification which the Fund might not
meet in any particular year. For example, if the Fund derives 30% or more of its
gross income during its current taxable year from the sale of securities held
less than three months, it may fail to qualify for that year (see "Tax Aspects
of Covered Calls and Hedging Instruments," above). If it does not qualify, the
Fund will be treated for tax purposes as an ordinary corporation and receive no
tax deduction for payments of dividends and distributions made to shareholders.
This 30% "short-short" test will no longer apply for the Fund's tax years
beginning on or after April 1, 1998.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year, or
else the Fund must pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Fund will meet those requirements, the Fund's
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interest of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
DIVIDEND REINVESTMENT IN ANOTHER FUND. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed in "Reduced Sales Charges,"
above, at net asset value without a sales charge. To elect this option, a
shareholder must notify the Transfer Agent in writing and either have an
existing account in the fund selected for reinvestment or must obtain a
prospectus for that fund and an application from the Distributor to establish an
account. The investment will be made at the net asset value per share in effect
at the close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from shares of other Oppenheimer funds may be
invested in shares of this Fund on the same basis.
ADDITIONAL INFORMATION ABOUT THE FUND
THE CUSTODIAN. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, collecting income on the portfolio securities and handling
the delivery of such securities to and from the Fund. The Manager has
represented to the Fund that the banking relationships between The Manager and
the Custodian have been and will continue to be unrelated to and unaffected by
the relationship between the Fund and the Custodian. It will be the practice of
the Fund to deal with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its affiliates. The
Fund's cash balances with the Custodian in excess of $100,000 are not protected
by Federal deposit insurance. Such uninsured balances at times may be
substantial.
INDEPENDENT AUDITORS. The independent auditors of the Fund audit the Manager's
and 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 Real Asset Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Real Asset Fund as of August 31,
1997, the related statement of operations, the statement of changes in net
assets and the financial highlights for the period March 31, 1997 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 audit.
We conducted our audit 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. Our procedures included confirmation of securities owned at August
31, 1997 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Oppenheimer
Real Asset Fund at August 31, 1997, the results of its operations, the changes
in its net assets, and the financial highlights for the period then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 22, 1997
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
======================================================================================
<S> <C> <C>
Mortgage-Backed Obligations--41.8%
- --------------------------------------------------------------------------------------
Government Agency--40.3%
- --------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
Interest-Only Stripped Mtg.-Backed Security,
Series 180, 13.484%, 10/1/26(1) $ 1,610,078 $ 534,345
Principal-Only Stripped Mtg.-Backed Security,
Series 179, 3.862%, 9/1/26(2) 983,504 715,346
- --------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
5.89%, 5/21/98 6,500,000 6,510,790
6.03%, 7/7/99 1,990,000 1,990,020
6.07%, 7/1/99 1,220,000 1,219,427
6.29%, 5/7/99 8,480,000 8,512,665
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Trust 1996-64, Cl. PB, 6.50%, 1/18/19 3,000,000 2,995,290
Interest-Only Stripped Mtg.-Backed Security:
Trust 1993-23, Cl. PN, 8.558%, 4/25/22(1) 3,624,240 1,598,064
Trust 1997-3, 11.616%, 3/18/26(1)(3) 3,424,713 1,159,051
Principal-Only Stripped Mtg.-Backed Security:
Trust 267, Cl. 1, 8.77%, 10/1/24(2) 187,388 141,127
Trust 267, 8.736%, 10/1/24(2) 285,769 215,220
- --------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security, Series 1997-5, Cl. PJ,
31.318%, 5/20/22(1) 2,442,142 503,310
-----------
26,094,655
- --------------------------------------------------------------------------------------
Private--1.5%
- --------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1994-C2, Cl. G, 8%, 4/25/25 969,579 965,186
-----------
Total Mortgage-Backed Obligations (Cost $27,077,780) 27,059,841
======================================================================================
U.S. Government Obligations--10.9%
- --------------------------------------------------------------------------------------
Federal Home Loan Bank, 5.82%, 6/16/98(4) (Cost $7,101,709) 7,100,000 7,101,420
======================================================================================
Structured Notes--39.8%
- --------------------------------------------------------------------------------------
AIG International, Inc., Goldman Sachs Commodity Total
Return Index Leveraged-Linked Nts., 5.875%, 6/29/98(5) 6,000,000 7,121,612
- --------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale (New York Branch) CD
Leveraged-Linked Nts., 5.10%, 11/19/97 (linked to the
Goldman Sachs Commodity Index Excess Return Index)(5) 2,000,000 2,392,800
- --------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale (New York Branch)
Goldman Sachs Excess Return Commodity Index Leveraged-Linked
Nts., 5.488%, 12/8/97(5) 1,250,000 1,325,250
- --------------------------------------------------------------------------------------
Business Development Bank of Canada, Goldman Sachs Excess
Return Commodity Index Leveraged-Linked Commercial Paper,
5.40%, 12/22/97(5) 1,000,000 1,048,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cargill Financial Services Corp., Commodity Option Leveraged-
Linked Trust Nts., Zero Coupon, 9/16/97(6) $ 2,000,000 $ 1,895,742
- ------------------------------------------------------------------------------------------------
Cargill Financial Services Corp., Goldman Sachs Commodity
Index Leveraged-Linked Nts., 5.469%, 12/4/97(5) 7,000,000 6,864,668
- ------------------------------------------------------------------------------------------------
Daiwa Finance Corp. (New York), Daiwa Physical Commodity
Index Leveraged-Linked Nts., 4.625%, 12/18/97(7)(8) 5,000,000 5,147,000
-----------
Total Structured Notes (Cost $24,250,000) 25,795,572
================================================================================================
Repurchase Agreements--2.5%
- ------------------------------------------------------------------------------------------------
Repurchase agreement with J.P. Morgan Securities, Inc., 5.55%,
dated 8/29/97, to be repurchased at $1,600,987 on 9/2/97,
collateralized by U.S. Treasury Bonds, 7.25%-11.25%, 2/15/03-
8/15/19, with a value of $1,526,590 and U.S. Treasury Nts.,
5.875%, 10/31/98, with a value of $106,970 (Cost $1,600,000) 1,600,000 1,600,000
- ------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $60,029,489) 95.0% 61,556,833
- ------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 5.0 3,218,730
--------- -----------
Net Assets 100.0% $64,775,563
========= ===========
</TABLE>
1. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. 2. Principal-Only Strips represent the right to receive the monthly
principal payments on an underlying pool of mortgage loans. The value of these
securities generally increases as interest rates decline and prepayment rates
rise. The price of these securities is typically more volatile than that of
coupon- bearing bonds of the same maturity. Interest rates disclosed represent
current yields based upon the current cost basis and estimated timing of future
cash flows. 3. Securities with an aggregate market value of $1,159,051 are held
in collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements. 4. Short-term
notes are generally traded on a discount basis; the interest rate is the
discount rate received by the Fund at the time of purchase. 5. Security is
linked to the Goldman Sachs Commodity Index. The index is composed of the future
price of twenty-two different commodities in five main commodity groups (energy,
agriculture, livestock, industrial metals and precious metals) in rough
proportion to the value of their production in the world economy. 6. Security is
linked to a "Commodity Option Basket." The basket is composed of options of
seventeen different commodities in five main commodity groups (energy,
agriculture, livestock, industrial metals and precious metals). 7. Represents
the current interest rate for a variable rate security. 8. Security is linked to
the Daiwa Physical Commodity Excess Return Index which is calculated in the same
manner as the Daiwa Physical Commodity Index (DPCI), but with a Treasury bill
rate of zero. The DPCI is a passively managed index showing the total return
from holding unleveraged long positions in futures contracts of physical
commodities. Nineteen commodity markets representing five major commodity
industry groups are included in the calculation of the DPCI. These five major
commodity groups are: grains, metals, energy, livestock and food/fiber. See
accompanying Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities August 31, 1997
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value (cost $60,029,489)--
see accompanying statement $ 61,556,833
- --------------------------------------------------------------------------------
Cash 49,254
- --------------------------------------------------------------------------------
Receivables:
Shares of beneficial interest sold 2,636,587
Interest and principal paydowns 609,717
- --------------------------------------------------------------------------------
Deferred organization costs--Note 1 36,458
- --------------------------------------------------------------------------------
Other 1,102
------------
Total assets 64,889,951
================================================================================
Liabilities Payables and other liabilities:
Daily variation on futures contracts--Note 5 49,464
Distribution and service plan fees 17,541
Transfer and shareholder servicing agent fees 15,720
Shares of beneficial interest redeemed 13,640
Custodian fees 6,665
Shareholder reports 6,137
Other 5,221
------------
Total liabilities 114,388
================================================================================
Net Assets $ 64,775,563
============
================================================================================
Composition of Net Assets
Paid-in capital $ 62,897,255
- --------------------------------------------------------------------------------
Accumulated net investment income 537,526
- --------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (274,569)
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments 1,615,351
------------
Net assets $ 64,775,563
============
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$37,687,452 and 3,655,410 shares of beneficial interest outstanding) $10.31
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $10.94
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $16,470,980 and
1,603,798 shares of beneficial interest outstanding) $10.27
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $10,616,100 and
1,034,992 shares of beneficial interest outstanding) $10.26
- --------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $1,031 and 100 shares of beneficial interest outstanding) $10.31
See accompanying Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Period Ended August 31, 1997(1)
- --------------------------------------------------------------------------------
================================================================================
Investment Income
Interest $ 789,466
================================================================================
Expenses
Management fees--Note 4 130,525
- --------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 12,308
Class B 30,711
Class C 23,276
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 40,346
- --------------------------------------------------------------------------------
Registration and filing fees 15,382
- --------------------------------------------------------------------------------
Shareholder reports 7,888
- --------------------------------------------------------------------------------
Custodian fees and expenses 6,665
- --------------------------------------------------------------------------------
Legal and auditing fees 1,419
- --------------------------------------------------------------------------------
Trustees' fees and expenses 471
- --------------------------------------------------------------------------------
Other 6,188
-----------
Total expenses 275,179
================================================================================
Net Investment Income 514,287
================================================================================
Realized and Unrealized Gain (Loss)
Net realized loss on:
Investments (204,721)
Closing of futures contracts (68,371)
-----------
Net realized loss (273,092)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments 1,615,351
-----------
Net realized and unrealized gain 1,342,259
================================================================================
Net Increase in Net Assets Resulting from Operations $ 1,856,546
===========
1. For the period from March 31, 1997 (commencement of operations) to August 31,
1997.
See accompanying Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Period Ended
August 31,
1997(1)
================================================================================
Operations
Net investment income $ 514,287
- --------------------------------------------------------------------------------
Net realized loss (273,092)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation 1,615,351
-----------
Net increase in net assets resulting from operations 1,856,546
================================================================================
Beneficial Interest Transactions
Net increase in net assets resulting from beneficial
interest transactions--Note 2:
Class A 36,531,028
Class B 16,023,891
Class C 10,363,098
Class Y 1,000
================================================================================
Net Assets
Total increase 64,775,563
- --------------------------------------------------------------------------------
Beginning of period --
-----------
End of period (including accumulated net investment
income of $537,526) $64,775,563
===========
1. For the period from March 31, 1997 (commencement of operations) to August 31,
1997.
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------
Financial Highlights
- ---------------------------------------------------------------------------------------------
<CAPTION>
Class A Class B Class C Class Y
--------- --------- --------- ---------
Period Period Period Period
Ended Ended Ended Ended
August 31, August 31, August 31, August 31,
1997(1) 1997(1) 1997(1) 1997(1)
=============================================================================================
<S> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $10.00
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .09 .07 .08 .20
Net realized and unrealized gain .22 .20 .18 .11
------- ------- ------- -------
Total income from investment operations .31 .27 .26 .31
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.31 $ 10.27 $ 10.26 $10.31
======= ======= ======= =======
=============================================================================================
Total Return, at Net Asset Value(2) 3.10% 2.70% 2.60% 3.10%
=============================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $37,687 $16,471 $10,616 $ 1
- ---------------------------------------------------------------------------------------------
Average net assets (in thousands) $18,361 $ 7,388 $ 5,599 $ 1
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 4.27% 3.35% 3.34% 4.75%
Expenses 1.74% 2.56% 2.56% 1.57%
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 38.9 % 38.9 % 38.9 % 38.9 %
</TABLE>
1. For the period from March 31, 1997 (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 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, 1997 were $31,032,770 and $5,519,569, respectively. See
accompanying Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer Real Asset Fund (the Fund) is a non-diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. Oppenheimer Real Asset Fund is a mutual fund that seeks to
provide total return as its investment objective. The Fund's investment adviser
is OppenheimerFunds, Inc. (the Adviser). The Sub-Adviser is Oppenheimer Real
Asset Management, Inc. (the Manager or Sub-Adviser), a wholly owned subsidiary
of the Adviser. OFI owns 8.18% of the net assets of the Fund as of August 31,
1997. The Fund offers Class A, Class B, Class C and Class Y 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. Classes A, B and C have separate distribution and/or
service plans. No such plan has been adopted for Class Y shares. 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.
- --------------------------------------------------------------------------------
Structured Notes. The Fund invests in commodity-linked structured notes whereby
the market value and redemption price are linked to commodity indices. The
structured notes are leveraged, which increases the Fund's exposure to
commodities and increases the notes' volatility relative to the face value of
the security. At August 31, 1997, the Fund owned such securities with a face
amount of $24,250,000, which generated exposure to commodities of $74,274,362.
Fluctuations in value of the security related to the commodity exposure are
recorded as unrealized gains and losses in the accompanying financial
statements. During the period ended August 31, 1997, the market value of these
securities comprised an average of 40% of the Fund's net assets, and resulted
in realized and unrealized gains of $1,335,377. The Fund also hedges a portion
of the commodity exposure generated by these securities, as discussed in Note
5.
- --------------------------------------------------------------------------------
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
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
or less are valued at cost (or last determined market value) adjusted for
amortization to maturity of any premium or discount. Forward foreign currency
exchange 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. Options are valued based upon the
last sale price on the principal exchange on which the option is traded or, in
the absence of any transactions that day, the value is based upon the last sale
price on the prior trading date if it is within the spread between the closing
bid and asked prices. If the last sale price is outside the spread, the closing
bid is used.
- --------------------------------------------------------------------------------
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, and Gains and Losses. Income, expenses (other
than those attributable to a specific class) and 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. At August 31, 1997, the Fund
had available for federal income tax purposes an unused capital loss carryover
of approximately $187,000, which expires in 2005.
- --------------------------------------------------------------------------------
Distributions to Shareholders. The Fund intends to declare dividends separately
for Class A, Class B, Class C and Class Y shares from net investment income
annually. Distributions from net realized gains on investments, if any, will be
declared at least once each year.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Organization Costs. The Adviser advanced $37,476 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
Adviser'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 the 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 paydown gains and losses. The character of 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.
During the period ended August 31, 1997, the Fund adjusted 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 period ended August 31,
1997, amounts have been reclassified to reflect an increase in accumulated net
realized loss on investments of $1,477, an increase in accumulated net
investment income of $23,239, and a decrease in paid-in capital of $21,762.
- --------------------------------------------------------------------------------
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.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
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:
Period Ended August 31, 1997(1)
-------------------------------
Shares Amount
- --------------------------------------------------------------------------------
Class A:
Sold 4,102,350 $40,994,666
Redeemed (446,940) (4,463,638)
--------- -----------
Net increase 3,655,410 $36,531,028
========= ===========
- --------------------------------------------------------------------------------
Class B:
Sold 1,629,263 $16,280,408
Redeemed (25,465) (256,517)
--------- -----------
Net increase 1,603,798 $16,023,891
========= ===========
- --------------------------------------------------------------------------------
Class C:
Sold 1,071,035 $10,719,401
Redeemed (36,043) (356,303)
--------- -----------
Net increase 1,034,992 $10,363,098
========= ===========
- --------------------------------------------------------------------------------
Class Y:
Sold 100 $ 1,000
--------- -----------
Net increase 100 $ 1,000
========= ===========
1. For the period from March 31, 1997 (commencement of operations) to August 31,
1997.
================================================================================
3. Unrealized Gains and Losses on Investments
At August 31, 1997, net unrealized appreciation on investments of $1,527,344 was
composed of gross appreciation of $1,889,980, and gross depreciation of
$362,636.
<PAGE>
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- --------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates Management fees paid
to the Adviser were in accordance with the investment advisory agreement with
the Fund which provides for a fee of 1.0% of the first $200 million of average
net assets, 0.90% of the next $200 million, 0.85% of the next $200 million,
0.80% of the next $200 million, and 0.75% of net assets in excess of $800
million. Under the Sub-Advisory Agreement, the Manager receives from the Adviser
the following portions of the annual fees: 0.50% of the first $200 million of
average net assets, 0.45% of the next $200 million, 0.425% of the next $200
million, 0.40% of the next $200 million, and 0.375% of net assets in excess of
$800 million.
For the period ended August 31, 1997, commissions (sales charges
paid by investors) on sales of Class A shares totaled $437,358, of which
$109,980 was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary
of the Adviser, 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 $563,129 and $88,495, respectively, of which $7,968
was paid to an affiliated broker/dealer for Class B shares. During the period
ended August 31, 1997, OFDI received contingent deferred sales charges of $847
and $1,580, 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 Adviser, is the
transfer and shareholder servicing agent for the Fund and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
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.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
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 services and 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, as compensation for sales commissions paid from its own resources at
the time of sale and associated financing costs. OFDI also receives a service
fee of 0.25% per year as compensation for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other financial
institutions. Both fees are computed on the average annual net assets of Class
B and Class C shares, determined as of the close of each regular business day.
During the period ended August 31, 1997, OFDI retained $27,304 and $21,022,
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, 1997, OFDI had incurred unreimbursed expenses
of $711,823 for Class B and $90,693 for Class C.
================================================================================
5. Futures Contracts
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may buy and
sell commodity futures contracts, primarily to hedge the various commodity
exposures inherent in its holdings of hybrid notes that are linked to commodity
indices. The Fund may also buy or write put or call options on these futures
contracts.
The Fund generally sells futures contracts to hedge against
increases in interest rates or decreases in commodity prices and the resulting
negative effect on the value of fixed rate portfolio securities. The Fund may
also purchase futures contracts without owning the underlying fixed-income
security as an efficient or cost effective means to gain exposure to changes in
interest rates or commodity prices. The Fund will then either purchase the
underlying fixed-income security or close out the futures contract.
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund recognizes a realized gain or loss when the contract
is closed or expires.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable or payable for the
daily mark to market for variation margin.
Risks of entering into futures contracts (and related options)
include the possibility that there may be an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
At August 31, 1997, the Fund had outstanding futures contracts to
sell debt securities and commodities as follows:
Unrealized
Expiration Number of Valuation as of Appreciation
Date Contracts August 31, 1997 (Depreciation)
- --------------------------------------------------------------------------------
COMMODITIES
Agriculture
Cocoa 9/97 4 $ 68,680 $ (8,000)
Coffee 12/97 2 134,925 (14,925)
Corn 12/97 1 13,463 238
Cotton 9/97 7 254,450 8,050
Soybean 11/97 1 31,275 (525)
Sugar 10/97 15 194,880 717
Wheat 12/97 13 256,100 (8,938)
Energy
Crude Oil 9/97 42 823,620 27,240
Natural Gas 10/97 35 949,900 (4,900)
Unleaded Gas 10/97 30 771,372 (16,002)
Industrial Metals
Copper 12/97 5 124,125 --
Livestock
Lean Hogs 10/97 12 338,160 16,560
Live Cattle 10/97 21 564,480 30,880
Precious Metals
Gold 100 oz 12/97 40 1,309,600 88,400
Silver 12/97 11 257,675 13,025
INDICES
Goldman Sachs
Commodities Index 9/97 75 3,675,000 (33,750)
TREASURIES
U.S. Treasury Nts., 5 yr. 9/97 7 747,250 (10,063)
----------- --------
$10,514,955 $ 88,007
=========== ========
APPENDIX A
CORPORATE INDUSTRY CLASSIFICATIONS
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Beverages
Broadcasting
Building Materials
Cable Television
Chemicals
Computer Hardware
Computer Software
Conglomerates
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Finance, Insurance and Real Estate
National Commercial Banks
State Commercial Banks
Commercial Banks, NEC
Savings Institution, Federally Chartered
Savings Institutions, Not Federally
Chartered
Functions Related to Depository
Banking, NEC
Federal & Federally-Sponsored
Credit Agencies
Personal Credit Institutions
Short-Term Business Credit Institutions
Miscellaneous Business Credit
Institutions
Mortgage Bankers & Correspondence
Foreign National Banks
Foreign Commercial Banks
Foreign-Sponsored Credit Institutions
Asset-Backed Securities
Finance Services
Security & Commodity Brokers, Dealers,
Exchanges & Services
Security Brokers, Dealers & Flotation Cos.
Investment Advice
Life Insurance
Accident & Health Insurance
Fire, Marine & Casualty Insurance
Insurance Carriers, NEC
Insurance Agents, Brokers & Services
Food
Gas Transmission*
Gas Utilities*
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Leasing & Factoring
Leisure
Manufacturing
Mining
Gold & Silver Ores
Gold
Silver Ores
Miscellaneous Metal Ores
Crude Petroleum Natural Gas
Drilling Oil and Gas Wells
Oil and Gas Field Exploration Services
Nondurable Household Goods
Paper
Publishing/Printing
Railroads
Restaurants
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
*For purposes of the Fund's investment policy not to concentrate in securities
of issuers in the same industry, gas utilities and gas transmission utilities
each will be considered a separate industry.
A-1
<PAGE>
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 AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
CUSTODIAN OF PORTFOLIO SECURITIES
The Bank of New York
One Wall Street
New York, New York 10015
INDEPENDENT AUDITORS
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
LEGAL COUNSEL
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
SPECIAL COUNSEL
Kramer, Levin, Naftalis, & Frankel
919 Third Avenue
New York, New York 10022
PX0735
