Oppenheimer
Real Asset Fund
Prospectus dated December 28, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
Oppenheimer Real Asset Fund is a mutual fund. It seeks to provide total return
by investing primarily in commodity-linked hybrid instruments and U.S.
government securities.
Hybrid instruments are derivative investments that have higher risks of
volatility and loss of principal. You should carefully consider these risks
before investing.
This Prospectus contains important information about the Fund's objective,
its investment policies, strategies and risks. It also contains important
information about how to buy and sell shares of the Fund and other account
features. Please read this Prospectus carefully before you invest and keep it
for future reference about your account.
[logo] OppenheimerFunds Distributor, Inc.
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171
CONTENTS
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ABOUT THE FUND
3
4 The Fund's Investment Objective and Strategies
7 Main Risks of Investing in the Fund
8 The Fund's Past Performance
9 Fees and Expenses of the Fund
14 About the Fund's Investments
How the Fund is Managed
16 ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
24 Class B Shares
Class C Shares
Class Y Shares
26 Special Investor Services
AccountLink
PhoneLink
28 OppenheimerFunds Internet Web Site
29 Retirement Plans
31
32 How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
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ABOUT THE FUND
The Fund's Objective and Investment Strategies
What Is the Fund's Investment Objective? The Fund seeks total return. Total
return refers to the change in value of an investment in shares of the Fund over
time resulting from changes in the value of the Fund's investments and income on
those investments.
What Does the Fund Invest In? The Fund normally invests at least 65% of its
assets in:
o "Hybrid instruments" that are commodity-linked derivative investments,
mainly structured notes, and
o futures contracts, options, interest rate swaps, investment-grade and
non-investment-grade corporate bonds and notes, and securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities,
including mortgage-backed securities..
What are "Hybrid Instruments? A "hybrid instrument" is a derivative investment.
Its value is derived from, or linked to, the value of another investment or
asset.
Commodity-linked derivative investments provide investors with exposure to
the investment returns of "real assets" that trade in the commodities markets
without investing directly in physical commodities. "Real assets," as opposed to
stocks or bonds, are assets that have tangible properties, such as oil,
livestock, grains or metal products.
How Do the portfolio managers Decide What Investments to Buy or Sell? The Fund's
portfolio managers generally allocate the Fund's investments among a variety of
different commodity sectors, based on the weightings of the components of the
Fund's benchmark index, the Goldman Sachs Commodity Index (the "GSCI(R)").
However, the Fund is actively managed and its investment allocations may differ
from the weightings in the GSCI. The Fund attempts to provide its shareholders
with exposure to the returns of the commodity markets through commodity-linked
investments, rather than by investing directly in physical commodities. To do
so, the portfolio managers invest a substantial percentage of the Fund's assets
in commodity-linked derivative investments while also investing a substantial
portion of the Fund's assets in U.S. government securities and other debt
securities to provide liquidity and income.
The portfolio managers currently use a four-step process to select
commodity-linked investments for the Fund. This process may change over time or
other factors and strategies may be employed:
o Macro-Economic Analysis: They evaluate the overall business cycle using
macroeconomic analysis, to develop their expectations regarding potential
commodity returns.
Commodity Sector Allocation: They use that broad economic analysis to make
target allocations of the Fund's assets among the five broad commodity sectors
in the
GSCI: energy, agriculture, livestock, industrial metals and precious metals. The
portfolio managers perform a sub-sector analysis to identify supply and
demand imbalances for the commodities in a sector. They analyze the
structure for futures prices for those commodities to try to find sectors
that they believe may provide growth opportunities. As a result, the
Fund's allocation of its investments within each sector may differ (at
times, significantly) from the sector weightings within the GSCI.
Security Selection: The portfolio managers then select the mix of structured
notes, futures and other investments to implement the Fund's commodity
exposure, and government securities, bonds and other investments to
provide liquidity and income.
Performance and Portfolio Risk Monitoring: On an ongoing basis, the portfolio
managers monitor the performance and risks of the Fund's investments.
Who Is the Fund Designed For? The Fund is designed for aggressive investors
seeking total return over the long term, mainly from commodity-linked derivative
investments. The Fund is not designed for investors seeking current income or
preservation of capital. Because commodity market returns may not be correlated
with the returns of equity and debt markets over the long term, an investment in
the Fund may provide useful diversification in an investor's overall portfolio.
However, the Fund is not a complete investment program and should not be
an investor's sole investment because its performance is linked to the
performance of highly volatile commodities. Investors should consider buying
shares of the Fund only as part of an overall portfolio strategy that includes
other asset classes, such as fixed-income and equity investments. Investors in
the Fund should be willing to assume the greater risks of potentially
significant short-term share price fluctuations because of the Fund's
investments in commodity-linked instruments.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject to
changes in their value from a number of factors, described below. There is also
the risk that poor investment selection by the Fund's Sub-Advisor, Oppenheimer
Real Asset Management, Inc., will cause the Fund to underperform other funds
having a similar investment objective.
These risks collectively form the risk profile of the Fund and can affect
the value of the Fund's investments, its investment performance and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them. There is no assurance that the Fund will achieve its investment
objective.
Special Risks of hybrid or derivative investments. In general terms, a hybrid
instrument is a derivative investment, which is an investment contract whose
value depends on (or is derived from) the value of an underlying asset, interest
rate, index or commodity.
The commodity-linked structured notes and futures contracts in which the Fund
invests are hybrid instruments that have substantial risks, including risk of
loss of a significant portion of their principal value. Because the performance
of these notes is linked to the performance of the underlying commodity prices,
these investments are subject to "market risks" that relate to the movements of
prices in the commodity markets. They may be subject to additional special risks
that do not affect traditional equity and debt securities: o Risk of loss of
interest. If payment of interest on a structured note or other hybrid instrument
is linked to the value of a particular commodity, futures contract, index or
other economic variable, the Fund might not receive all (or a portion) of the
interest due on its investment if there is a loss of value of the underlying
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
might not receive all or a portion of the principal at maturity of the
investment. At any time, the risk of loss associated with particular
instruments in the Fund's portfolio may be significantly higher than 50%
of the value of the investment.
o Lack of secondary market. A liquid secondary market may not exist for the
specially created hybrid instruments the Fund buys, which may make it
difficult for the Fund to sell them at an acceptable price or to
accurately value them.
Risk of greater volatility. The value of the commodity-linked derivative
investments the Fund buys may fluctuate significantly because the values
of the underlying investments to which they are linked are themselves
extremely volatile. Additionally, economic leverage will increase the
volatility of these hybrid instruments as they may increase or decrease in
value more quickly than the underlying commodity, index, futures contract,
or other economic variable.
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.
If the issuer of the derivative does not pay the amount due, the Fund can
lose money on the investment. Interest rate and stock market changes in the U.S.
and abroad may influence the performance of derivatives. Also, the underlying
security or investment on which the derivative is based, and the derivative
itself, may not perform the way the Sub-Advisor expected it to. If that happens,
the Fund's share price could decline.
Credit Risk. Commodity-linked notes issued by banks, broker-dealers or
corporations are subject to credit risk. Credit risk is the risk that the issuer
might not pay interest when due or repay principal at maturity of the
obligation. If the issuer fails to pay interest, the Fund's income might be
reduced, and if the issuer fails to pay principal, the value of that investment,
and the Fund's share prices may fall.
The Fund will attempt to limit credit risk, to the extent possible, by
engaging in transactions with counterparties that have an investment grade
credit rating, or a Letter of Credit from a major money center bank or some
other form of credit enhancement. However, the Fund can invest up to 10% of its
total assets in below-investment-grade securities that have greater credit risks
than investment-grade securities.
Hedging Risk. The Fund can use hedging instruments, such as options, futures and
swaps to hedge against declines in the value of its portfolio investments, as
well as to seek greater returns. There are special risks in particular hedging
strategies the Fund might use. 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.
Risks of Non-Diversification. The Fund is non-diversified. That means that
compared to funds that are diversified, it can invest a greater portion of its
assets in the securities of a single issuer. Having a higher percentage of its
assets invested in the securities of fewer issuers increases the risk of greater
fluctuations of the Fund's share prices due to economic, political or regulatory
developments that affect those issuers.
Interest Rate Risks. Debt securities are subject to changes in their value when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When prevailing interest rates
rise, the values of already-issued debt securities generally fall. The magnitude
of these fluctuations is generally greater for debt securities with longer
maturities. 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.
o Prepayment Risks. The interest-only and principal-only mortgage-backed
securities the Fund can buy are especially sensitive to interest rate
changes, which can affect not only their prices but can also change the
prepayment assumptions about those investments and income flows the Fund
receives from them. Mortgage- backed securities are subject to the risks of
unanticipated prepayment. The risk is that when interest rates fall,
borrowers under the mortgages that underlie these securities will prepay
their mortgages more quickly than expected, causing the issuer of the
security to prepay the principal to the Fund prior to the security's
expected maturity. The Fund may be required to reinvest the proceeds at a
lower interest rate, reducing its income.
Mortgage- backed securities subject to prepayment risk generally offer
less potential for gains when prevailing interest rates fall and have
greater potential for loss when prevailing interest rates rise. The impact
of prepayments on the price of a security may be difficult to predict and
may increase the volatility of the price. If the Fund buys mortgage-backed
securities at a premium, accelerated prepayments on those securities could
cause the Fund to lose a portion of its principal investment represented
by the premium.
risks of leverage. Some derivatives the Fund buys involve a degree of leverage.
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.
Economic leverage occurs when an investor has the right to a return on an
investment that exceeds the return the investor could achieve by the amount
contributed to the investment. Economically leveraged hybrid instruments can
increase the gain or the loss associated with changes in the value of an
underlying commodity, index, futures contract or other economic variable. The
Fund has limits on the leverage ratio of each hybrid investment it buys as well
as on its overall portfolio. How Risky is the Fund Overall? The Fund's
derivative investments may be quite volatile and may lose principal value. The
Sub-Advisor attempts to reduce some of these risks by investing in instruments
linked to different sectors of the commodity markets, by not investing 25% or
more of its assets in securities issued by companies in any one industry, and by
carefully researching investments before they are purchased for the portfolio.
However, the Fund's share prices can be expected to be very volatile. In the
OppenheimerFunds spectrum of funds, the Fund is an aggressive fund. The Fund is
expected to have a higher share price volatility than the other Oppenheimer
funds that invest mainly in equity or fixed-income securities because of the
special risks to which the Fund's derivative investments are subject.
An investment in the Fund is not a deposit of any bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing the Fund's performance (for its Class A shares) for the first
full calendar year since the Fund's inception (3/31/97) and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing the annual total
return]
For the period from 1/1/99 through 9/30/99, the cumulative return (not
annualized) of Class A shares was 34.07%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown. During the period shown in the bar
chart, the highest return (not annualized) for a calendar quarter was -8.24%
(3Q'98) and the lowest return (not annualized) for a calendar quarter was
- -25.88% (4Q'98).
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Average Annual Total
Returns
for the periods ended
December 31, 1998 1 Year Life of class
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Class A Shares (inception -48.02% -35.13%
3/31/97)
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Goldman Sachs Commodity -35.75% -25.85%1
Index (GSCI)
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Class B Shares (inception -47.96% -34.94%
3/31/97)
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Class C Shares (inception -45.79% -33.51%
3/31/97)
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Class Y Shares (inception -44.75% -32.84%
3/31/97)
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1 From 3/31/97.
The Fund's average annual total returns include applicable sales charges: for
Class A, the current maximum initial sales charge of 5.75%; for Class B, the
contingent deferred sales charge of 5% (1-year) and 4% (life-of-class); and for
Class C, the 1% contingent deferred sales charge for the 1-year period. There is
no sales charge for Class Y. The returns measure the performance of a
hypothetical account and assume that all dividends and capital gains
distributions have been reinvested in additional shares. The Fund's performance
is compared to the Goldman Sachs Commodity Index (GSCI), a composite index of
commodity sector returns representing an unleveraged, long-term investment in
commodity futures. Index performance reflects reinvestment of income
distributions but does not consider the effects of capital gains or transaction
costs. The Fund may have investments that vary from the index and is not an
"index" fund. Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other transaction expenses directly, such as sales charges. The
following tables are provided to help you understand the fees and expenses you
may pay if you buy and hold shares of the Fund. The numbers below are based on
the Fund's expenses for the fiscal year ended August 31, 1999.
Shareholder Fees (charges paid directly from your investment):
Class B Class C Class Y
Class A Shares Shares Shares Shares
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Maximum Sales Charge
(Load) on purchases 5.75% None None None
(as % of offering price)
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Maximum Deferred Sales
Charge (Load) (as % of
the lower of the None1 5%2 1%3 None
original offering price
or redemption proceeds)
1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
Class A Class B Class C Class Y
Shares Shares Shares Shares
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Management Fees 1.00% 1.00% 1.00% 1.00%
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Distribution and/or 0.24% 1.00% 1.00% None
Service (12b-1) Fees
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Other Expenses 0.58% 0.58% 0.58% 0.68%
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Total Annual Operating 1.82% 2.58% 2.58% 1.68%
Expenses
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.
Examples. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated and reinvest your dividends and distributions.
<PAGE>
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
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Class A Shares $749 $1,115 $1,504 $2,589
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Class B Shares $761 $1,102 $1,570 $2,560
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Class C Shares $361 $802 $1,370 $2,915
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Class Y Shares $171 $530 $913 $1,987
If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
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Class A Shares $749 $1,115 $1,504 $2,589
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Class B Shares $261 $802 $1,370 $2,560
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Class C Shares $261 $802 $1,370 $2,915
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Class Y Shares $171 $530 $913 $1,987
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 1. Class
B expenses for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's portfolio
among different investments will vary over time based upon the Sub-Advisor's
evaluation of economic and market trends. The Fund's portfolio might not always
include all of the different types of investments described below. The Statement
of Additional Information contains more detailed information about the Fund's
investment policies and risks.
Because the Fund's assets are not invested solely in commodity-linked
investments, and because the Fund's commodity-linked investments may be
allocated in amounts that vary from the proportional weightings in the GSCI, the
Fund is not an "index" fund.
Commodity-Linked Derivative Investments. The value of a commodity-linked
derivative investment typically is based upon the price movements of a
physical commodity (such as heating oil, livestock, or grains), a
commodity futures contract or commodity index, or some other readily
measurable economic variable dependent upon changes in the value of
commodities or the commodities markets.
The Fund invests in commodity-linked derivative investments that are
hybrid instruments that qualify for exemption from certain regulation
under the Commodity Exchange Act so that the Fund will not be considered a
"commodity pool." Appendix A to the Statement of Additional Information
describes these qualifying hybrid instruments. The Fund may invest up to
100% of its total assets in qualifying hybrid instruments. Additionally,
from time to time the Fund may invest in other hybrid instruments that do
not qualify for exemption from certain regulation under the Commodity
Exchange Act.
Index-Linked and Commodity-Linked "Structured" Notes. The Fund invests in
derivative debt instruments with principal and/or coupon payments linked
to the value of commodities, commodity futures contracts, or the
performance of commodity indices, such as the GSCI. These are
"commodity-linked" or "index-linked" notes. They are sometimes referred to
as "structured notes" because the terms of the debt instrument may be
structured by the issuer of the note and the purchaser. These notes may be
issued by banks, brokerage firms, insurance companies and other
corporations.
The values of these notes will rise or fall in response to changes in the
underlying commodity or related index or investment. These notes expose
the Fund economically to movements in commodity prices, but a particular
note is primarily a debt obligation. These notes also are subject to
credit and interest rate risks that in general affect the values of debt
securities. Therefore, at the maturity of the note, the Fund may receive
more or less principal than it originally invested. The Fund might receive
interest payments on the note that are more or less than the stated coupon
interest payments.
To try to reduce this risk, the Fund does not expect to invest more than
25% of its total assets in structured notes under whose terms the
potential loss, either at redemption or maturity, exceeds 50% of the face
value of the notes. That amount is calculated at the time of investment.
The Fund does not intend to invest more than 10% of its total assets,
determined at the time of investment, in notes that mature in more than 19
months.
Futures and Options. The Fund uses futures contracts and put and call options to
attempt to increase its investment return, and to manage its exposure to
changing interest rates, commodity prices, securities prices, and other economic
variables. In the broadest sense, futures and options may be considered
derivative investments.
The Fund can purchase and sell commodity futures contracts, forward
contracts, options on futures contracts and options and futures on commodity
indices, to adjust its exposure to the returns of the commodity markets
from its other commodity-linked investments. The Fund can also buy and
sell other types of futures contracts and options relating to them.
Putand Call Options. A call option gives the buyer the right, but not the
obligation, to purchase an underlying asset at a specified price. A put
option gives the buyer the right, but not the obligation, to sell an
underlying asset at a specified price. The Fund may buy and sell
exchange-traded and over-the-counter options.
The Fund may write calls if they are "covered." For calls on securities,
that means the Fund owns the securities that are subject to the call. For
other types of calls, the Fund must segregate 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. The Fund may also write
puts. In doing so, the Fund must segregate liquid assets to cover the put.
No more than 50% of the Fund's total assets may be subject to puts that
the Fund writes.
Futures Contracts. A futures contract obligates the seller 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 commodity. Generally, the Fund
expects to satisfy or offset its delivery obligations by taking an equal,
but opposite position in the futures market in the same commodity.
Forward Contracts. The Fund may invest in forward contracts 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," a
technique that seeks to hedge against changes in currencies other than the
currency in which a security the Fund holds is denominated. The use of
forward contracts might reduce the gain on an investment that would
otherwise result from a change in the relationship between the U.S. dollar
and the foreign currency in which the investment is denominated.
Swap Transactions. Swap transactions are privately-negotiated agreements
between the Fund and a counterparty to exchange or swap investment cash
flows or assets at specified intervals in the future. The obligations may
extend beyond one year.
There is no central exchange or market for swap transactions and therefore
they are less liquid investments than exchange-traded instruments. If the
Fund were to sell a swap it owned to a third party, the Fund would still
remain primarily liable for the obligations under the swap contract.
Additionally, the Fund will bear the risk that the counterparty could
default under a swap agreement.
The Fund can engage in total return swaps. 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 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 also be
required to pay the dollar value of that decline to the counterparty.
The Fund intends to invest only in swap transactions that are exempt from
regulation by the Commodity Futures Trading Commission under the Commodity
Exchange Act. These qualifying swap transactions are described in more
detail in Appendix B to the Statement of Additional Information.
Debt Securities. The Fund buys debt securities of corporations as well as the
U.S. government or its agencies and instrumentalities. These investments may
have short-, medium-, or long-term maturities. The Fund buys debt securities for
liquidity purposes as well as the income they pay.
o
<PAGE>
U.S. Government Securities. The Fund invests in securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities.
Some of those securities are directly issued by the U.S. Treasury, such as
U.S. Treasury bills, notes and bonds. They are backed by the full faith and
credit of the U.S. government and are deemed to have the highest credit
quality. Some securities issued by U.S. government agencies, such as
Government National Mortgage Corporation pass-through mortgage obligations
("Ginnie Maes"), are also backed by the full faith and credit of the U.S.
government. 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 Mae" bonds issued by Federal National Mortgage
Corporation). Others are supported only by the credit of the agency that
issued the security (for example, "Freddie Mac" obligations issued by
Federal Home Loan Mortgage Corporation).
Mortgage-Backed Securities and Collateralized Mortgage-Backed Obligations
("CMOs"). The Fund may invest in securities issued by the U.S. government
or its agencies and instrumentalities that represent an interest in a pool
of mortgage loans. These include CMOs and other "pass-through" mortgage
securities. 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.
"Stripped" Securities. "Stripped" securities are the separate income or
principal components of a debt security. Some CMOs or other
mortgage-related securities may be stripped, with each component having a
different proportion of principal or interest payments. One class might
receive all the interest and the other all the principal payments.
Stripped securities that receive interest-only are subject to increased
volatility in price when interest rates change 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. Principal-only securities are also sensitive to changes in
interest rates. When prepayments on principal-only CMOs fall, the timing
of the cash flows to these securities increases, making them more
sensitive to interest rate changes. Stripped securities that receive
principal payments only are also subject to the additional risk that the
security will be less liquid during demand or supply imbalances.
Repurchase Agreements. The Fund can enter into repurchase agreements. They may
be used for cash management purposes or in swap transactions 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 its bankruptcy, the Fund's ability to liquidate the
collateral may be delayed or limited.
<PAGE>
Money Market Instruments. The Fund can invest in money market instruments, which
are short-term debt obligations (having a maturity of 13 months or less).
They include U.S. government obligations, commercial paper and other
short-term commercial obligations. Money market obligations can also
include certificates of deposit, bankers' acceptances, bank deposits and
other financial institution obligations of a domestic or foreign bank. The
Fund may keep a portion of its assets in cash.
Industry Focus. 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 linked to industries in the five basic
commodity sectors of the GSCI. In addition, the Fund can invest more than 25% of
its total assets in hybrid instruments and securities issued by companies in the
financial services sector (which includes, for example, the banking, brokerage
and insurance
industries). In that case, the Fund's share values will fluctuate in
response to events affecting issuers in that sector.
Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques and strategies have risks, although some are
designed to help reduce overall investment or market risks.
High-Yield Securities. The Fund can invest up to 10% of its total assets in debt
securities that are below investment grade. These are debt securities
rated below the four highest rating categories of national ratings
organizations such as Moody's Investors Services, Inc. or unrated
securities that the Sub-Advisor believes are comparable to rated
securities in those categories. High-yield, lower-grade debt securities,
whether rated or unrated, are speculative investments sometimes referred
to as "junk bonds."
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 values per
share may be adversely affected by declines in value of these securities.
"Private-Label" Mortgage-Backed Securities, CMOs, and Zero-Coupon
Obligations. The Fund may purchase mortgage-backed securities, CMOs and
zero-coupon bonds sold by private-issuers, such as banks, savings and
loans, and other entities. These obligations of private-issuers are not
backed or guaranteed by the U.S. government, and pose greater credit risk
than securities issued by the U.S. government, or its agencies and
instrumentalities.
Portfolio Turnover. The Fund may engage in short-term trading of
commodity-linked investments to try to achieve its objective. Portfolio
turnover affects brokerage costs. However, the Fund purchases many of its
investments directly from dealers without using brokers. If the Fund
realizes capital gains when it sells its portfolio investments, it must
generally pay those gains out to shareholders, increasing their taxable
distributions. The financial highlights table at the end of this
Prospectus shows the Fund's portfolio turnover rates during prior fiscal
years.
Illiquid and Restricted Securities. 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. That percentage limitation may not apply to certain
restricted securities that are eligible for resale to qualified
institutional purchasers. The Manager monitors holdings of illiquid
securities on an ongoing basis to determine whether to sell any holdings
to maintain adequate liquidity.
Temporary Defensive Investments. In times of unstable or adverse market or
economic conditions, the Fund can invest up to 100% of its total assets in
temporary defensive investments. Generally they would be cash equivalents
(such as commercial paper), money market instruments, short-term debt
securities, U.S. government securities, or repurchase agreements. They can
also include other investment-grade debt securities. The Fund might also
hold these types of securities pending the investment of proceeds from the
sale of Fund shares or portfolio securities or to meet anticipated
redemptions of Fund shares. To the extent the Fund invests defensively in
these securities, it might not achieve its investment objective of total
return.
How the Fund is Managed
The Manager and the sub-advisor. The Fund is managed by OppenheimerFunds, Inc.
(the "Manager"). Oppenheimer Real Asset Management, Inc., a wholly-owned
subsidiary of the Manager, is the Sub-Advisor for the Fund. The Sub-Advisor is
responsible for selecting the Fund's investments and handling its day-to-day
business. The Manager carries out its duties, subject to the policies
established by the Fund's Board of Trustees, under an investment advisory
agreement with the Fund that states the Manager's responsibilities. The
agreement sets the fees the Fund pays to the Manager and describes the expenses
that the Fund is responsible to pay to conduct its business. The Sub-Advisor has
a Sub-Advisory agreement with the Manager and is paid by the Manager.
The Manager has operated as an investment advisor since January 1960. The
Sub-Advisor was organized in 1996. The Manager (including subsidiaries) managed
more than $110 billion in assets as of November 30, 1999, including other
Oppenheimer funds with more than 5 million shareholder accounts. The Manager and
the Sub-Advisor are located at Two World Trade Center, 34th Floor, New York, New
York 10048-0203.
Portfolio Managers. The portfolio managers of the Fund are Russell Read and
John Kowalik. Kevin Baum is an associate portfolio manager of the
Fund. They are the persons principally responsible for the day-to-day
management of the Fund's portfolio. Messrs. Read and Kowalik are
Senior Vice Presidents of the Manager and Vice Presidents of the Fund.
Mr. Read is also a Vice President of the Sub-Advisor and has been a
portfolio manager of the Fund since its inception. Messrs. Read,
Kowalik and Baum are Chartered Financial Analysts.
Mr. Read joined the Manager in October 1993 as Director of Quantitative
Research. Mr. Kowalik became a Senior Vice President of the Manager in June
1998 and joined the Fund's portfolio management team May 24, 1999. Before
joining the Manager, Mr. Kowalik was Managing Director and Senior Portfolio
Manager at Prudential Global Advisors (1989-June 1998). Mr. Kowalik serves
as an officer and portfolio manager of other Oppenheimer funds. Mr. Baum
joined the Fund's portfolio management team May 24, 1999. He has served as
the Fund's principal trader since its inception in March 1997. Previously,
Mr. Baum was a trading and securities analyst for the Manager
(1993-February 1997).
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines as the Fund's
assets grow: 1.0% of the first $200 million of average annual 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 pays the Sub-Advisor the
following annual fees: 0.50% of the first $200 million of average annual
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's management fee for its last fiscal year
ended August 31, 1999 was 1.00% of average annual net assets of each class
of shares.
Year 2000 ISSUES. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and issuers may
incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Sub-Advisor, the Distributor and the Transfer Agent have
been working on necessary changes to their computer systems to deal with the
year 2000 and expect that their systems will be adapted in time for that event,
although there cannot be assurance of success. Additionally, the services they
provide depend on the interaction of their computer systems with those of
brokers, information services, the Fund's custodian and other parties.
Therefore, any failure of the computer systems of those parties to deal with the
year 2000 may also have a negative effect on the services they provide to the
Fund. The extent of that risk cannot be ascertained at this time.
ABOUT YOUR ACCOUNT
How to Buy Shares
HOW do you buy shares? You can buy shares several ways, as described below. The
Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing agents to
accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares.
Buying Shares Through Your Dealer. You can buy shares through any dealer,
broker, or financial institution that has a sales agreement with the
Distributor. Your
dealer will place your order with the Distributor on your behalf.
BuyingShares Through the Distributor. Complete an OppenheimerFunds New Account
Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If
you don't list a dealer on the application, the Distributor will act as
your agent in buying the shares. However, we recommend that you discuss
your investment with a financial advisor before you make a purchase to be
sure that the Fund is appropriate for you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor may
be paid for by Federal Funds wire. The minimum investment is $2,500.
Before sending a wire, call the Distributor's Wire Department at
1.800.525.7048 to notify the Distributor of the wire, and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink, you
pay for shares by electronic funds transfers from your bank account.
Shares are purchased for your account by a transfer of money from your
bank account through the Automated Clearing House (ACH) system. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. Please refer to "AccountLink," below for
more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of the
Fund (and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder
Application and the Statement of Additional Information.
How Much Must You Invest? You can buy Fund shares with a minimum initial
investment of $1,000. You can 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, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent investments
for as little as $25. You can make additional purchases of at least $25
through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing plans and
401(k) plans, you can start your account with as little as $250. If your
IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be for as little as $25.
o The minimum investment requirement does not apply to reinvesting dividends
from the Fund or other Oppenheimer funds (a list of them appears in the
Statement of Additional Information, or you can ask your dealer or call
the Transfer Agent), or reinvesting distributions from unit investment
trusts that have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price, which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
Net Asset Value. The net asset value of each class of shares is determined as
of the close of The New York Stock Exchange, on each day the Exchange is
open for trading (referred to in this Prospectus as a "regular business
day"). The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some days. All references to time in this Prospectus mean
"New York time."
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. To determine net asset value, the Fund's Board
of Trustees has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures
for valuing illiquid securities and obligations for which market values
cannot be readily obtained.
The Offering Price. To receive the offering price for a particular day, in most
cases the
Distributor or its designated agent must receive your order by the time of
day The New York Stock Exchange closes that day. If your order is received
on a day when the Exchange is closed or after it has closed, the order
will receive the next offering price that is determined after your order
is received.
Buying Through a Dealer. If you buy shares through a dealer, your dealer must
receive the
order by the close of The New York Stock Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of
business on a regular business day (normally 5:00 P.M.) to receive that
day's offering price. Otherwise, the order will receive the next offering
price that is determined.
<PAGE>
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares. Class A Shares. If you buy Class
A shares, you pay an initial sales charge (on
investments up to $1 million for regular accounts or $500,000 for certain
retirement plans). The amount of that sales charge will vary depending on
the amount you invest. The sales charge rates are listed in "How Can You
Buy Class A Shares?" below.
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you
sell your shares within six years of buying them, you will normally pay a
contingent deferred sales charge. That contingent deferred sales charge
varies depending on how long you own your shares, as described in "How Can
You Buy Class B Shares?" below.
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of purchase, but you will pay an annual asset-based sales charge. If you
sell your shares within 12 months of buying them, you will normally pay a
contingent deferred sales charge of 1%, as described in "How Can You Buy
Class C Shares?" below.
Class Y Shares. Class Y shares generally are offered only to certain
institutional investors that have special agreements with the Distributor
and to individual investors making purchases of $2 million or more.
Which class of shares should you choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares, and not a
combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will
also depend on how much you plan to invest. For example, the reduced sales
charges available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares
of Class B or Class C .
o Investing for the Shorter Term. While the Fund is meant to be a long-term
investment, if you have a relatively short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. That is because of the effect of the Class B contingent deferred
sales charge if you redeem within six years, as well as the effect of the
Class B asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice (especially
for investments of less than $100,000), because there is no initial sales
charge on Class C shares, and the contingent deferred sales charge does not
apply to amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales charge
available for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend
to hold your shares. For that reason, the Distributor normally will not
accept purchase orders of $500,000 or more of Class B shares or $1 million
or more of Class C shares from a single investor.
o Investing for the Longer Term. If you are investing less than $100,000 for
the longer-term, for example for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
appropriate. Of course, these examples are based on approximations of the
effect of current sales charges and expenses projected over time, and do
not detail all of the considerations in selecting a class of shares. You
should analyze your options carefully with your financial advisor before
making that choice.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B or Class C shareholders. Other
features may not be advisable (because of the effect of the contingent
deferred sales charge) for Class B or Class C shareholders. Therefore, you
should carefully review how you plan to use your investment account before
deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are
not borne by Class A or Class Y shares, such as the Class B and Class C
asset-based sales charge described below and in the Statement of
Additional Information. Share certificates are not available for Class B
and Class C shares, and if you are considering using your shares as
collateral for a loan, that may be a factor to consider.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, may
receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B and Class
C contingent deferred sales charges and asset-based sales charges have the
same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by
the dealer or financial institution for its own account or for its
customers.
Special Sales Charge Arrangements and Waivers. Appendix E to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special condition
applies.
HOW CAN you BUY CLASS A SHARES? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Net 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 5.50% 5.82% 4.75%
less than $50,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$50,000 or more but 4.75% 4.99% 4.00%
less than $100,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$100,000 or more
but less than 3.75% 3.90% 3.00%
$250,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$250,000 or more
but less than 2.50% 2.56% 2.00%
$500,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$500,000 or more
but less than $1 2.00% 2.04% 1.60%
million
Class A Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more or for certain purchases by particular types of
retirement plans described in Appendix E to the Statement of Additional
Information. The Distributor pays dealers of record commissions in an amount
equal to 1.0% of purchases of $1 million or more other than by those retirement
accounts. For those retirement plan accounts, the commission is 1.0% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of purchases
over $5 million, based on the cumulative purchases during the prior 12 months
ending with the current purchase. In either case, the commission will be paid
only on purchases that were not previously subject to a front-end sales charge
and dealer commission.1
1No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another mutual fund 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, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
That commission will not be paid on purchases of shares in amounts of $1
million or more (including any right of accumulation) by a retirement plan
that pays for the purchase with the redemption of Class C shares of one or
more Oppenheimer funds held by the plan for more than one year.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the lesser of (1) the aggregate net asset value of the redeemed shares at
the time of redemption (excluding shares purchased by reinvestment of
dividends or capital gain distributions) or (2) the original net asset
value of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all purchases of Class A shares of all
Oppenheimer funds you made that were subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not
subject to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them.
The Class A contingent deferred sales charge is not charged on exchanges of
shares under the Fund's exchange privilege (described below). However, if
the shares acquired by exchange are redeemed within 18 calendar months of
the end of the calendar month in which the exchanged shares were
originally purchased, then the sales charge will apply.
Can You Reduce Class A Shares Sales Charges? You may be eligible to buy Class
A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales
Charges" in the Statement of Additional Information:
HOW CAN you BUY CLASS B SHARES? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
o the amount of your account value represented by an increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix E to
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 6 years, and 3. shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<PAGE>
Years Since Beginning of Month in Contingent Deferred Sales Charge on
Which Redemptions in That Year
Purchase Order was Accepted (As % of Amount Subject to Charge)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
0 - 1 5.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 - 2 4.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2 - 3 3.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3 - 4 3.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4 - 5 2.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5 - 6 1.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6 and following None
In the table, a "year" is a 12-month period. In applying the sales charge, the
holding period is measured from the day you purchase the shares.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion feature
relieves Class B shareholders of the asset-based sales charge that applies
to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value
of the two classes, and no sales load or other charge is imposed. When any
Class B shares that you hold covert, your Class B shares that were
acquired by reinvesting dividends and distributions on the converted
shares will also convert to Class A shares. The conversion feature is
subject to the continued availability of a tax ruling described in the
Statement of Additional Information.
How Can you Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
o the amount of your account value represented by the increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix E to
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains distributions,
2. shares held for over 12 months, and
3. shares held the longest during the 12-month period.
Who Can Buy Class Y Shares? Class Y shares are sold at net asset value per share
without sales charge directly to institutional investors that have special
agreements with the Distributor for this purpose. They may include insurance
companies, registered investment companies and employee benefit plans. For
example, Massachusetts Mutual Life Insurance Company, an affiliate of the
Manager, 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.
The Distributor may also accept purchase orders from individual investors
who invest $2 million or more in their account. An individual investor may not
acquire Class Y classes that would represent 10% of the Fund's total assets.
An institutional investor that buys Class Y shares for its customers'
accounts may impose charges on those accounts. The procedures for buying,
selling, exchanging and transferring the Fund's other classes of shares (other
than the time these orders must be received by the Distributor or Transfer Agent
in their Colorado office) and the special account features available to
investors buying those other classes of shares do not apply to Class Y shares.
Instructions for purchasing, redeeming, exchanging, or transferring Class Y
shares held by institutional investors must be submitted by the institutional
investor, not by its customers for whose benefit the shares are held.
Distribution and Service (12b-1) Plans.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred
for services provided to accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate of up to 0.25% of the average annual
net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
pay the Distributor for its services and costs in distributing Class B and
Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class
B shares and on Class C shares. The Distributor also receives a service
fee of 0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may
cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the
first year after the shares are sold by the dealer. After the shares have
been held for a year, the Distributor pays the service fees to dealers on
a quarterly basis.
The Distributor currently pays a sales commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sales of Class B shares is
therefore 4.00% of the purchase price. The Distributor retains the Class B
asset-based sales charge.
The Distributor currently pays a sales commission of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class C shares is
therefore 1.00% of the purchase price. The Distributor pays the
asset-based sales charge as an ongoing commission to the dealer on Class C
shares that have been outstanding for a year or more.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends and
distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.852.8457. The purchase payment
will be debited from your bank account.
<PAGE>
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1.800.533.3310.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by phone,
by calling 1.800.533.3310. You must have established AccountLink privileges
to link your bank account with the Fund to pay for these purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established
by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
REINVESTMENT PRIVILEGE. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C or Class Y shares. You must be
sure to ask the Distributor for this privilege when you send your payment.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that individuals
and employers can use:
Individual Retirement Accounts (IRAs). These include regular IRAs, Roth IRAs,
SIMPLE IRAs, rollover IRAs and Education IRAs. SEP-IRAs. These are Simplified
Employee Pension Plan IRAs for small business owners or self-employed
individuals. 403(b)(7) Custodial Plans. These are tax-deferred plans for
employees of eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations. 401(k) Plans. These are special retirement plans for
businesses. Pension and Profit-Sharing Plans. These plans are designed for
businesses and self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your order
is received in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis. If you have questions
about any of these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner or from a retirement
plan account, please call the Transfer Agent first, at 1.800.525.7048, for
assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
also require a signature guarantee):
o You wish to redeem $100,000 or more 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 being redeemed by someone (such as an Executor) other than
the
owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal securities or
government securities, or
o a U.S. national securities exchange, a registered securities association
or a clearing agency.
o If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the
signature.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting
your money and if you do not want tax withheld. If your employer holds
your retirement plan account for you in the name of the plan, you must ask
the plan trustee or administrator to request the sale of the Fund shares
in your plan account.
HOWDO you SELL 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 documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
Use the following address for Send courier or express mail
Requests by mail: Requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver Colorado 80217 Denver, Colorado 80231
HOW DO you SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held in an OppenheimerFunds retirement plan account or under a share
certificate by telephone.
o To redeem shares through a service representative, call 1.800.852.8457 o To
redeem shares automatically on PhoneLink, call 1.800.533.3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
<PAGE>
ARE THERE LIMITS ON AMOUNTS REDEEMED BY TELEPHONE?
Telephone Redemptions Paid by Check. Up to $100,000 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.
Telephone Redemptions Through AccountLink. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated
on the business day after the redemption. You do not receive dividends on
the proceeds of the shares you redeemed while they are waiting to be
transferred.
CAN YOU SELL 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. Shares
of the Fund can be purchased by exchange of shares of other Oppenheimer funds on
the same basis. 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 both funds 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 whose shares
you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can
exchange Class A shares of this Fund only for Class A shares of another
fund. In some cases, sales charges may be imposed on exchange transactions.
For tax purposes, exchanges of shares involve a sale of the shares of the
fund you own and a purchase of the shares of the other fund, which may
result in a capital gain or loss. Please refer to "How to Exchange Shares"
in the Statement of Additional Information for more details.
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.
<PAGE>
HOW DO you SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing or by
telephone:
Written Exchange Requests. Submit an OppenheimerFunds Exchange Request form,
signed by all owners of the account. Send it to the Transfer Agent at the
address on the back cover. Exchanges of shares held under certificates
cannot be processed unless the Transfer Agent receives the certificates
with the request.
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.
ARE THERE LIMITATIONS ON EXCHANGES? 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 conforms to the
policies described above. It must be received by the close of The New York
Stock Exchange that day, which is normally 4:00 P.M. but may be earlier on
some days. However, either fund may delay the purchase of shares of the
fund you are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day exchange. For example, the receipt of multiple
exchange requests from a "market timer" might require the Fund to sell
securities at a disadvantageous time or price.
o Because excessive trading can hurt fund performance and harm shareholders,
the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so by
applicable law, but it may impose changes at any time for emergency
purposes.
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
More information about the Fund's policies and procedures for buying, selling,
and exchanging shares is contained in the Statement of Additional Information.
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.
Telephone transaction privileges for purchases, redemptions or exchanges may be
modified, suspended or terminated by the Fund at any time. If an account
has more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless
the Transfer Agent receives cancellation instructions from an owner of the
account.
<PAGE>
The Transfer Agent will record any telephone calls to verify data concerning
transactions and has adopted other procedures to confirm that telephone
instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund
will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
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.
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.
The redemption price for shares will vary from day to day because the value of
the securities in the Fund's portfolio fluctuates. The redemption price,
which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less
than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by check
or through AccountLink (as elected by the shareholder) within seven days
after the Transfer Agent receives redemption instructions in proper form.
However, under unusual circumstances determined by the Securities and
Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be
forwarded within three business days after redemption.
The Transfer Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the purchase
payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of
share purchase orders.
Sharesmay be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that
the redemption proceeds will be paid with liquid securities from the
Fund's portfolio.
"Backup withholding" of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
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 intends to declare dividends separately for each class of
shares from net investment income, if any, on a quarterly basis in March, June,
September and December and to pay them on a date selected by the Board of
Trustees. Dividends and distributions paid to Class A and Class Y shares will
generally be higher than dividends for Class B or Class C shares, which normally
have higher expenses than Class A and Class Y shares. There is no fixed dividend
rate and there can be no assurance as to the payment of any dividends.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
WHAT CHOICES do you have FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends and
distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all dividends
and capital gains distributions in additional shares of the Fund.
Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions
(dividends, short-term capital gains or long-term capital gains
distributions) in the Fund while receiving the other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your bank
through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
The Fund has obtained an opinion of counsel concerning the treatment of
hybrid instruments for purposes of those requirements. That opinion 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. The opinion is not binding on the IRS.
If the Fund chooses not to qualify as a regulated investment company, if the IRS
challenges the Fund's opinion and its challenge is upheld, or if the Fund
otherwise fails to qualify as a regulated investment company, the Fund may be
disqualified as a regulated investment company. Then the Fund will be subject to
federal income tax on its net income at regular corporate rates (without a
deduction for distributions to shareholders). When distributed, that income
would then be taxable to shareholders as an ordinary dividend.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
Avoid "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 capital gain.
Remember, There May be Taxes on Transactions. Because the Fund's share prices
fluctuate, you may have a capital gain or loss when you sell or exchange
your shares. A capital gain or loss is the difference between the price
you paid for the shares and the price you received when you sold them. Any
capital gain is subject to capital gains tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is present to help you understand the Fund's
financial performance for the past 3 fiscal periods. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP, the
Fund's independent auditors, whose report, along with the Fund's financial
statements, is included in the Statement of Additional Information, which is
available on request.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C>
Class A Year Ended August 31, 1999
1998 1997(1)
===================================================================================================
Per Share Operating Data
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.81
$10.31 $10.00
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20
.29 .09
Net realized and unrealized gain (loss) .09
(4.59) .22
- --------------------------------------
Total income (loss) from investment operations .29
(4.30) .31
- ---------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.36)
(.20) --
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $5.74 $
5.81 $10.31
======================================
===================================================================================================
Total Return, at Net Asset Value(2) 6.50%
(42.43)% 3.10%
- ---------------------------------------------------------------------------------------------------
===================================================================================================
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $109,328
$62,568 $37,687
- ---------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 66,106
$59,251 $18,361
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.73%
4.59% 4.27%
Expenses 1.82%
1.66%(4) 1.74%(4)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
22 OPPENHEIMER REAL ASSET FUND
<PAGE>
Class B Year Ended August 31, 1999
1998 1997(1)
===================================================================================================
Per Share Operating Data
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.76
$10.27 $10.00
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16
.28 .07
Net realized and unrealized gain (loss) .10
(4.62) .20
- --------------------------------------
Total income (loss) from investment operations .26
(4.34) .27
- ---------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.27)
(.17) --
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $5.75 $
5.76 $10.27
======================================
===================================================================================================
Total Return, at Net Asset Value(2) 5.75%
(42.89)% 2.70%
- ---------------------------------------------------------------------------------------------------
===================================================================================================
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $18,690
$17,357 $16,471
- ---------------------------------------------------------------------------------------------------
Average net assets (in thousands) $15,454
$22,659 $ 7,388
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.95%
3.87% 3.35%
Expenses 2.58%
2.39%(4) 2.56%(4)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
23 OPPENHEIMER REAL ASSET FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
Class C Year Ended August 31, 1999
1998 1997(1)
===================================================================================================
Per Share Operating Data
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.76
$10.26 $10.00
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .15
.26 .08
Net realized and unrealized gain (loss) .11
(4.60) .18
- --------------------------------------
Total income (loss) from investment operations .26
(4.34) .26
- ---------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.29)
(.16) --
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $5.73 $
5.76 $10.26
======================================
===================================================================================================
Total Return, at Net Asset Value(2) 5.68%
(42.87)% 2.60%
- ---------------------------------------------------------------------------------------------------
===================================================================================================
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $15,965
$10,243 $10,616
- ---------------------------------------------------------------------------------------------------
Average net assets (in thousands) $10,477
$12,060 $ 5,599
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.96%
3.87% 3.34%
Expenses 2.58%
2.38%(4) 2.56%(4)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
24 OPPENHEIMER REAL ASSET FUND
<PAGE>
Class Y Year Ended August 31, 1999
1998 1997(1)
===================================================================================================
Per Share Operating Data
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $5.81
$10.31 $10.00
- ---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20
.42 .20
Net realized and unrealized gain (loss) .10
(4.71) .11
- --------------------------------------
Total income (loss) from investment operations .30
(4.29) .31
- ---------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.39)
(.21) --
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $5.72 $
5.81 $10.31
======================================
===================================================================================================
Total Return, at Net Asset Value(2) 6.77%
(42.38)% 3.10%
- ---------------------------------------------------------------------------------------------------
===================================================================================================
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1
$1 $1
- ---------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1
$1 $1
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.88%
4.84% 4.75%
Expenses 1.68%
1.40%(4) 1.57%(4)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
</TABLE>
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
25 OPPENHEIMER REAL ASSET FUND
<PAGE>
INFORMATION AND SERVICES
For More Information on Oppenheimer Real Asset Fund
The following additional information about the Fund is available without charge
upon request:
STATEMENT OF ADDITIONAL INFORMATION This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Get More Information:
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
- ----------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:
1.800.525.7048
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
On the Internet: You can send us a request by e-mail or
read or down-load documents on the
OppenheimerFunds website:
http://www.oppenheimerfunds.com
- ----------------------------------------------------------------------------
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1.202.942.8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained after payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected], or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
SEC File No. 811-07857 The Fund's shares are distributed by:
PR0735.001.1299
Printed on recycled paper. [logo] OppenheimerFunds Distributor, Inc.
<PAGE>
88
Oppenheimer Real Asset Fund
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated December 28, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated December 28, 1999. 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, by calling the Transfer Agent at the toll-free number shown above, or by
downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information about the Fund's Investment Policies and Risks... 2
The Fund's Investment Policies....................................... 2
Other Investment Techniques and Strategies........................... 17
Other Investment Restrictions........................................ 34
How the Fund is Managed................................................. 36
Organization and History............................................. 36
Trustees and Officers of the Fund.................................... 37
The Manager and the Sub-Advisor...................................... 43
Brokerage Policies of the Fund.......................................... 44
Distribution and Service Plans.......................................... 46
Performance of the Fund................................................. 50
About Your Account
How To Buy Shares....................................................... 54
How To Sell Shares...................................................... 62
How To Exchange Shares.................................................. 66
Dividends, Capital Gains and Taxes...................................... 69
Additional Information About the Fund................................... 71
Financial Information About the Fund
Independent Auditors' Report............................................ 72
Financial Statements ................................................... 73
Appendix A: CFTC Exemption for Qualifying Hybrid Instruments ..........A-1
Appendix B: CFTC Exemption for Swap Transactions ......................B-1
Appendix C: Bond Ratings ..............................................C-1
Appendix D: Corporate Industry Classifications.........................D-1
Appendix E: Special Sales Charge Arrangements and Waivers..............E-1
- -------------------------------------------------------------------------------
<PAGE>
A B O U T T H E F U N D
- --------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
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 Fund's Investment Policies. The Fund intends to invest in a portfolio
consisting primarily of commodity-linked derivative investments, including
structured notes that are hybrid instruments, options, futures and forward
contracts, swaps, and other debt securities such as corporate debt and U.S.
government securities for liquidity and income. The prices of commodity-linked
hybrid investments may move in different directions than investments in
traditional equity and debt securities when the value of those traditional
securities is declining due to adverse economic conditions. As an example,
during periods of rising inflation, historically debt securities have tended to
decline in value due to the general increase in prevailing interest rates.
Conversely, during those same periods of rising inflation, historically the
prices of certain commodities, such as oil and metals, have tended to increase.
Of course, there cannot be any guarantee that these investments will perform in
that manner in the future, and certain times the price movements of
commodity-linked investments have been parallel to debt and equity securities.
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 generally was negative.
That is, as financial assets increased in value, the value of commodities tended
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 may not provide overall portfolio diversification
benefits. In fact, during 1995 and 1996 commodities prices generally were not
negatively correlated with financial assets. However, in 1997 and 1998 commodity
prices generally were negatively correlated with financial assets.
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 may be expected not to
perform as well as an investment in traditional securities. Over the long term,
the returns on the Fund's investments are expected to exhibit low or negative
correlation with stocks and bonds.
The Fund intends to spread its investments among instruments linked to at
least five broad commodity market sectors under normal market conditions. The
five principal sectors of the Goldman Sachs Commodity Index ("GSCI") include:(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.
<PAGE>
In selecting investments for the Fund's portfolio, Oppenheimer Real Asset
Management, Inc. (the "Sub-Advisor") evaluates the merits of the investments
primarily through the exercise of its own investment analysis. In the case of
hybrid instruments, that process 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 by any form of credit enhancement or guarantee.
The percentage of the Fund's assets linked to particular commodity markets
will vary from time to time based on the Sub-Advisor's assessment of the
appreciation possibilities of particular markets as well as rates of inflation,
interest rates, current spot market prices and other non-economic 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 to maintain liquidity and provide income.
n Investments in Hybrid Instruments. A primary vehicle for gaining exposure to
the commodities markets is through hybrid instruments. These are either equity
or debt derivative 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." They 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 A to this Statement of Additional
Information, "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 Sub-Advisor's decision on whether to use principal protection
depends in part on the cost of the protection. In addition, the protection
feature depends upon the ability of the issue to meet its obligation to buy back
the security, and therefore depends on the creditworthiness of the issuer.
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.
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 Sub-Advisor, 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 Sub-Advisor 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 Sub-Advisor believes are relevant.
o Limitations on Leverage. As discussed in the Prospectus, some of the hybrid
instruments in which the Fund invests may involve leverage. To avoid being
subject to undue leverage risk, the Fund will seek to limit the amount of
economic leverage it has under one hybrid instrument in which it invests and the
leverage of the Fund's overall portfolio. The Fund will not invest in a hybrid
instrument if, at the time of purchase:
1. that instrument's "leverage ratio" exceeds 300% of the price increase in the
underlying commodity, futures contract, index or other economic variable; or
2. the Fund's "portfolio leverage ratio" exceeds 150%, measured at the time of
purchase.
"Leverage ratio" is 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.
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 (ratings of AAA or AA
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").
n Options and Futures. The Fund can buy and sell options, futures and
forward contracts for various purposes:
o to try to manage the risk that the prices of its portfolio securities and
instruments may decline,
o to establish a position in the futures or options market as a temporary
substitute for purchasing individual securities or instruments,
o to attempt to enhance its income or return by purchasing and selling
call and put options on commodity futures, commodity indices,
financial indices or securities.
The Fund can buy futures related to:
o foreign currencies (these are called forward contracts),
o 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),
o interest rates (these are referred to as interest rate futures), and
o commodities (these are referred to as commodities futures)
The Fund may enter into futures contracts or related options for purposes
that may be considered speculative. In those cases, the aggregate initial margin
for futures contracts and premiums for options (or, in the case of
non-qualifying hybrid instruments, the portion of the margin attributable to the
options premium) will not exceed 5% of the Fund's net assets. That amount is
calculated after taking into account realized profits and unrealized losses on
such futures contracts.
n Commodity Futures Contracts. The Fund can invest a substantial portion of
its
assets in commodity futures contracts. Some of the special characteristics and
risks of these investments are described below.
Commodity futures contracts are an agreement between two parties. One
party agrees to buy an asset from the other party at a later date at a price and
quantity agreed-upon when the contract is made. 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 that 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.
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-traded
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.
When purchasing stocks or bonds, the buyer acquires ownership in the
security, however 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 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 more
trades may be executed above (or below, if the price has moved downward) that
limit. If the Fund wishes to execute a trade outside the daily permissible price
movement, it would be prevented from doing so by exchange rules, and would have
to wait for 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 therefore the prices of Fund shares, may be subject to greater volatility.
o Marking-to-Market 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 Special Risks of Commodity Futures Contracts.
o Storage Costs. As in 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 proportionately.
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 that 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 will influence 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.
The initial margin requirements are typically between 3% and 6% of the face
value of the contract. That means 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.
n 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. The Fund may
use options as part of its trading strategy as well as for hedging purposes, as
described in "Hedging," below.
o Over-The-Counter Options. The Fund may buy and sell over-the-counter options.
Over-the-counter options are not traded on an exchange. They 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, as
with other derivative investments, over-the-counter options are subject to
counterparty risk. The Fund will have the credit risk that the seller of an
over-the-counter option will not perform its obligations under the option
agreement if the Fund exercises the option. To reduce this risk, the Fund
intends to transact these trades, to the extent practicable, with issuers that
have an investment-grade credit rating. The Fund may buy and sell
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 buy and sell trade listed options on
commodity futures contracts. Options on commodity futures contracts are traded
on the same exchange on which the underlying 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 futures contracts on foreign
exchanges are exposed to the risk of foreign currency fluctuations against the
U.S. dollar. The Fund may also buy and sell 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." Swap call options provide the holder of the option with the right to
enter a swap contract having a specified (strike) swap formula, while swap put
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, if the Fund exercises a swap call option with
the option seller, the credit risk of the counterparty is extended to include
the term of the swap agreement.
n Swaps. A swap contract is essentially like a portfolio of forward
contracts, under
which one party agrees to exchange an asset (for example, bushels of wheat) for
another asset (cash) at specified dates in the future. A one-period swap
contract operates in a manner similar to a forward or futures contract because
there is an agreement to swap a commodity 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 invest in total return swaps to gain exposure to the overall
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.
<PAGE>
Counterparty Risk. Swap contracts are private transactions that are
customized to meet the specific investment requirements of the parties. The Fund
will be exposed to the performance risk of its counterparty. If the counterparty
is unable to perform its obligations under the swap contract at maturity of the
swap or any interim payment date, the Fund may not receive the payments due it
under the swap agreement. To reduce this risk, the Fund will enter in swaps, 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 are
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 on its books 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 not been determined to be securities
under the rules promulgated 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 protections of the Commodity
Exchange Act or the federal securities laws.
To reduce this risk, the Sub-Advisor will only enter into swap agreements
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 principal swap participants
use ISDA documentation because it has an established set of definitions,
contract terms, and counterparty obligations.
ISDA documentation also includes 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."
n Other Debt Securities. Additional information is provided below about the
types of debt and fixed income securities the Fund may invest in, primarily for
liquidity purposes.
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 and are considered to be of the
highest credit quality, although they are generally not rated by rating
organizations.
o Treasury Inflation-Protection Securities. The Fund can buy these U.S. Treasury
securities, called "TIPS," that are designed to provide an investment vehicle
that is not vulnerable to inflation. The interest rate paid by TIPS is fixed.
The principal value rises or falls semi-annually based on changes in the
published Consumer Price Index. If inflation occurs, the principal and interest
payments on TIPS are adjusted to protect investors from inflationary loss. If
deflation occurs, the principal and interest payments will be adjusted downward,
although the principal will not fall below its face amount at maturity.
o Zero-Coupon U.S. Government Securities. Some of the U.S. government securities
the Fund can buy may be zero-coupon bonds that pay no interest and are issued at
a substantial discount from their face value. They are subject to greater
fluctuations in market value as interest rates change than interest-paying
securities. For financial and tax purposes, interest accrues on zero-coupon
bonds even though cash is not actually received by the Fund. The Fund may have
to pay out the imputed income on zero-coupon securities without receiving the
actual cash currently.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. The discount
typically decreases as the maturity date approaches.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities that pay interest. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon securities
tend to rise more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
o Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private-issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real-estate
related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related securities
tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of "locking in" attractive long-term interest
rates, and they may have less potential for appreciation during periods of
declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
duration. Generally, that would cause the value of the security to fluctuate
more widely in responses to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.
As with other debt securities, the values of mortgage-related securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.
Collateralized Mortgage Obligations. CMOs are multi-class bonds that are
backed by pools of mortgage loans or mortgage pass-through certificates. They
may be collateralized by:
(1) pass-through certificates issued or guaranteed by Ginnie
Mae, Fannie Mae, or Freddie Mac,
(1) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans'
Affairs,
(3) unsecuritized conventional mortgages, (4) other mortgage-related securities,
or (5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the reverse direction to an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
o U.S. Government Mortgage-Related Securities. The Fund can invest in a
variety of mortgage-related securities that are issued by U.S. government
entities or instrumentalities, some of which are described below.
o GNMA Certificates. The Government National Mortgage Association ("GNMA") is a
wholly-owned corporate instrumentality of the United States within the U.S.
Department of Housing and Urban Development. GNMA's principal programs involve
its guarantees of privately-issued securities backed by pools of mortgages.
Ginnie Maes are debt securities representing an interest in one or a pool of
mortgages that are insured by the Federal Housing Administration or the Farmers
Home Administration or guaranteed by the Veterans Administration
The Ginnie Maes in which the Fund invests are of the "fully modified
pass-through" type. They provide that the registered holders of the Ginnie Maes
will receive timely monthly payments of the pro-rata share of the scheduled
principal payments on the underlying mortgages, whether or not those amounts are
collected by the issuers. Amounts paid include, on a pro rata basis, any
prepayment of principal of such mortgages and interest (net of servicing and
other charges) on the aggregate unpaid principal balance of the Ginnie Maes,
whether or not the interest on the underlying mortgages has been collected by
the issuers.
The Ginnie Maes purchased by the Fund are guaranteed as to timely payment
of principal and interest by GNMA. In giving that guaranty, GNMA expects that
payments received by the issuers of Ginnie Maes on account of the mortgages
backing the Ginnie Maes will be sufficient to make the required payments of
principal of and interest on those Ginnie Maes. However if those payments are
insufficient, the guaranty agreements between the issuers of the Ginnie Maes and
GNMA require the issuers to make advances sufficient for the payments. If the
issuers fail to make those payments, GNMA will do so.
Under federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under any
guaranty issued by GNMA as to such mortgage pools. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that such
guaranties "constitute general obligations of the United States backed by its
full faith and credit." GNMA is empowered to borrow from the United States
Treasury to the extent necessary to make any payments of principal and interest
required under those guaranties.
Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to the
extent of payments received by the issuers on account of such mortgages, Ginnie
Maes do not constitute a liability of those issuer, nor do they evidence any
recourse against those issuers. Recourse is solely against GNMA. Holders of
Ginnie Maes (such as the Fund) have no security interest in or lien on the
underlying mortgages.
Monthly payments of principal will be made, and additional prepayments of
principal may be made, to the Fund with respect to the mortgages underlying the
Ginnie Maes owned by the Fund. All of the mortgages in the pools relating to the
Ginnie Maes in the Fund are subject to prepayment without any significant
premium or penalty, at the option of the mortgagors. While the mortgages on
1-to-4-family dwellings underlying certain Ginnie Maes have a stated maturity of
up to 30 years, it has been the experience of the mortgage industry that the
average life of comparable mortgages, as a result of prepayments, refinancing
and payments from foreclosures, is considerably less.
o Federal Home Loan Mortgage Corporation ("FHLMC") Certificates. FHLMC, a
corporate instrumentality of the United States, issues FHLMC certificates
representing interests in mortgage loans. FHLMC guarantees to each registered
holder of a FHLMC certificate timely payment of the amounts representing a
holder's proportionate share in: (i) interest payments less servicing and
guarantee fees, (ii) principal prepayments and (i) the ultimate collection of
amounts representing the holder's proportionate
interest in principal payments on the mortgage loans in the pool
represented by the FHLMC certificate, in each case whether or not such
amounts are actually received.
The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.
o Federal National Mortgage Association (Fannie Mae) Certificates. Fannie Mae, a
federally-chartered and privately-owned corporation, issues Fannie Mae
certificates which are backed by a pool of mortgage loans. Fannie Mae guarantees
to each registered holder of a Fannie Mae certificate that the holder will
receive amounts representing the holder's proportionate interest in scheduled
principal and interest payments, and any principal prepayments, on the mortgage
loans in the pool represented by such certificate, less servicing and guarantee
fees, and the holder's proportionate interest in the full principal amount of
any foreclosed or other liquidated mortgage loan. In each case the guarantee
applies whether or not those amounts are actually received. The obligations of
Fannie Mae under its guarantees are obligations solely of Fannie Mae and are not
backed by the full faith and credit of the United States or any of its agencies
or instrumentalities other than Fannie Mae.
o Commercial (Privately-Issued) Mortgage-Related Securities. The Fund may invest
in commercial mortgage-related securities issued by private entities. Generally
these are multi-class debt or pass through certificates secured by mortgage
loans on commercial properties. They are subject to the credit risk of the
issuer. These securities typically are structured to provide protection to
investors in senior classes from possible losses on the underlying loans. They
do so by having holders of subordinated classes take the first loss if there are
defaults on the underlying loans. They may also be protected to some extent by
guarantees, reserve funds or additional collateralization mechanisms.
o "Stripped" Mortgage-related Securities. The Fund may invest in stripped
mortgage-related securities that are created by segregating the cash flows from
underlying mortgage loans or mortgage securities to create two or more new
securities. Each has a specified percentage of the underlying security's
principal or interest payments. These are a form of derivative investment.
Mortgage securities may be partially stripped so that each class
receives some interest and some principal. However, they may be completely
stripped. In that case all of the interest is distributed to holders of one type
of security, known as an "interest-only" security, or "I/O," and all of the
principal is distributed to holders of another type of security, known as a
"principal-only" security or "P/O." Strips can be created for pass through
certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to
principal repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
o Forward Rolls. The Fund can enter into "forward roll" transactions with
respect to mortgage-related securities. In this type of transaction, the Fund
sells a mortgage-related security to a buyer and simultaneously agrees to
repurchase a similar security (the same type of security, and having the same
coupon and maturity) at a later date at a set price. The securities that are
repurchased will have the same interest rate as the securities that are sold,
but typically will be collateralized by different pools of mortgages (with
different prepayment histories) than the securities that have been sold.
Proceeds from the sale are invested in short-term instruments, such as
repurchase agreements. The income from those investments, plus the fees from the
forward roll transaction, are expected to generate income to the Fund in excess
of the yield on the securities that have been sold.
The Fund will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Fund will identify on its books cash, U.S.
government securities or other high-grade debt securities in an amount equal to
the payment obligation under the roll.
These transactions have risks. During the period between the sale and the
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities.
o Commercial Paper. The Fund may invest in commercial paper, including the
following:
Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by the
Fund at varying rates of interest under 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. 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 expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are 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 Sub-Advisor 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 that are deemed illiquid are
subject to the limitation on investments by the Fund in illiquid securities,
described in the Prospectus.
o Floating Rate and Variable Rate Obligations. Variable rate obligations may
have a demand feature that allows the Fund to tender the obligation to the
issuer or a third party prior to its maturity. The tender may be at par value
plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is based on a stated
prevailing market rate, such as a bank's prime rate, the 91-day U.S. Treasury
Bill rate, or some other standard, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest rate
on such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same maturity.
The Sub-Advisor may determine that an unrated floating rate or variable rate
demand obligation meets the Fund's quality standards by reason of being backed
by a letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
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 related to
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 in the
case of mortgage-backed securities and CMOs, described above, for prepayments of
a pool of mortgage loans underlying mortgage-backed securities.
o Zero-Coupon Securities of Private-Issuers. The Fund may also invest in
zero-coupon securities issued by private-issuers such as domestic or foreign
corporations. These securities have the same interest rate risks as described
above for zero-coupon U.S. Treasury securities. 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.
o Bank Obligations and Instruments Secured By Them. The bank obligations the
Fund may invest in include time deposits, certificates of deposit, and bankers'
acceptances. They must be (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 (for example, debt that is guaranteed by the bank). For
purposes of this policy, 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. They may or may not be subject to early
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.
Bankers' 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 Other Board-Approved Instruments. The Fund may invest in other debt
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.
o High-Yield Securities. The Fund may invest up to 10% of its total assets in
high-risk, high-yield, lower-grade debt securities (commonly called "junk
bonds"), whether they are rated or unrated. While the Fund may invest in
lower-grade debt securities, it is not currently contemplated that the Fund will
do so to a significant extent. The Sub-Advisor will not rely solely on the
ratings assigned by rating services, and the Fund may invest, without
limitation, in unrated securities which offer, in the opinion of the
Sub-Advisor, comparable yields and risks as those rated securities in which the
Fund may invest.
High-yield securities are rated "BB" or below by Standard & Poor's
Corporation or "Ba" or below by Moody's Investors Service, Inc., or have a
similar credit risk rating by another rating organization. If they are unrated,
the Sub-Advisor will assign a rating to them that the Sub-Advisor believes is of
comparable quality to rated securities. 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 "C" by Moody's or "D" by S&P.
o Special Risks of High-Yield Securities. Risks of high-yield securities
may include: limited liquidity and secondary market support,
(1) substantial market price volatility resulting from changes in
prevailing interest rates, subordination to the prior claims of banks and
other senior lenders, 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, the possibility that earnings of the
issuer may be insufficient to meet its debt service, and 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.
Other Investment Techniques and Strategies
n 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.
o Risks of Foreign Investing. Investments in foreign securities may offer
special opportunities for investing but also present special additional risks
and considerations not typically associated with investments in domestic
securities.
Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in
foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers
than in the U.S.;
o foreign exchange contracts;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss
of certificates for portfolio securities;
o foreign withholding taxes on interest and dividends;
o possibilities in some countries of expropriation, nationalization,
confiscatory taxation, political, financial or social instability or
adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be re-imposed.
o Risks of Conversion to Euro. There may be transaction costs and risks relating
to the conversion of certain European currencies to the Euro that commenced in
January 1, 1999. However, their current currencies (for example, the franc, the
mark, and the lira) will also continue in use until January 1, 2002. After that
date, it is expected that only the euro will be used in those countries. A
common currency is expected to confer some benefits in those markets, by
consolidating the government debt market for those countries and reducing some
currency risks and costs. But the conversion to the new currency will affect the
Fund operationally and also has potential risks, some of which are listed below.
Among other things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the
competitive environment from a consolidated currency market
and greater operational costs from converting to the new
currency.
This might depress stock values.
o vendors the Fund depends on to carry out its business, such as
its custodian (which holds the foreign securities the Fund
buys), the Manager (which must price the Fund's investments to
deal with the conversion to the euro) and brokers, foreign
markets and securities depositories. If they are not prepared,
there could be delays in settlements and additional costs to
the Fund.
o exchange contracts and derivatives that are outstanding during
the transition to the euro. The lack of currency rate
calculations between the affected currencies and the need to
update the Fund's contracts could pose extra costs to the
Fund.
The lack of currency rate calculations between the affected currencies and
the need to update the Fund's contracts could pose extra costs to the Fund.
The Manager has upgraded (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio managers will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
n 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 Investors Service, Inc., or by another NRSRO. If they are
unrated, they will be assigned a rating by the Sub-Advisor to be considered of
similar quality to obligations that are rated investment grade. These
investments may include:
o Corporate Bonds. The Fund may invest in debt securities issued by
domestic corporations.
o Foreign Bonds. The Fund may invest in bonds and other 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 foreign debt securities that are
denominated in foreign currencies involve certain additional risks, which are
described above, in "Foreign 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. Certain participation interests may be illiquid and are subject
to the Fund's limitations on investments in illiquid securities. 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 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. 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. 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.
n 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. The Fund will borrow only from banks. Under the requirements of the
Investment Company Act, the Fund may borrow 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. . As a
fundamental policy, the amount of borrowings is limited to not more than one
third of its total assets. 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. It might 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 one-third 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.
The Fund will borrow only if it can do so without putting up assets as
security for a loan. The Fund will pay interest on its borrowings. 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.
n When-Issued and Delayed-Delivery Transactions. The Fund can purchase
securities on a "when-issued" basis, and may purchase or sell such securities on
a "delayed-delivery" basis. "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.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. The securities are
subject to change in value from market fluctuations during the period until
settlement. The value at delivery may be less than the purchase price. For
example, changes in interest rates in a direction other than that expected by
the Manager before settlement will affect the value of such securities and may
cause a loss to the Fund. During the period between purchase and settlement, the
Fund makes no payment to the issuer and no interest accrues to the Fund from the
investment until it receives the security at settlement. There is a risk of loss
to the Fund 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 engage in when-issued transactions to secure what the Manager
considers to be an advantageous price and yield at the time the obligation is
entered into. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purposes of investment
leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
n Repurchase Agreements. The Fund can acquire securities subject to repurchase
agreements. It might do so o for liquidity purposes to meet anticipated
repurchases of Fund shares, or o pending the investment of the proceeds from
sales of Fund shares, or o pending the settlement of portfolio securities
transactions, or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. Approved vendors include U.S. commercial banks, U.S. branches of
foreign banks, or broker-dealers that have been designated as primary dealers in
government securities. They must meet credit requirements set by the Manager
from time to time. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Sub-Advisor will monitor the vendor's creditworthiness to confirm
that the vendor is financially sound and will continuously monitor the
collateral's value.
Reverse Repurchase Agreements. The Fund can use reverse repurchase
agreements on debt obligations it owns, as a cash management tool, but not as a
means of leveraging investments. Under a reverse repurchase agreement, the Fund
sells an underlying debt obligation and simultaneously obtains the commitment of
the purchaser to sell the security back to the Fund at an agreed-upon price at
an agreed-upon date. The Fund will identify on its books liquid assets in an
amount sufficient to cover its obligations under reverse repurchase agreements,
including interest, until payment is made to the seller. Before the Fund enters
into a reverse repurchase agreement, the Sub-Advisor must be satisfied that the
seller, typically a bank or broker-dealer, is creditworthy.
These transactions involve the risk of default or insolvency by the
seller, including possible delays in the Fund's ability to dispose of the
underlying collateral. An additional risk is that the market value of the
securities sold by the Fund under a reverse repurchase agreement could decline
below the price at which the Fund is obligated to repurchase them. These
agreements will be considered borrowings by the Fund and will be subject to the
asset coverage requirement under the Fund's policy on borrowing discussed
elsewhere in this Statement of Additional Information.
n Illiquid and Restricted Securities. . Under the policies and procedures
established by the Fund's Board of Trustees, the Sub-Advisor determines the
liquidity of certain of the Fund's investments. 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.
n 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 below. The Fund presently does not intend to lend its
portfolio securities, but if it does, the value of securities loaned will not
exceed one-third of the value of its total assets in the coming year.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, securities of the U.S. government or
its agencies or instrumentalities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Each type of
interest may be shared with the borrower. The Fund may also pay reasonable
finders', custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
n Hedging. As described in the Prospectus, the Fund can use hedging
instruments.
To attempt to protect against declines in the market value of the Fund's
portfolio, to permit the Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling securities
for investment reasons, the Fund could: o sell futures contracts, o buy puts on
such futures or on securities, or o write covered calls on securities or
futures. Covered calls may also be used
to increase the Fund's income, but the Sub-Advisor does not expect
to engage extensively in that practice.
The Fund may use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case the
Fund will normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could: o buy
futures, or o buy calls on such futures or on securities.
When hedging to protect against declines in the dollar value of a foreign
currency-denominated security, the Fund may: o buy puts on that foreign currency
and on foreign currency futures, o write calls on that currency or on such
futures contracts, or o enter into forward contracts at a higher or lower rate
than the spot ("cash")
rate.
The particular hedging instruments the Fund can use are described below.
The Fund may employ new hedging instruments and strategies when they are
developed, if those investment methods are consistent with the Fund's investment
objective and are permissible under applicable regulations governing the Fund.
Futures. The Fund may buy and sell interest rate futures contracts,
commodities, futures contracts, financial futures, and forward contracts.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups:
(1) energy, which includes crude oil, natural gas, gasoline and
heating oil;
(2) livestock, which includes cattle and hogs;
(3) agriculture, which includes wheat, corn, soybeans, cotton, coffee,
sugar and cocoa;
(4) industrial metals, which includes aluminum, copper, lead, nickel, tin
and zinc; and
(5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures
contracts and options and futures on commodity indices with respect to
these five main commodity groups and the individual commodities within
each group, as well as other types of commodities.
The Fund does not pay or receive money on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily. Alternatively, the Fund may maintain accounts with futures brokers,
provided that the Fund and the futures brokers comply with the requirements of
the rules under the Investment Company Act.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are traded.
While the terms of interest rate futures contracts call for settlement by
delivery or acquisition of debt securities, in most cases the obligation is
fulfilled by entering into an offsetting position. Financial futures contracts
are similar to interest rate futures, but settlement is made in cash.
o Forward Contracts. Forward contracts are foreign currency exchange contracts.
They are used to buy or sell foreign currency for future delivery at a fixed
price. The Fund uses them to "lock in" the U.S. dollar price of a security
denominated in a foreign currency that the Fund has bought or sold, or to
protect against possible losses from changes in the relative values of the U.S.
dollar and a foreign currency. The Fund limits its exposure in foreign currency
exchange contracts in a particular foreign currency to the amount of its assets
denominated in that currency or a closely-correlated currency. The Fund may also
use "cross-hedging" where the Fund hedges against changes in currencies other
than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed-upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund may enter into a forward contract for the purchase
or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund may also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward contract to buy that foreign currency for a fixed dollar
amount. Alternatively, the Fund may enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount if the Fund believes
that the U.S. dollar value of the foreign currency to be sold pursuant to its
forward contract will fall whenever there is a decline in the U.S. dollar value
of the currency in which portfolio securities of the Fund are denominated. That
is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Sub-Advisor may decide to sell
the security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund may have to purchase
additional foreign currency on the "spot" (that is, cash) market to settle the
security trade. If the market value of the security instead exceeds the amount
of foreign currency the Fund is obligated to deliver to settle the trade, the
Fund may have to sell on the spot market some of the foreign currency received
upon the sale of the security. There will be additional transaction costs on the
spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner may reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Comparison of Commodity Futures and 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 example, if the Fund were to buy a forward contract to purchase a
certain amount of gold at a set price per ounce for delivery in three months'
time and then, two months later, the Fund wished to liquidate that 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 to 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 Put and Call Options. The Fund may buy and sell certain kinds of put options
("puts") and call options ("calls"). The Fund may buy and sell exchange-traded
and over-the-counter put and call options, including index options, securities
options, currency options, commodities options, and options on swaps and the
other types of futures described above.
o Writing Covered Call Options. The Fund may write (that is, sell) covered
calls. If the Fund sells a call option, it must be covered. That means the Fund
must own the security subject to the call while the call is outstanding, or, for
certain types of calls, the call may be covered by segregating liquid assets to
enable the Fund to satisfy its obligations if the call is exercised. Up to 25%
of the Fund's total assets may be subject to calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
The Fund's custodian, or a securities depository acting for the custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may 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.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying on its
books an equivalent dollar amount of liquid assets. The Fund will segregate
additional liquid assets if the value of the segregated assets drops below 100%
of the current value of the future. Because of this segregation requirement, in
no circumstances would the Fund's receipt of an exercise notice as to that
future require the Fund to deliver a futures contract. It would simply put the
Fund in a short futures position, which is permitted by the Fund's hedging
policies.
o Writing Put Options. The Fund may sell put options. A put option on securities
gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying investment at the exercise price during the option period. The Fund
will not write puts if, as a result, more than 25% of the Fund's net assets
would be required to be segregated to cover such put options.
If the Fund writes a put, the put must be covered by liquid assets
identified on the Fund's books. The premium the Fund receives from writing a put
represents a profit, as long as the price of the underlying investment remains
equal to or above the exercise price of the put. However, the Fund also assumes
the obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even if the value of the investment
falls below the exercise price.
If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore foregoes the opportunity of investing the segregated assets
or writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
Purchasing Calls and Puts. The Fund may purchase calls to protect
against the possibility that the Fund's portfolio will not participate in an
anticipated rise in the securities market. When the Fund buys a call (other than
in a closing purchase transaction), it pays a premium. The Fund then has the
right to buy the underlying investment from a seller of a corresponding call on
the same investment during the call period at a fixed exercise price.
The Fund benefits only if it sells the call at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the call and
the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund may buy puts whether or not it holds the underlying investment in
its portfolio. When the Fund purchases a put, it pays a premium and, except as
to puts on indices, has the right to sell the underlying investment to a seller
of a put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
o Buying and Selling Options on Foreign Currencies. The Fund can buy and sell
calls and puts on foreign currencies. They include puts and calls that trade on
a securities or commodities exchange or in the over-the-counter markets or are
quoted by major recognized dealers in such options. The Fund would use these
calls and puts to try to protect against declines in the dollar value of foreign
securities and increases in the dollar cost of foreign securities the Fund wants
to acquire.
If the Sub-Advisor anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Sub-Advisor anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency may be partially offset by writing calls
or purchasing puts on that foreign currency. However, the currency rates could
fluctuate in a direction adverse to the Fund's position. The Fund will then have
incurred option premium payments and transaction costs without a corresponding
benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund may write a call on a foreign currency to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund owns or has the
right to acquire and which is denominated in the currency underlying the option.
That decline may be one that occurs due to an expected adverse change in the
exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in a segregated account with the Fund's custodian
bank.
o Risks of Hedging with Options and Futures. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management. If the
Sub-Advisor uses a hedging instrument at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce the Fund's return. The
Fund could also experience losses if the prices of its futures and options
positions were not correlated with its other investments.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions may be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund could
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market may
advance and the value of the 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 the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund may use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market may decline. If the Fund then concludes not to invest in
securities because of concerns that the market may decline further or for other
reasons, the Fund will realize a loss on the hedging instruments that is not
offset by a reduction in the price of the securities purchased.
o Regulatory Aspects of Hedging Instruments. When using futures and options on
futures, the Fund is required to operate within certain guidelines and
restrictions with respect to the use of futures as established by the CFTC. In
particular, the Fund is exempted from registration with the CFTC as a "commodity
pool operator" if the Fund complies with the requirements of Rule 4.5 adopted by
the CFTC. The Rule does not limit the percentage of the Fund's assets that may
be used for futures margin and related options premiums for a bona fide hedging
position. However, under the Rule, the Fund must limit its aggregate initial
futures margin and related options premiums to not more than 5% of the Fund's
net assets for hedging strategies that are not considered bona fide hedging
strategies under the Rule. Under the Rule, the Fund must also use short futures
and options on futures solely for bona fide hedging purposes within the meaning
and intent of the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same advisor as the Fund (or an advisor that is an affiliate of the Fund's
advisor). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it. The account must be a segregated account or
accounts held by the Fund's custodian bank.
o Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange
contracts in which the Fund may invest are treated as "section 1256 contracts"
under the Internal Revenue Code. In general, gains or losses relating to section
1256 contracts are characterized as 60% long-term and 40% short-term capital
gains or losses under the Code. However, foreign currency gains or losses
arising from section 1256 contracts that are forward contracts generally are
treated as ordinary income or loss. In addition, section 1256 contracts held by
the Fund at the end of each taxable year are "marked-to-market," and unrealized
gains or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of determining the excise tax applicable to
investment company distributions and for other purposes under rules prescribed
pursuant to the Internal Revenue Code. An election can be made by the Fund to
exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that occur
between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency
and the time the Fund actually collects such receivables or pays such
liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the
date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
Other Investment Restrictions
What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund will not purchase the securities, hybrid instruments and other
instruments of any issuer 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. This restriction does not apply to
securities issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or repurchase agreements secured by them. 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. The individual components of
an index will be considered as separate industries for this purpose.
o The Fund will not make loans. However if it is 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.
o The Fund will not issue any senior security. However, the Fund may enter into
commitments to purchase securities in accordance with the Fund's investment
program, including reverse repurchase agreements, delayed-delivery and
when-issued securities, which may be considered the issuance of senior
securities. Additionally, the Fund may engage in transactions that may result in
the issuance of a senior security to the extent permitted under the Investment
Company Act and applicable regulations, interpretations of the Investment
Company Act or an exemptive order. The Fund may also engage in short sales of
securities to the extent permitted in its investment program and other
restrictions. The purchase or sale of hybrid instruments, futures contracts and
related options shall not be considered to involve the issuance of senior
securities. Moreover, the Fund may borrow money as authorized by the Investment
Company Act.
o The Fund will not borrow money. However 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. Additionally; 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.
o The Fund will not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments. This restriction 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.
o The Fund will not purchase or sell real estate unless acquired as a result of
direct ownership of securities or other instruments. This restriction 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 real estate investment trusts. This restriction does not preclude the
Fund from buying securities backed by mortgages on real estate or securities of
companies engaged in such activities. The Fund can also invest in real estate
operating companies and shares of companies engaged in other real estate related
businesses.
o The Fund cannot buy securities on margin. However the Fund may make margin
deposits in connection with any of the hedging instruments that it may use.
o The Fund cannot underwrite securities issued by other persons. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling securities held in its own portfolio.
o The Fund cannot invest in or hold securities of any issuer if officers and
Trustees of the Fund or the Manager individually beneficially own more than 1/2
of 1% of the securities of that issuer and together own more than 5% of the
securities of that issuer.
o The Fund cannot invest in oil, gas, or other mineral exploration or
development programs or leases. However the Fund may invest in hybrid
instruments, options swaps, futures contracts and other investments which are
linked to oil, gas and mineral values.
o The Fund cannot 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 D to this Statement of Additional
Information. This is not a fundamental policy. Non-Diversification of the Fund's
Investments. The Fund is "non-diversified," as defined in the Investment Company
Act. Funds that are diversified have restrictions against investing too much of
their assets in the securities of any one "issuer." That means that the Fund can
invest more of its assets in the securities of a single issuer than a fund that
is diversified.
Being non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of
those issuers. However, the Fund does limit its investments in the securities of
any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal
income taxes if more than 90% of its earnings are distributed to shareholders.
To qualify, the Fund must meet a number of conditions. First, not more than 25%
of the market value of the Fund's total assets may be invested in the securities
of a single issuer. Second, with respect to 50% of the market value of its total
assets, (1) no more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
How the Fund Is Managed
Organization and History. The Fund is an open-end, non-diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in July 1996.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager.
n Classes of Shares. The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into two or more classes. The
Board has done so, and the Fund currently has four classes of shares: Class A,
Class B, Class C and Class Y. All classes invest in the same investment
portfolio. Each class of shares: o has its own dividends and distributions, o
pays certain expenses which may be different for the different classes, o may
have a different net asset value, o may have separate voting rights on matters
in which interests of one class
are different from interests of another class, and o votes as a
class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
Meetings of Shareholders. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings of
shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law. It will also do so when a
shareholder meeting is called by the Trustees or upon proper request of the
shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of the Fund, to remove a Trustee. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its outstanding shares.
If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other shareholders to request a meeting to remove
a Trustee, the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
n Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. Additionally, The
contracts further state that the Trustees shall have no personal liability to
any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds1:
<PAGE>
Oppenheimer Cash Reserves Oppenheimer Senior Floating Rate
Fund
Oppenheimer Champion Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Capital Income Fund Oppenheimer Total Return Fund,
Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Government Fund Centennial California Tax Exempt
Trust
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt
Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of December 1, 1999, the Trustees and
officers of the Fund as a group owned less than 1% of the outstanding shares of
the Fund. The foregoing statement does not reflect shares held of record by an
employee benefit plan for employees of the Manager other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue, are trustees of that plan.
1. Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund, or Panorama Series Fund,
Inc. Mr. Fossel and Mr. Bowen are not Trustees of Centennial New York Tax Exempt
Trust or Managing General Partners of Centennial America Fund, L.P. Mr.
Armstrong is not a trustee, Director or Managing General Partners of Centennial
New York Tax Exempt Trust, Centennial California Tax Exempt Trust, Centennial,
Centennial America Fund, L.P., Centennial Money Market Trust, Centennial
Government Trust, Centennial Tax Exempt Trust, Oppenheimer Main Street Funds,
Inc., Oppenheimer Cash Reserves and Oppenheimer Champion Income Fund. Mr.
Cameron is only a Trustee of the following Denver-based Oppenheimer Funds:
Oppenheimer Capital Income Fund, Oppenheimer International Bond Fund,
Oppenheimer Main Street Small Cap Fund, Oppenheimer Real Asset Fund, Oppenheimer
Senior Floating Rate Fund, Oppenheimer Total Return Fund, Inc. and Oppenheimer
Variable Account Funds.
William L. Armstrong, Trustee; Age: 62
11 Carriage Lane, Littleton, Colorado 80121
Chairman of the following private mortgage banking companies: Cherry Creek
Mortgage Company (since 1991), Centennial State Mortgage Company (since 1994),
The El Paso Mortgage Company (since 1993), Transland Financial Services, Inc.
(since 1997), and Ambassador Media Corporation (since 1984); Chairman of the
following private companies: Frontier Real Estate, Inc. (residential real estate
brokerage) (since 1994), Frontier Title (title insurance agency) (since 1995)
and Great Frontier Insurance (insurance agency) (since 1995); Director of the
following public companies: Storage Technology Corporation (computer equipment
company) (since 1991), Helmerich & Payne, Inc. (oil and gas drilling/production
company) (since 1992), UNUMProvident (insurance company) (since 1991); formerly
Director of the following public companies: International Family Entertainment
(television channel) (1991 - 1997) and Natec Resources, Inc. (air pollution
control equipment and services company) (1991 - 1995); formerly U.S. Senator
(January 1979 - January 1991).
Robert G. Avis*, Trustee; Age: 68
One North Jefferson Ave., St. Louis, Missouri 63103
Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.
(general partnership of private equity funds), Director of A.G. Edwards & Sons,
Inc. (a broker-dealer) and Director of A.G. Edwards Trust Companies (trust
companies), formerly, Vice Chairman of A.G. Edwards & Sons, Inc. and A.G.
Edwards, Inc. (its parent holding company) and Chairman of A.G.E. Asset
Management (an investment advisor).
William A. Baker, Trustee; Age: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
<PAGE>
George C. Bowen, Trustee; Age: 63
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions: Senior Vice
President (from September 1987) and Treasurer (from March 1985) of the Manager;
Vice President (from June 1983) and Treasurer (from March 1985) of the
Distributor; Vice President (from October 1989) and Treasurer (from April 1986)
of HarbourView Asset Management Corporation; Senior Vice President (from
February 1992), Treasurer (from July 1991) Assistant Secretary and a director
(from December 1991) of Centennial Asset Management Corporation; President,
Treasurer and a director of Centennial Capital Corporation (from June 1989);
Vice President and Treasurer (from August 1978) and Secretary (from April 1981)
of Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services, Inc. (from November 1989) (both are transfer
agent subsidiaries of the Manager); Assistant Treasurer of Oppenheimer
Acquisition Corp., the Manager's parent holding company (from March 1998);
Treasurer of Oppenheimer Partnership Holdings, Inc. (from November 1989); Vice
President and Treasurer of the Sub-Advisor (from July 1996); Treasurer of
OppenheimerFunds International Ltd., an offshore investment advisory subsidiary
of the Manager, and Oppenheimer Millennium Funds plc, off-shore investment
companies managed by the Manager (from October 1997).
Edward L. Cameron, Trustee; Age: 61
Spring Valley Road, Morristown, NJ 07960
Formerly (from 1974-1999) a Partner with PricewaterhouseCoopers LLC (an
accounting firm) and Chairman, Price Management Industry Services Group (from
1994-1999).
Jon S. Fossel, Trustee; Age: 57
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., Shareholder Services, Inc. and Shareholder
Financial Services, Inc.
Sam Freedman, Trustee; Age: 59
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services, a
transfer agent division of the Manager; Chairman, Chief Executive Officer and a
director of Shareholder Services, Inc.; Chairman, Chief Executive Officer and
director of Shareholder Financial Services, Inc.; Vice President and director of
Oppenheimer Acquisition Corp. and a director of the Manager.
Raymond J. Kalinowski, Trustee; Age: 70
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products training
company), self-employed consultant (securities matters).
C. Howard Kast, Trustee; Age: 78
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee; Age: 78
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Trustee; Age: 51
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation; Chairman and a director
of Shareholder Services, Inc. (since August 1994) and Shareholder Financial
Services, Inc. (since September 1995); President (since September 1995) and a
director (since October 1990) of Oppenheimer Acquisition Corp.; President (since
September 1995) and a director (since November 1989) of Oppenheimer Partnership
Holdings, Inc., a holding company subsidiary of the Manager; a director of the
Sub-Advisor (since July 1996); President and a director (since October 1997) of
OppenheimerFunds International Ltd.; and of Oppenheimer Millennium Funds plc;
President and a director of other Oppenheimer funds; a director of Prudential
Corporation plc (a U.K. financial service company).
Ned M. Steel, Trustee; Age: 84
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
James C. Swain*, Chairman, Chief Executive Officer and Trustee; Age: 66 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation; and Chairman of the Board of Shareholder Services, Inc.
Russell Read, Vice President and Portfolio Manager; Age: 36
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager (since June 1997) and Vice President of the
Sub-Advisor; (since March 1997); formerly Vice President (July 1995 - June 1997)
and Director of Quantitative Research (October 1993 - March 1997) for the
Manager and a lecturer at Stanford University (September 1992 - June 1993).
John S. Kowalik, Vice President and Portfolio Manager; Age: 42
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager (since July 1998); an officer of other
Oppenheimer funds; formerly Managing Director and Senior Portfolio Manager at
Prudential Global Advisors (June 1989 - June 1998).
Andrew J. Donohue, Vice President and Secretary; Age: 49
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (since September 1995); President, General Counsel
and a director of the Sub-Advisor (since July 1996); General Counsel (since May
1996) and Secretary (since April 1997) of Oppenheimer Acquisition Corp.; Vice
President and a director of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer; Age: 41
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Scott T. Farrar, Assistant Treasurer; Age: 34
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/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 the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Brian W. Wixted, Treasurer; Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
Robert G. Zack, Assistant Secretary; Age: 51
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
n Remuneration of Trustees. The officers of the Fund and two Trustees of
the Fund (Ms. Macaskill and Mr. Swain) are affiliated with the Manager and
receive no salary or fee from the Fund. The remaining Trustees of the Fund
received the compensation shown below. The compensation from the Fund was paid
during its fiscal year ended August 31, 1999. The compensation from all of the
Denver-based Oppenheimer funds includes the compensation from the Fund and
represents compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year 1998.
<PAGE>
- --------------------------------------------------------------------------
Total Compensation
Aggregate from all
Compensation Denver-Based
Trustee's Name and Position from Fund Oppenheimer Funds1
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
William Armstrong $93 None2
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert G. Avis $601 $67,998
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
William A. Baker $614 $69,998
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
George Bowen $100 None2
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Edward L. Cameron None3 None2
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Jon. S. Fossel $609 $67,496
Review Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Sam Freedman $654 $73,998
Review Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Raymond J. Kalinowski $647 $73,998
Audit Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
C. Howard Kast
Chairman, Audit and Review $690 $76,998
Committees
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert M. Kirchner $670 $67,998
Audit Committee Member
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Ned M. Steel $601 $67,998
- --------------------------------------------------------------------------
1. For the 1998 calendar year.
2. Messrs. Armstrong, Bowen and Cameron were not Trustees or Directors of the
Denver-based Oppenheimer funds during calendar year 1998.
3. Mr. Cameron was not a Trustee of the Fund during its fiscal year ending
August 31, 1999.
n Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they are entitled to receive from
the Fund. Under the plan, the compensation deferred by a Trustee is periodically
adjusted as though an equivalent amount had been invested in shares of one or
more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee
under the plan will be determined based upon the performance of the selected
funds.
Deferral of Trustee's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
<PAGE>
Major Shareholders. As of December 3, 1999, the only persons who owned of record
or were known by the Fund to own beneficially 5% or more of any class of the
Fund's outstanding shares were:
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA
94104-4122, which owned 2,716,523.609 Class A shares (15.66% of the
then-outstanding Class A shares) for the benefit of its customers.
CIBC World Markets Corp., P.O. Box 3484 Church Street Station, New York,
NY 10008-3484, which owned 1,318,739.465 Class A shares (7.60% of the
then-outstanding Class A shares) for the benefit of its customers.
Merrill Lynch Pierce Fenner & Smith, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246, which owned 205,052.721 Class B shares (6.44%
of the then-outstanding Class B shares) and 308,050.300 Class C shares
(12.66% of the then-outstanding Class C shares) for the benefit of its
customers.
Pegge Ann Wall, Ttee, 1997 Pegge Ann Wall Revocable Trust, 32394 Pleasant
Oak Drive, Springfield, CA 93265-9305, who owned 135,205.912 Class C
shares (5.55% of the then-outstanding Class C shares).
OppenheimerFunds, Inc., 6803 S. Tucson Way, Denver, Colorado 80112, which
owned 100% of the then-outstanding Class Y shares of the Fund.
The Manager and the Sub-Advisor. The Manager is wholly-owned by Oppenheimer
Acquisition Corp., a holding company controlled by Massachusetts Mutual Life
Insurance Company. The Sub-Advisor is a wholly-owned subsidiary of the Manager.
The Manager, the Sub-Advisor, the Distributor and the Fund each 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 and the
Sub-Advisor.
n The Investment Advisory Agreement and the Sub-Advisory Agreement. The
Investment Advisory Agreement (the "Advisory Agreement") between the Manager and
the Fund requires the Manager, at its expense, to provide the Fund with adequate
office space, facilities and equipment, and to provide and supervise the
activities of all administrative and clerical personnel required to provide
effective corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation and
filing of specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the Advisory Agreement
or the Sub-Advisor under the Sub-Advisory Agreement are paid by the Fund. The
Advisory Agreement lists examples of expenses paid by the Fund. The major
categories relate to interest, taxes, brokerage commissions, fees to certain
Trustees, legal and audit expenses, custodian and transfer agent and custodian
expenses, share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs.
<PAGE>
- -------------------------------------------------------------------------------
Fiscal Years Ended 8/31 Management Fees Paid to OppenheimerFunds, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
19972 $130,5251
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $938,9801
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $918,924
- -------------------------------------------------------------------------------
1. Includes subadvisory fees paid by the Manager to the Sub-Advisor. 2. Reflects
the fiscal period from inception of the Fund, March 31, 1997.
The advisory agreement and the sub-advisory agreement states 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, the Manager and the Sub-Advisor are not liable for any loss
resulting from a good faith error or omission on their part with respect to any
of their duties thereunder. The respective advisory and sub-advisory agreements
permit the Manager and the Sub-Advisor to act as investment advisor for any
other person, firm or corporation, and the advisory agreement permits the Fund
to use the name "Oppenheimer" in connection with other investment companies for
which the Manager acts as investment advisor or general distributor. If the
Manager shall no longer act as an investment advisor to the Fund, the right of
the Fund to use the name "Oppenheimer" as part of its name may be withdrawn.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement and the Sub-Advisory
Agreement. One of the duties of the Sub-Advisor 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 to
effect the Fund's portfolio transactions in securities and futures contracts.
The Sub-Advisor 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" of such transactions. "Best execution" means prompt and
reliable execution at the most favorable price obtainable. The Sub-Advisor 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 Sub-Advisor is authorized to select
brokers (other than affiliates) that provide brokerage and/or research services
for the Fund and/or the other accounts over which the Sub-Advisor 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 Sub-Advisor that the commission is fair and
reasonable in relation to the services provided. Subject to these
considerations, as a factor in selecting brokers for the Fund's portfolio
transactions, the Sub-Advisor may also consider sales of shares of the Fund and
other investment companies for which the Sub-Advisor or an affiliate serves as
investment advisor.
Brokerage Practices Followed by the Sub-Advisor. Most securities purchases made
by the Fund are in principal transactions at net prices. The Fund usually deals
directly with the selling or purchasing principal or market maker without
incurring charges for the services of a broker on its behalf unless the
Sub-Advisor determines that a better price or execution may be obtained by using
the services of a broker. Therefore, the Fund does not incur substantial
brokerage costs. Portfolio securities purchased from underwriters include a
commission or concession paid by the issuer to the underwriter in the price of
the security. Portfolio securities purchased from dealers include a spread
between the bid and asked price. The Fund seeks to obtain prompt execution of
these orders at the most favorable net price.
The Sub-Advisor allocates brokerage for the Fund subject to the provisions
of the Sub-Advisory Agreement and the procedures and rules described above.
Generally, the Sub-Advisor's portfolio traders allocate brokerage based upon
recommendations from the Sub-Advisor's portfolio managers. In certain instances,
portfolio managers may directly place trades and allocate brokerage. In either
case, the Sub-Advisor's executive officers supervise the allocation of
brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for effecting transactions in listed securities or for certain fixed-income
agency transactions in the secondary market. Otherwise brokerage commissions are
paid only if it appears likely that a better price or execution can be obtained
by doing so.
In an option transaction, the Fund ordinarily uses the same broker for the
purchase or sale of the option and any transaction in the securities to which
the option relates. When possible, the Sub-Advisor tries to combine concurrent
orders to purchase or sell the same security by more than one of the accounts
managed by the Sub-Advisor or its affiliates. The transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
The investment advisory agreement and the Sub-Advisory Agreement permit
the Manager and the Sub-Advisor to allocate brokerage for research services. The
investment research services provided by a particular broker may be useful only
to one or more of the advisory accounts of the Manager, the Sub-Advisor and
their affiliates. The investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of the Manager's
or the Sub-Advisor's other accounts. Investment research may be supplied to the
Sub-Advisor by a third party at the instance of a broker through which trades
are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager or the Sub-Advisor in a non-research capacity
(such as bookkeeping or other administrative functions), then only the
percentage or component that provides assistance to the Manager or the
Sub-Advisor in the investment decision-making process may be paid in commission
dollars.
The Board of Trustees permits the Manager and the Sub-Advisor to use
stated commissions on secondary fixed-income agency trades to obtain research if
the broker represents to the Manager or to the Sub-Advisor that: (i) the trade
is not from or for the broker's own inventory, (ii) the trade was executed by
the broker on an agency basis at the stated commission, and (iii) the trade is
not a riskless principal transaction. The Board of Trustees permits the Manager
and the Sub-Advisor to use concessions on fixed-price offerings to obtain
research, in the same manner as is permitted for agency transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager and the Sub-Advisor. That
research provides additional views and comparisons for consideration, and helps
the Manager and the Sub-Advisor to obtain market information for the valuation
of securities that are either held in the Fund's portfolio or are being
considered for purchase. The Sub-Advisor provides information to the Board about
the commissions paid to brokers furnishing such services, together with the
Sub-Advisor's representation that the amount of such commissions was reasonably
related to the value or benefit of such services.
Other funds advised by the Manager may purchase or sell the same
securities as the Fund at the same time as the Fund, which could affect the
supply and price of the securities. If two or more funds advised by the Manager
or the Sub-Advisor purchase the same security on the same day from the same
dealer, the Manager or the Sub-Advisor may average the price of the transactions
and allocate the average among the funds.
- ------------------------------------------------------------------------------
Fiscal Year Ended 8/31: Total Brokerage Commissions Paid by the Fund1
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
19972 $33,431
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1998 $142,841
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1999 $255,025
- ------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. Fiscal period from inception of the Fund March 31, 1997.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's classes of shares. The Distributor is not obligated to
sell a specific number of shares. Expenses normally attributable to sales are
borne by the Distributor. They exclude payments under the Distribution and
Service Plans but include advertising and the cost of printing and mailing
prospectuses (other than those furnished to existing shareholders).
<PAGE>
- -------------------------------------------------------------------------------
Aggregate Class A
Front-End Front-End Commissions Commissions Commissions
Fiscal Sales Sales on Class A on Class B on Class C
Year Charges on Charges Shares Shares Shares
Ended Class A Retained by Advanced by Advanced by Advanced by
8/31: Shares Distributor Distributor1 Distributor1 Distributor1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
19972 $437,358 $109,980 N/A $563,129 $ 88,495
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $725,009 $155,030 $139,534 $774,603 $111,824
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $227,646 $68,5233 $18,386 $139,618 $53,055
- -------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. Reflects the fiscal period from inception of the Fund, 3/31/97. 3. Includes
amounts retained by a broker-dealer that is an affiliate or parent
of the distributor.
- -------------------------------------------------------------------------------
Class A Contingent Class B Contingent Class C Contingent
Deferred Sales Deferred Sales Deferred Sales
Fiscal Years Charges Retained by Charges Retained by Charges Retained by
Ended 8/31: Distributor Distributor Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997* $0 $847 $1,580
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $0 $145,593 $39,184
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $132 $121,732 $9,877
- -------------------------------------------------------------------------------
* From inception of the Fund, 3/31/97.
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 Rule
12b-1 of the Investment Company Act. Under those plans the Fund pays the
Distributor for distribution services in connection with the distribution and/or
servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees, including
a majority of the Independent Trustees2, cast in person at a meeting called for
the purpose of voting on that plan.
2. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and who do not have
any direct or indirect financial interest in the operation of the distribution
plan or any agreement under the plan.
Under the plans, the Manager and the Distributor may make payments to
affiliates and in their sole discretion, from time to time, may use their own
resources to make payments to brokers, dealers or other financial institutions
for distribution and administrative services they perform, at no cost to the
Fund to make those payments. The Manager may use its profits from the advisory
fee it receives from the Fund. In their sole discretion, the Distributor and the
Manager may increase or decrease the amount of payments they make from their own
resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund must obtain the approval
of both Class A and Class B shareholders for a proposed material amendment to
the Class A Plan that would materially increase payments under the Plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of
the shares of each Class, voting separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees.
Each Plan states that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund is
committed to the discretion of the Independent Trustees. This does not prevent
the involvement of others in the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plans, no payment will be made to any recipient in any quarter
in which 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 set from time to time by a majority of the Independent Trustees. The Board of
Trustees has set no minimum amount of assets to qualify for payments under the
plans.
o Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold Class A shares. The services include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. While the plan permits
the Board to authorize payments to the Distributor to reimburse itself for
services under the plan, the Board has not yet done so. The Distributor makes
payments to plan recipients quarterly at an annual rate not to exceed 0.25% of
the average annual net assets consisting of Class A shares held in the accounts
of the recipients or their customers.
For the fiscal period ended August 31, 1999 payments under the Class A
Plan totaled $157,557, all of which was paid by the Distributor to recipients.
That included $2,936 paid to an affiliate of the Manager's parent company. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares in
any fiscal year cannot be recovered in subsequent years. The Distributor may not
use payments received from the Class A Plan to pay any of its interest expenses,
carrying charges, or other financial costs, or allocation of overhead.
o Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The plans provide for the Distributor to
be compensated at a flat rate, whether the Distributor's distribution expenses
are more or less than the amounts paid by the Fund under the plans during the
period for which the fee is paid.
The Class B and the Class C Plans permit the Distributor to retain both
the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor currently intends to pay the service fee to recipients in advance
for the first year after the shares are purchased. After the first year shares
are outstanding, the Distributor makes payments quarterly on those shares. The
advance payment is based on the net asset value of shares sold. Shares purchased
by exchange do not qualify for the service fee payment. If Class B or Class C
shares are redeemed during the first year after their purchase, the recipient of
the service fees on those shares will be obligated to repay the Distributor a
pro rata portion of the advance payment of the service fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission for distribution-related services to the recipient on
Class C shares outstanding for a year or more. If a dealer has a special
agreement with the Distributor, the Distributor will pay the Class B and/or
Class C service fee and the asset-based sales charge to the dealer quarterly in
lieu of paying the sales commissions and service fee in advance at the time of
purchase.
The asset-based sales charges on Class B and Class C shares allow
investors to buy shares without a front-end sales charge while allowing the
Distributor to pay dealers that sell those shares. The Fund pays the asset-based
sales charges to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor: o pays sales commissions to authorized brokers and dealers
at the time of sale
and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B and Class C shares,
and
o bears the costs of sales literature, advertising and prospectuses (other
than
those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated.
<PAGE>
- --------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 8/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distributor's
Distributor's Unreimbursed
Total Amount Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Class: Under Plan Distributor Expenses Under Plan of Class
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Plan $154,504 $129,7721 $1,404,518 7.51%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Plan $104,616 $76,8992 $82,751 0.52%
- --------------------------------------------------------------------------------
1. Includes $640 paid to an affiliate of the Distributor's parent company.
2. Includes $193 paid to an affiliate of the Distributor's parent company.
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance for the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication).
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
o Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o
<PAGE>
Theprincipal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o The Fund's performance returns do not reflect the effects of taxes on
dividends or capital gains distributions.
o Total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
n Total Return Information. There are different types of "total returns" to
measure
the Fund's performance. Total return is the change in value of a hypothetical
investment in the Fund over a given period, assuming that all dividends and
capital gains distributions are reinvested in additional shares and that the
investment is redeemed at the end of the period. Because of differences in
expenses for each class of shares, the total returns for each class are
separately measured. The cumulative total return measures the change in value
over the entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would produce
the cumulative total return over the entire period. However, average annual
total returns do not show actual year-by-year performance. The Fund uses
standardized calculations for its total returns as prescribed by the SEC. The
methodology is discussed below
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
o Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
o Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
o Total Returns at Net Asset Value. From time to time the Fund may also quote a
cumulative or an average annual total return "at net asset value" (without
deducting sales charges) for each class of shares. Each is based on the
difference in net asset value per share at the beginning and the end of the
period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
<PAGE>
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The Fund's Total Returns for the Periods Ended 8/31/99
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Cumulative Total
Class of Returns (Life of
Shares Class) Average Annual Total Returns
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
1-Year (Life-of-Class)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
After Without After Without After Without
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Class A -40.42% -36.79% 0.38% 6.50% -19.29% -17.29%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Class B -39.71% -37.98% 0.75% 5.75% -18.89% -17.94%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Class C -38.05% -38.05% 4.69% 5.68% -17.98% -17.98%
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Class Y -36.57% -36.57% 6.77% 6.77% -17.17% -17.17%
- ------------------------------------------------------------------------
1. Inception of Class A: 3/31/97
2. Inception of Class B: 3/31/97
3. Inception of Class C: 3/31/97
4. Inception of Class Y: 3/31/97
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
o Lipper Rankings. From time to time the Fund may publish the ranking of the
performance of its classes of shares by Lipper Analytical Services, Inc. Lipper
is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other specialty funds. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and income
dividends but do not take sales charges or taxes into consideration. Lipper also
publishes "peer-group" indices of the performance of all mutual funds in a
category that it monitors and averages of the performance of the funds in
particular categories.
Morningstar Ratings and Rankings. From time to time the Fund may publish
the ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the domestic stock funds category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one-,
three-, five- and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk is measured by a
fund's (or class's) performance below 90-day U.S. Treasury bill returns. Risk
and investment return are combined to produce star ratings reflecting
performance relative to the other funds in the fund's category. Five stars is
the "highest" ranking (top 10% of funds in a category), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%). The current star
rating is the fund's (or class's) overall rating, which is the fund's 3-year
rating or its combined 3- and 5-year ranking (weighted 60%/40% respectively), or
its combined 3-, 5-, and 10-year rating (weighted 40%/30%/30%, respectively),
depending on the inception date of the fund (or class). Ratings are subject to
change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star rating. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk-adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
o Performance Rankings and Comparisons by Other Entities and Publications. From
time to time the Fund may include in its advertisements and sales literature
performance information about the Fund cited in newspapers and other periodicals
such as The New York Times, The Wall Street Journal, Barron's, or similar
publications. That information may include performance quotations from other
sources, including Lipper and Morningstar. The performance of the Fund's classes
of shares may be compared in publications to the performance of various market
indices or other investments, and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S.
government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
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A B O U T Y O U R A C C O U N T
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How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix E contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix E to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
n Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together:
o Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
o current purchases of Class A and Class B shares of the Fund and
other Oppenheimer funds to reduce the sales charge rate that applies
to current purchases of Class A shares, and
o Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge
to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
n The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for which
the Distributor acts as the distributor or the sub-distributor and currently
include the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Champion Income Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Convertible Securities Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Europe Fund Oppenheimer Quest Opportunity Value Fund Oppenheimer
Florida Municipal Fund Oppenheimer Quest Small Cap Value Fund Oppenheimer Global
Fund Oppenheimer Quest Value Fund, Inc. Oppenheimer Global Growth & Income Fund
Oppenheimer Real Asset Fund Oppenheimer Gold & Special Minerals Fund
Oppenheimer Senior Floating Rate Fund Oppenheimer Growth Fund Oppenheimer
Strategic Income Fund Oppenheimer High Yield Fund Oppenheimer Total Return Fund,
Inc. Oppenheimer Insured Municipal Fund Oppenheimer Trinity Core Fund
Oppenheimer Intermediate Municipal Fund Oppenheimer Trinity Growth Fund
Oppenheimer International Bond Fund Oppenheimer Trinity Value Fund Oppenheimer
International Growth Fund Oppenheimer U.S. Government Trust Oppenheimer
International Small Company Fund Oppenheimer World Bond Fund Oppenheimer Large
Cap Growth Fund Limited-Term New York Municipal Fund Oppenheimer Limited-Term
Government Fund Rochester Fund Municipals
And the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
<PAGE>
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
n Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended purchase amount is $50,000, the
escrow shall be shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and capital gains
distributions on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the difference in sales charges is not paid within twenty days after
a request from the Distributor or the dealer, the Distributor will, within sixty
days of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the redemption
proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include: (a) Class A shares
sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge,
(a) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(a) Class A or Class B shares acquired by exchange of either (1)
Class A shares of one of the other Oppenheimer funds that were
acquired subject to a Class A initial or contingent deferred
sales charge or (2) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their fund account to make monthly automatic purchases of shares of up to four
other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two business days prior to the investment dates you selected on your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor ) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or you can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering Asset
Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in the Appendix E to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to Retirement
Plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the Plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in Applicable Investments, then the Retirement Plan may purchase only Class B
shares of the Oppenheimer funds. Any Retirement Plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the Plan's Applicable Investments
reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares in general are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares- to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation for selling Fund
shares may receive different levels of compensation for selling one class of
shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
n Class B Conversion. The conversion of Class B shares to Class A shares
after six
years is subject to the continuing applicability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax advisor, to the
effect that the conversion of 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.
n Allocation of Expenses. The Fund pays expenses related to its daily
operations,
such as custodian fees, Trustees' fees, transfer agency fees, legal fees and
auditing costs. Those expenses are paid out of the Fund's assets and are not
paid directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders through
their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). All references to time in this Statement of Additional
Information mean "New York time." TheExchange's most recent annual announcement
(which is subject to change) states that it will close on New Year's Day,
Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also
close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values 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. For example, trading on European and Asian stock
exchanges and over-the-counter markets normally is completed before the close of
The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Board of Trustees determines that the event is likely to effect a material
change in the value of the security. The Manager may make that determination,
under procedures established by the Board.
n Securities Valuation. The Fund's Board of Trustees has established
procedures for
the valuation of the Fund's securities. In general those procedures are as
follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ are
valued as follows:
(1) if last sale information is regularly reported, they are valued
at the last reported sale price on the principal exchange on
which they are traded or on NASDAQ, as applicable, on that day,
or
(1) if last sale information is not available on a valuation date,
they are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid"
and "asked" prices on the valuation date or, if not, at the
closing "bid" price on the valuation date.
o Equity securities traded on a foreign securities exchange generally are
valued in one of the following ways:
(1) at the last sale price available to the pricing service
approved by the Board of Trustees, or
(1) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its
last trading session on or immediately before the valuation date,
or
(1) at the mean between the "bid" and "asked" prices obtained from
the principal exchange on which the security is traded or, on the
basis of reasonable inquiry, from two market makers in the
security.
o Long-term debt securities having a remaining maturity in excess of 60 days are
valued based on the mean between the "bid" and "asked" prices determined by a
portfolio pricing service approved by the Fund's Board of Trustees or obtained
by the Manager from two active market makers in the security on the basis of
reasonable inquiry.
o The following securities are valued at the mean between the "bid" and "asked"
prices determined by a pricing service approved by the Fund's Board of Trustees
or obtained by the Manager from two active market makers in the security on the
basis of reasonable inquiry: (1) debt instruments that have a maturity of more
than 397 days when-issued, (1) debt instruments that had a maturity of 397 days
or less when-issued and have
a remaining maturity of more than 60 days, and (1) non-money market debt
instruments that had a maturity of 397 days or less when-issued and which have a
remaining maturity of 60 days or less.
o The following securities are valued at cost, adjusted for amortization of
premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when-issued that have a remaining
maturity of 60 days or less, and
(1) debt instruments held by a money market fund that have a
remaining maturity of 397 days or less.
o Securities (including restricted securities) not having readily-available
market quotations are valued at fair value determined under the Board's
procedures. If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares that you purchased subject to an initial sales charge or
Class A shares on which a contingent deferred sales charge which was paid,
or
o Class B shares that were subject to the Class B contingent deferred sales
charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the portfolio of
the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must:
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution
is premature; and
(3) conform to the requirements of the plan and the Fund's other
redemption requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the conditions of
applicable tax laws and will not be responsible for any tax penalties assessed
in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in "Waivers of Class B
and Class C Sales Charges" below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
n Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to
exchange a pre-determined amount of shares of the Fund for shares (of the same
class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Instructions should be
provided on the OppenheimerFunds Application or signature-guaranteed
instructions. Exchanges made under these plans are subject to the restrictions
that apply to exchanges as set forth in "How to Exchange Shares" in the
Prospectus and below in this Statement of Additional Information.
n Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet
withdrawal payments. Shares acquired without a sales charge will be redeemed
first. Shares acquired with reinvested dividends and capital gains distributions
will be redeemed next, followed by shares acquired with a sales charge, to the
extent necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made under these
plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048. o All of the Oppenheimer funds
currently offer Class A, B and C shares except
Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial
New York Tax Exempt Trust, Centennial California Tax Exempt Trust, and
Centennial America Fund, L.P., which only offer Class A shares.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds-sponsored 401(k) plans.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other fund.
o Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may
not be acquired by exchange of shares of any class of any other
Oppenheimer funds except Class A shares of Oppenheimer Money Market
Fund or Oppenheimer Cash Reserves acquired by exchange of Class M
shares.
o Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares
of Senior Floating Rate Fund that are exchanged for shares of the other
Oppenheimer funds may not be exchanged back for Class A shares of
Senior Floating Rate Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged
only for Class B shares of other Oppenheimer funds and no exchanges may
be made to Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash
Reserves or Oppenheimer Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Oppenheimer Capital
Preservation Fund, and only those participants may exchange shares of
other Oppenheimer funds for shares of Oppenheimer Capital Preservation
Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
an early withdrawal charge or contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial sales charge or contingent deferred sales
charge. To qualify for that privilege, the investor or the investor's dealer
must notify the Distributor of eligibility for this privilege at the time the
shares of Oppenheimer Money Market Fund, Inc. are purchased. If requested, they
must supply proof of entitlement to this privilege.
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.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those change whenever it is required to do so by applicable
law. It may be required to provide 60 days' notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
n How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred
sales charge is imposed on exchanges of shares of any class purchased subject to
a contingent deferred sales charge. However, when Class A shares acquired by
exchange of Class A shares of other Oppenheimer funds purchased subject to a
Class A contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged Class A
shares, the Class A contingent deferred sales charge is imposed on the redeemed
shares. The Class B contingent deferred sales charge is imposed on Class B
shares acquired by exchange if they are redeemed within 6 years of the initial
purchase of the exchanged Class B shares. The Class C contingent deferred sales
charge is imposed on Class C shares acquired by exchange if they are redeemed
within 12 months of the initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
Class must specify which class of shares they intend to exchange
n Limits on Multiple Exchange Orders. The Fund reserves the right to reject
telephone or written exchange requests submitted in bulk by anyone on behalf of
more than one account. The Fund may accept requests for exchanges of up to 50
accounts per day from representatives of authorized dealers that qualify for
this privilege.
n Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must either have an existing account in the fund to which the
exchange is to be made. Otherwise, the investors must obtain a Prospectus of
that fund before the exchange request may be submitted. 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.
n Processing Exchange Requests. Shares to be exchanged are redeemed on the
regular business day the Transfer Agent receives an exchange request in proper
form (the "Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by either
fund up to five business days if it determines that it would be disadvantaged by
an immediate transfer of the redemption proceeds. The Fund reserves the right,
in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund, the Fund may refuse the request. When you
exchange some or all of your shares from one fund to another, any special
account feature such as an Asset Builder Plan or Automatic Withdrawal Plan, will
be switched to the new fund account unless you tell the Transfer Agent not to do
so. However, special redemption and exchange features such as Automatic Exchange
Plans and Automatic Withdrawal Plans cannot be switched to an account in
Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A and Class Y shares. That is
because of the effect of the asset-based sales charge on Class B and Class C
shares. Those dividends will also differ in amount as a consequence of any
difference in the net asset values of the different classes.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The 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.
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. 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. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager, the Sub-Advisor and certain
other funds advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
To 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,
1999, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended August 31, 1999, and
1998 and the financial highlights for the period March 31, 1997, to August 31,
1999. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1999, by correspondence with the custodian and brokers; and where
confirmations were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer Real
Asset Fund as of August 31, 1999, the results of its operations, the changes in
its net assets, and the financial highlights for the respective stated periods,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Denver, Colorado
September 22, 1999
13 OPPENHEIMER REAL ASSET FUND
<PAGE>
STATEMENT OF INVESTMENTS August 31, 1999
Face Market Value
<TABLE>
<CAPTION>
<S> <C>
Amount See Note 1
=====================================================================================================
Mortgage-Backed Obligations--25.8%
- -----------------------------------------------------------------------------------------------------
Government Agency--16.9%
- -----------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored--11.9%
Federal Home Loan Mortgage Corp., Collateralized Mtg.
Obligations, Gtd. Multiclass Mtg. Participation Certificates,
Series 1451, Cl. G, 7%, 9/15/06 $
7,378,941 $ 7,406,613
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped
Mtg.-Backed Security, Series 2178, Cl. Pl, 10.057%, 8/15/29(1)
15,800,000 4,038,875
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg.
Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Trust 1992-188, Cl. PG, 6.65%, 1/25/17
1,262,924 1,260,550
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Securities,
Trust 1997-89, Cl. Pl, 8.877%, 5/18/12(1,2)
13,119,692 2,525,541
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Trust 1993-23, Cl. PN, 21.295%, 4/25/22(1)
3,624,240 1,073,681
Trust 1997-3, 14.728%, 3/18/26(1)
3,424,713 757,718
- -------------
17,062,978
- -----------------------------------------------------------------------------------------------------
GNMA/Guaranteed--5.0%
Government National Mortgage Assn.:
Collateralized Mtg. Obligations, Series 1998-1, Cl. PA, 6.25%, 9/20/21(3)
7,000,000 6,991,250
Interest-Only Stripped Mtg.-Backed Security,
Series 1997-5, Cl. PJ, 20.514%, 5/20/22(1)
2,208,810 226,403
- -------------
7,217,653
- -----------------------------------------------------------------------------------------------------
Private--8.9%
- -----------------------------------------------------------------------------------------------------
Commercial--7.8%
Ameriquest Technology, Inc., Series I, 9.75%, 3/25/29(2)
3,500,000 3,471,562
- -----------------------------------------------------------------------------------------------------
NC Finance Trust, Collateralized Mtg. Obligations,
Series 1999-I, Cl. ECFD, 8.75%, 12/25/28(2)
3,512,463 3,435,629
- -----------------------------------------------------------------------------------------------------
Northwest Asset Securities Corp., Collateralized Mtg. Obligations,
Series 1996-5, Cl. A17, 8%, 11/25/26
3,500,000 3,549,219
- -----------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates,
Series 1994-C2, Cl. G, 8%, 4/25/25
864,549 830,102
- -------------
11,286,512
- -----------------------------------------------------------------------------------------------------
Residential--1.1%
Salomon Brothers Mortgage Securities VII, Series 1998-2,
Cl. 1, 5%, 11/25/27(2)
1,698,340 1,615,547
- -------------
Total Mortgage-Backed Obligations (Cost
$37,357,189) 37,182,690
</TABLE>
14 OPPENHEIMER REAL ASSET FUND
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
<S> <C>
Amount See Note 1
=====================================================================================================
U.S. Government Obligations--5.1%
- -----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
6.52%, 1/2/02 $
4,870,000 $ 4,898,056
Unsec. Medium-Term Nts., 5.08%, 9/24/99(4)
2,500,000 2,499,225
- -------------
Total U.S. Government Obligations (Cost
$7,502,291) 7,397,281
=====================================================================================================
Corporate Bonds and Notes--6.9%
- -----------------------------------------------------------------------------------------------------
Detroit Edison Co., 6.40% Sec. Nts., Series A-1, 7/15/00
5,000,000 4,973,870
- -----------------------------------------------------------------------------------------------------
Tyco International Group Ltd., 6.102% Nts., 9/5/00(5,6)
5,000,000 4,993,750
- -------------
Total Corporate Bonds and Notes (Cost
$10,025,769) 9,967,620
=====================================================================================================
Structured Instruments--30.1%
- -----------------------------------------------------------------------------------------------------
AIG International, Inc., Commodity Index Excess
Return Linked Nts., 4.81%, 1/6/00(7,8)
5,000,000 7,113,150
- -----------------------------------------------------------------------------------------------------
Bank of America NT & SA (London Branch), Goldman Sachs
Commodity Index Excess Return Linked Nts., 4.60%, 12/23/99(8,9)
6,500,000 9,369,750
- -----------------------------------------------------------------------------------------------------
Business Development Bank (Canada), Goldman Sachs Commodity
Index Excess Return Linked Nts., 5.09%, 6/5/00(8,9)
4,000,000 5,853,560
- -----------------------------------------------------------------------------------------------------
Cargill Financial Services Corp., Goldman Sachs Commodity
Index Total Return Linked Nts., 4.75%, 12/20/99(8,9)
4,000,000 7,166,521
- -----------------------------------------------------------------------------------------------------
Cargill Financial Services Corp., Goldman Sachs Commodity Index
Total Return Linked Nts., 5.86%, 9/14/00(8,9)
10,000,000 10,000,000
- -----------------------------------------------------------------------------------------------------
Chase Manhattan Bank USA National Assn., Chase Physical
Commodity Index Linked Deposit Nts., 4.70%, 12/15/99(8,10)
2,500,000 3,839,750
- -------------
Total Structured Instruments (Cost
$32,000,000) 43,342,731
Date Strike
Contracts
=====================================================================================================
Options Purchased--0.6%
- -----------------------------------------------------------------------------------------------------
Crude Oil Futures, 10/99
Call Opt. (Cost $136,000) 9/99 $18
200 822,000
Face
Amount
=====================================================================================================
Short-Term Notes--9.6%(11)
- -----------------------------------------------------------------------------------------------------
Columbus Southern Power, 6.15%, 2/17/00 $
5,000,000 4,855,646
- -----------------------------------------------------------------------------------------------------
Conoco, Inc., 5.86%, 1/31/00(5)
4,000,000 3,901,031
- -----------------------------------------------------------------------------------------------------
FINOVA Capital Corp., 6.84%, 8/8/00
5,000,000 5,025,500
- -------------
Total Short-Term Notes (Cost
$13,782,177) 13,782,177
</TABLE>
15 OPPENHEIMER REAL ASSET FUND
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
Face Market Value
<S> <C>
Amount See Note 1
======================================================================================================
Repurchase Agreements--23.6%
- ------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets, 5.41%,
dated 8/31/99, to be repurchased at $16,902,540 on 9/1/99,
collateralized by U.S. Treasury Nts., 4%-6.375%, 11/30/99-2/28/03,
with a value of $16,750,569, and U.S. Treasury Bills, 9/15/99,
with a value of $500,437
$16,900,000 $ 16,900,000
- ------------------------------------------------------------------------------------------------------
Repurchase agreement with Zion First National Bank, 5.40%, dated 8/31/99, to be
repurchased at $17,002,550 on 9/1/99, collateralized by U.S. Treasury Bonds, 8%,
11/15/21, with a value of $1,018,801, and U.S. Treasury Nts., 5.875%-7%,
2/15/00-2/15/07, with a value of $16,325,679 17,000,000 17,000,000
- --------------
Total Repurchase Agreements (Cost
$33,900,000) 33,900,000
- ------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $134,703,426)
101.7% 146,394,499
- ------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets
(1.7) (2,410,621)
- ----------------------------
Net Assets
100.0% $143,983,878
============================
</TABLE>
16 OPPENHEIMER REAL ASSET FUND
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
(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). Identifies issues considered to be illiquid or restricted--See Note
7 of Notes to Financial Statements. (3). Securities with an aggregate market
value of $2,846,437 are held in collateralized accounts to cover initial margin
requirements on open futures sales contracts. See Note 5 of Notes to Financial
Statements. (4). A sufficient amount of liquid assets has been designated to
cover outstanding written options, as follows:
Contracts Expiration
Exercise Premium Market Value
Subject to Call/Put Date
Price Received See Note 1
- --------------------------------------------------------------------------------
Crude Oil Call Opt. 200 9/16/99
$21 $ 32,000 $ 264,000
Crude Oil Put Opt. 200 9/16/99
15 87,000 2,000
Crude Oil Put Opt. 100 11/16/99
20 100,000 59,000
- ----------------------------------
$219,000 $325,000
==================================
(5). Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $8,894,781 or 6.18% of the Fund's net
assets as of August 31, 1999. (6). Represents the current interest rate for a
variable rate security. (7). 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). (8). Security is leveraged, which increases the Fund's
exposure to commodities and increases the notes' volatility relative to the face
value of the security by a weighted average leverage factor of 3.00. (9).
Security is linked to the Goldman Sachs Commodity Index, the Goldman Sachs
Commodity Excess Return Index or the Goldman Sachs Commodity Index Total Return
Index. The indexes currently contain twenty-six commodities from the sectors of
energy, metals and agricultural products. Individual components qualify for the
inclusion in the index based on liquidity and are weighted by their respective
world production quantities. (10). Security is linked to the Chase Physical
Commodity Index. The index currently contains nineteen commodities from the
sectors of energy, metals, livestock, grain and fiber. The index offers a
balanced cross-section of physical commodities and, in order to optimally
reflect real market conditions, the weight of the different commodities may be
adjusted annually in keeping with prevailing world supply, demand and inventory
conditions. (11). 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.
See accompanying Notes to Financial Statements.
17 OPPENHEIMER REAL ASSET FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
================================================================================
Assets
- --------------------------------------------------------------------------------
Investments, at value (including repurchase agreements of $33,900,000)
(cost $134,703,426)--see accompanying statement $
146,394,499
- --------------------------------------------------------------------------------
Receivables and other assets:
Investments sold
6,630,822
Interest and principal paydowns 1,070,014 Shares of beneficial interest sold
885,244 Daily variation on futures contracts--Note 5 454,440 Other 1,344
- ---------------
Total assets
155,436,363
================================================================================
Liabilities
- --------------------------------------------------------------------------------
Bank overdraft
228,653
- --------------------------------------------------------------------------------
Options written, at value (premiums received $219,000)--
see accompanying statement--Note 6
325,000
- --------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased
10,000,000
Daily variation on futures contracts--Note 5 558,392 Shares of beneficial
interest redeemed 151,760 Shareholder reports 55,486 Distribution and service
plan fees 46,975 Transfer and shareholder servicing agent fees 36,448 Other
49,771
- ---------------
Total liabilities
11,452,485
================================================================================
Net Assets $
143,983,878
===============
================================================================================
Composition of Net Assets
- -------------------------------------------------------------------------------
Paid-in capital $
194,479,745
- --------------------------------------------------------------------------------
Undistributed net investment income
883,405
- --------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions
(63,909,334)
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments--Notes 3 and 5
12,530,062
- ---------------
Net assets $
143,983,878
===============
18 OPPENHEIMER REAL ASSET FUND
<PAGE>
================================================================================
Net Asset Value Per Share
- --------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$109,328,379 and 19,042,998 shares of beneficial interest outstanding) $5.74
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $6.09
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $18,690,317 and
3,249,613 shares of beneficial interest outstanding) $5.75
- -------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $15,964,610 and
2,786,261 shares of beneficial interest outstanding) $5.73
- --------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $572 and 100 shares of beneficial interest outstanding) $5.72
See accompanying Notes to Financial Statements.
19 OPPENHEIMER REAL ASSET FUND
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended August 31, 1999
================================================================================
Investment Income
- --------------------------------------------------------------------------------
Interest $
5,102,784
================================================================================
Expenses
- --------------------------------------------------------------------------------
Management fees--Note 4
918,924
- --------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A
157,557
Class B
154,504
Class C
104,616
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4
272,047
- --------------------------------------------------------------------------------
Shareholder reports
126,005
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees
36,593
- --------------------------------------------------------------------------------
Deferred organization expenses
26,993
- --------------------------------------------------------------------------------
Registration and filing fees
26,727
- -------------------------------------------------------------------------------
Custodian fees and expenses
24,827
- --------------------------------------------------------------------------------
Trustees' compensation
5,671
- --------------------------------------------------------------------------------
Insurance expenses
2,919
- --------------------------------------------------------------------------------
Other
14,926
- ---------------
Total expenses
1,872,309
Less expenses paid indirectly--Note 1
(3,022)
- ---------------
Net expenses
1,869,287
================================================================================
Net Investment Income
3,233,497
================================================================================
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments
(17,165,581)
Closing of futures contracts
1,445,418
Closing and expiration of option contracts written--Note 6
(138,785)
- --------------------------------------------------------------------------------
Net realized loss
(15,858,948)
Net change in unrealized appreciation or depreciation on investments
21,857,973
- ---------------
Net realized and unrealized gain
5,999,025
================================================================================
Net Increase in Net Assets Resulting from Operations $
9,232,522
===============
See accompanying Notes to Financial Statements.
20 OPPENHEIMER REAL ASSET FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended August
31,
1999 1998
================================================================================
Operations
- --------------------------------------------------------------------------------
Net investment income
$ 3,233,497 $ 4,066,912
- --------------------------------------------------------------------------------
Net realized
loss
(15,858,948) (47,729,016)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation 21,857,973 (10,943,262)
- --------------------------------
Net increase (decrease) in net assets resulting from
operations 9,232,522 (54,605,366)
================================================================================
Dividends and/or Distributions to Shareholders
- --------------------------------------------------------------------------------
Dividends from net investment income:
Class
A
(3,917,119) (1,102,914)
Class
B
(778,666) (441,240)
Class
C
(524,527) (236,846)
Class
Y
(39) (21)
================================================================================
Beneficial Interest Transactions
- --------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial
interest transactions--Note 2:
Class
A
43,162,353 61,012,518
Class
B
1,213,947 14,242,312
Class
C
5,427,691 6,523,710
Class
Y
- -- --
================================================================================
Net Assets
- --------------------------------------------------------------------------------
Total
increase
53,816,162 25,392,153
- --------------------------------------------------------------------------------
Beginning of
period
90,167,716 64,775,563
- --------------------------------
End of period (including undistributed net investment
income of $883,405 and $2,823,015, respectively)
$ 143,983,878 $ 90,167,716
================================
See accompanying Notes to Financial Statements.
21 OPPENHEIMER REAL ASSET FUND
<PAGE>
FINANCIAL HIGHLIGHTS
Class A Year Ended August 31, 1999
1998 1997(1)
================================================================================
Per Share Operating Data
- --------------------------------------------------------------------------------
Net asset value, beginning of period $5.81
$10.31 $10.00
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20
.29 .09
Net realized and unrealized gain (loss) .09
(4.59) .22
- --------------------------------------
Total income (loss) from investment operations .29
(4.30) .31
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.36)
(.20) --
- --------------------------------------------------------------------------------
Net asset value, end of period $5.74 $
5.81 $10.31
======================================
================================================================================
Total Return, at Net Asset Value(2) 6.50%
(42.43)% 3.10%
- --------------------------------------------------------------------------------
================================================================================
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period (in thousands) $109,328
$62,568 $37,687
- --------------------------------------------------------------------------------
Average net assets (in thousands) $ 66,106
$59,251 $18,361
- --------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.73%
4.59% 4.27%
Expenses 1.82%
1.66%(4) 1.74%(4)
- --------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
22 OPPENHEIMER REAL ASSET FUND
<PAGE>
Class B Year Ended August 31, 1999
1998 1997(1)
===============================================================================
Per Share Operating Data
- --------------------------------------------------------------------------------
Net asset value, beginning of period $5.76
$10.27 $10.00
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16
.28 .07
Net realized and unrealized gain (loss) .10
(4.62) .20
- --------------------------------------
Total income (loss) from investment operations .26
(4.34) .27
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.27)
(.17) --
- --------------------------------------------------------------------------------
Net asset value, end of period $5.75 $
5.76 $10.27
======================================
================================================================================
Total Return, at Net Asset Value(2) 5.75%
(42.89)% 2.70%
- ------------------------------------------------------------------------------
================================================================================
Ratios/Supplemental Data
- -------------------------------------------------------------------------------
Net assets, end of period (in thousands) $18,690
$17,357 $16,471
- --------------------------------------------------------------------------------
Average net assets (in thousands) $15,454
$22,659 $ 7,388
- --------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.95%
3.87% 3.35%
Expenses 2.58%
2.39%(4) 2.56%(4)
- -------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
23 OPPENHEIMER REAL ASSET FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
Class C Year Ended August 31, 1999
1998 1997(1)
===============================================================================
Per Share Operating Data
- --------------------------------------------------------------------------------
Net asset value, beginning of period $5.76
$10.26 $10.00
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .15
.26 .08
Net realized and unrealized gain (loss) .11
(4.60) .18
- --------------------------------------
Total income (loss) from investment operations .26
(4.34) .26
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.29)
(.16) --
- --------------------------------------------------------------------------------
Net asset value, end of period $5.73 $
5.76 $10.26
======================================
===============================================================================
Total Return, at Net Asset Value(2) 5.68%
(42.87)% 2.60%
- --------------------------------------------------------------------------------
================================================================================
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period (in thousands) $15,965
$10,243 $10,616
- --------------------------------------------------------------------------------
Average net assets (in thousands) $10,477
$12,060 $ 5,599
- --------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.96%
3.87% 3.34%
Expenses 2.58%
2.38%(4) 2.56%(4)
- -------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
24 OPPENHEIMER REAL ASSET FUND
<PAGE>
Class Y Year Ended August 31, 1999
1998 1997(1)
================================================================================
Per Share Operating Data
- -------------------------------------------------------------------------------
Net asset value, beginning of period $5.81
$10.31 $10.00
- --------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20
.42 .20
Net realized and unrealized gain (loss) .10
(4.71) .11
- --------------------------------------
Total income (loss) from investment operations .30
(4.29) .31
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (.39)
(.21) --
- --------------------------------------------------------------------------------
Net asset value, end of period $5.72 $
5.81 $10.31
======================================
================================================================================
Total Return, at Net Asset Value(2) 6.77%
(42.38)% 3.10%
- --------------------------------------------------------------------------------
================================================================================
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1
$1 $1
- --------------------------------------------------------------------------------
Average net assets (in thousands) $1
$1 $1
- --------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.88%
4.84% 4.75%
Expenses 1.68%
1.40%(4) 1.57%(4)
- --------------------------------------------------------------------------------
Portfolio turnover rate(5) 86%
105% 39%
(1). For the period from March 31, 1997 (commencement of operations) to August
31, 1997. (2). Assumes a $1,000 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 for periods of less than one full year. (4). Expense ratio
reflects the effect of expenses paid indirectly by the Fund. (5). The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
August 31, 1999 were $86,192,390 and $68,386,159, respectively.
See accompanying Notes to Financial Statements.
25 OPPENHEIMER REAL ASSET FUND
<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. The Fund's investment objective is to seek total return. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Advisor). The Sub-Advisor is
Oppenheimer Real Asset Management, Inc. (the Manager), a wholly owned subsidiary
of the Advisor. The Fund offers Class A, Class B, Class C and Class Y shares.
Class A shares are sold with a front-end sales charge on investments up to $1
million. Class B and Class C shares may be subject to a contingent deferred
sales charge (CDSC). Class Y shares are sold to certain institutional investors
without either a front-end sales charge or a CDSC. All classes of shares have
identical rights to earnings, assets and voting privileges, except that each
class has its own 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 whose
market value and redemption price are linked to commodity indices. The
structured notes are leveraged, which increases the Fund's exposure to changes
in prices of the overall commodities' markets and increases the notes'
volatility relative to the face value of the securities. Fluctuations in value
of these securities related to the commodity exposure are recorded as unrealized
gains and losses in the accompanying financial statements. As of August 31,
1999, the market value of these securities comprised 30% of the Fund's net
assets, and resulted in realized and unrealized losses of $5,324,747. The Fund
also hedges a portion of the commodity exposure generated by these securities,
as discussed in Note 5.
26 OPPENHEIMER REAL ASSET FUND
<PAGE>
- --------------------------------------------------------------------------------
Securities Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Foreign currency exchange contracts are valued based on the
closing prices of the foreign 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, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
27 OPPENHEIMER REAL ASSET FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
1. Significant Accounting Policies Continued
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. As of August 31, 1999, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $48,108,000, which expires between 2005 and 2006.
- --------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
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 and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. 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.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended August 31, 1999, amounts have been reclassified to reflect an
increase in undistributed net investment income of $47,244. Accumulated net
realized loss on investments was increased by the same amount.
- --------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of 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. Dividends-in-kind are recognized as income on the ex-dividend date, at
the current market value of the underlying security. Interest on payment-in-kind
debt instruments is accrued as income at the coupon rate and a market adjustment
is made periodically.
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.
28 OPPENHEIMER REAL ASSET FUND
<PAGE>
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
Year Ended August 31, 1999 Year Ended
August 31, 1998
Shares Amount
Shares Amount
- --------------------------------------------------------------------------------
Class A
Sold 17,245,314 $ 90,733,511
11,980,392 $101,952,769
Dividends and/or
distributions reinvested 766,779 3,577,976
111,164 1,045,978
Redeemed (9,734,453) (51,149,134)
(4,981,608) (41,986,229)
- ---------------------------------------------------------------
Net increase 8,277,640 $ 43,162,353
7,109,948 $ 61,012,518
===============================================================
- --------------------------------------------------------------------------------
Class B
Sold 1,423,730 $ 7,465,056
2,490,310 $ 22,171,281
Dividends and/or
distributions reinvested 147,282 686,669
42,367 397,911
Redeemed (1,333,586) (6,937,778)
(1,124,288) (8,326,880)
- ---------------------------------------------------------------
Net increase 237,426 $ 1,213,947
1,408,389 $ 14,242,312
===============================================================
- --------------------------------------------------------------------------------
Class C
Sold 1,685,707 $ 8,942,433
1,579,842 $ 13,009,004
Dividends and/or
distributions reinvested 105,553 492,150
24,009 227,456
Redeemed (783,692) (4,006,892)
(860,150) (6,712,750)
- ---------------------------------------------------------------
Net increase 1,007,568 $ 5,427,691
743,701 $ 6,523,710
===============================================================
- --------------------------------------------------------------------------------
Class Y
Sold -- $ --
- -- $ --
Dividends and/or
distributions reinvested -- --
- -- --
Redeemed -- --
- -- --
- ---------------------------------------------------------------
Net increase -- $ --
- -- $ --
===============================================================
================================================================================
3. Unrealized Gains and Losses on Securities
As of August 31, 1999, net unrealized appreciation on securities and options
written of $11,585,073 was composed of gross appreciation of $12,250,152, and
gross depreciation of $665,079.
29 OPPENHEIMER REAL ASSET FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Advisor 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 Advisor
pays the Sub-Advisor the following 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's management fee for the year ended August 31, 1999,
was 1.00% of average net assets for each class of shares.
- --------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
Oppenheimer funds. OFS's total costs of providing such services are allocated
ratably to these funds.
- --------------------------------------------------------------------------------
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
Aggregate Class A Commissions
Commissions Commissions
Front-End Front-End on Class A
on Class B on Class C
Sales Charges Sales Charges
Shares Shares Shares
on Class A Retained by Advanced by
Advanced by Advanced by
Year Ended Shares Distributor Distributor(1)
Distributor(1) Distributor(1)
- --------------------------------------------------------------------------------
August 31, 1999 $227,646 $68,523 $18,386
$139,618 $53,055
(1). The Distributor advances commission payments to dealers for certain sales
of Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
Class A Class
B Class C
Contingent Deferred Contingent Deferred
Contingent Deferred
Sales Charges Sales
Charges Sales Charges
Year Ended Retained by Distributor Retained by Distributor
Retained by Distributor
- --------------------------------------------------------------------------------
August 31, 1999 $--
$121,732 $9,877
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for Class B and Class C shares under Rule 12b-1 of the
Investment Company Act. Under those plans the Fund pays the Distributor for all
or a portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
30 OPPENHEIMER REAL ASSET FUND
<PAGE>
- --------------------------------------------------------------------------------
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of Class A
shares. The Distributor makes payments to plan recipients quarterly at an annual
rate not to exceed 0.25% of the average annual net assets consisting of Class A
shares of the Fund. For the fiscal year ended August 31, 1999, payments under
the Class A Plan totaled $157,557, all of which was paid by the Distributor to
recipients. That included $2,936 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect to
Class A shares in any fiscal year cannot be recovered in subsequent years.
- --------------------------------------------------------------------------------
Class B and Class C Distribution and Service Plan Fees. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The 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 under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. The asset-based sales charges on
Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
plans allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended August 31, 1999,
were as follows:
Distributor's
Distributor's
Aggregate
Unreimbursed
Unreimbursed
Expenses as %
Total Payments Amount Retained Expenses of
Net Assets
Under Plan by Distributor Under Plan
of Class
- --------------------------------------------------------------------------------
Class B Plan $154,504 $129,772
$1,404,518 7.51%
Class C Plan 104,616 76,899
82,751 0.52
- --------------------------------------------------------------------------------
31 OPPENHEIMER REAL ASSET FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
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 futures contracts, primarily to hedge the various commodities exposures
inherent in its holdings of structured notes that are linked to commodities
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.
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.
32 OPPENHEIMER REAL ASSET FUND
<PAGE>
As of August 31, 1999, the Fund had outstanding futures contracts as follows:
Unrealized
Expiration Number of Valuation as of
Appreciation
Contract Description Date Contracts August 31, 1999
(Depreciation)
- --------------------------------------------------------------------------------
Contracts to Purchase
Commodities
Agriculture
Corn 12/1/99 175
$1,918,438 $ (43,025)
Cotton 12/1/99 23
583,510 (44,040)
Wheat 12/1/99 199
2,808,388 (55,763)
Energy
Brent Crude Oil 10/1/99 10
209,900 17,700
Crude Oil 9/1/99 428
9,463,080 269,210
Crude Oil 10/1/99 164
3,619,480 14,040
Crude Oil 11/1/99 165
3,615,150 180,350
Gas Oil 10/1/99 105
1,890,000 99,150
Gasoline Unleaded 9/1/99 88
2,404,248 (3,948)
Heating Oil 9/1/99 142
3,481,783 103,320
Natural Gas 9/1/99 12
339,000 (23,620)
Natural Gas 11/1/99 50
1,477,500 (58,000)
Natural Gas 1/1/00 56
1,732,080 344,480
Livestock
Lean Hogs 10/1/99 28
512,960 (200)
Live Cattle 10/1/99 125
3,327,500 51,330
Precious Metals
Platinum 10/1/99 5
87,600 (275)
Softs
Coffee 12/1/99 12
404,325 5,288
Orange Juice 11/1/99 85
1,171,088 105,188
Sugar 9/1/99 17
129,853 2,285
Indices
Goldman Sachs Commodities Index 9/1/99 157
7,110,138 55,975
- ------------
1,019,445
- ------------
Contracts to Sell
Commodities
Agriculture
Soybean 11/1/99 38
917,700 (13,050)
Industrial Metals
Copper 11/1/99 50
2,135,625 (39,375)
Copper 12/1/99 30
594,000 (16,750)
Precious Metals
Gold 12/1/99 22
566,060 (880)
Silver 12/1/99 15
391,500 (4,500)
Softs
Cocoa 12/1/99 5
47,550 100
- ------------
(74,455)
- ------------
$ 944,990
============
33 OPPENHEIMER REAL ASSET FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
6. Option Activity
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Gains and losses are reported in the
Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the year ended August 31, 1999, was as follows:
Call Options
Put Options
- -----------------------------------------------------------------
Number of Amount of Number
of Amount of
Options Premiums
Options Premiums
- -------------------------------------------------------------------------------
Options outstanding as of
August 31, 1998 -- $ -- 100
$ 95,750
Options written 435 178,825
1,650 1,190,750
Options closed or expired (235) (146,825) (1,450)
(1,099,500)
- -----------------------------------------------------------------
Options outstanding as of
August 31, 1999 200 $ 32,000 300
$ 187,000
=================================================================
34 OPPENHEIMER REAL ASSET FUND
<PAGE>
================================================================================
7. Illiquid or Restricted Securities
As of August 31, 1999, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of August 31, 1999, was $11,048,279,
which represents 7.67% of the Fund's net assets.
================================================================================
8. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended August 31,
1999.
35 OPPENHEIMER REAL ASSET FUND
<PAGE>
<PAGE>
A-1
Appendix A
- --------------------------------------------------------------------------------
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.
<PAGE>
B-1
Appendix B
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.
<PAGE>
C-3
Appendix C
Bond Ratings
Description of Moody's Investor Services, Inc. Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality and to carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may be
present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high degree
and are often in default or have other marked shortcomings.
C: Bonds rated C can be regarded as having extremely poor prospects of ever
retaining any real investment standing.
Description of Standard & Poor's Corporation Bond Ratings
AAA: AAA is the highest rating assigned to a debt obligation and indicates an
extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to adverse effects of change in circumstances
and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree. While such bonds
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated C. Bonds rated D are in
default and payment of interest and/or repayment of principal is in arrears.
Description of Fitch IBCA, Inc. Ratings
AAA: Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds rated AA are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A: Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB: Bonds rate BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB: Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B: Bonds rated B are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity through the
life of the issue.
CCC: Bonds rated CCC have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds rated CC are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C: Bonds rated C are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds in these rating categories are in default on interest
and/or principal payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. DDD represents the highest potential for recovery
of these bonds, and D represents the lowest potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the DDD, DD, or D categories.
Description of Duff & Phelps' Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free US Treasury debt.
AA+, AA & AA-: High credit quality protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within the category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic
industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations issuer failed to meet scheduled principal and/or
interest payments.
DP: Preferred stock with dividend arrearages.
<PAGE>
D-1
Appendix D
- --------------------------------------------------------------------------------
Industry Classification
- --------------------------------------------------------------------------------
<PAGE>
D-2
Aerospace/Defense
Agribusiness
Air Transportation
Asset-Backed
Auto Parts and Equipment
Automotive
Bank Holding Companies
Banks
National Commercial Banks; Federal Reserve Charter
State Commercial Banks, OCC Charter
State Commercial Banks
Commercial Banks, NEC
Functions Related to Depository
Banking, NEC
Foreign Commercial Banks
Foreign National Banks
Beverages
Broadcasting
Broker-Dealers
Investment Advice
Security & Commodity Brokers, Dealers,
Exchanges & Services
Security Brokers, Dealers & Flotation Cos.
Commodity Brokers, Dealers, Exchange &
Services
Building Materials
Cable Television
Chemicals
Commercial Finance
Short-Term Business Credit Institutions
Miscellaneous Business Credit
Institutions
Foreign-Sponsored Credit Institutions
Finance Services
Communication Equipment
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Federal & Federally-Sponsored
Credit Agencies
Personal Credit Institutions Consumer Services Containers Convenience Stores
Department Stores Diversified Financial Diversified Media Drug Wholesalers
Durable Household Goods Education Electric Utilities Electrical Equipment
Electronics Energy Services Entertainment/Film Environmental Food Food and Drug
Retailers Gas Utilities Gas Transmission Utilities Health Care/Drugs Health
Care/Supplies & Services
Homebuilders/Real Estate
Mortgage Bankers & Correspondence
Hotel/Gaming
Industrial Services
Information Technology
Insurance
Life Insurance
Accident & Health Insurance
Fire, Marine & Casualty Insurance
Insurance Agents, Brokers & Services
Insurance Carriers, NEC
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Gold & Silver Ores
Gold
Silver
Miscellaneous Metal Ores
Crude Petroleum Natural Gas
Drilling Oil and Gas Wells
Nondurable Household Goods
Office Equipment
Oil and Gas Field Exploration Services
Oil - Domestic
Oil - International
Paper
Photography
Publishing
Railroads & Truckers
Restaurants
Savings & Loans
Savings Institution, Federally Chartered
Savings Institutions, Not Federally Chartered
Shipping
Special Purpose Financial
Specialty Printing
Specialty Retailing
Steel
Telecommunications - Long Distance
Telephone - Utility
Textile, Apparel & Home Furnishings
Tobacco
Trucks and Parts
Wireless Services
<PAGE>
E-11
Appendix E
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A
shares1 of the Oppenheimer funds or the contingent deferred sales charge that
may apply to Class A, Class B or Class C shares may be waived.2 That is because
of the economies of sales efforts realized by OppenheimerFunds Distributor,
Inc., (referred to in this document as the "Distributor"), or by dealers or
other financial institutions that offer those shares to certain classes of
investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement
Plans do not apply to Oppenheimer municipal funds, because shares of those funds
are not available for purchase by or on behalf of retirement plans. Other
waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds, the
term "Retirement Plan" refers to the following types of plans: (1) plans
qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans3 (4)
Group Retirement Plans4 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs, Roth
IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the "Transfer
Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager"). Waivers that apply at the time shares are redeemed must be requested
by the shareholder and/or dealer in the redemption request.
- --------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
3. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
4. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."1 This waiver provision applies to:
1 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
o Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial plan)
that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner &
Smith, Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the record-keeping
service agreement with Merrill Lynch, the Plan must have $3 million or
more of its assets invested in (a) mutual funds, other than those
advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM"),
that are made available under a Service Agreement between Merrill
Lynch and the mutual fund's principal underwriter or distributor, and
(b) funds advised or managed by MLAM (the funds described in (a) and
(b) are referred to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided under a
contract or arrangement between the Retirement Plan and Merrill Lynch.
On the date the plan sponsor signs the record keeping service
agreement with Merrill Lynch, the Plan must have $3 million or more of
its assets (excluding assets invested in money market funds) invested
in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
o Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1,
1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
o The Manager or its affiliates.
o Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse,
a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are
included.
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 which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
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
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
o 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.
o "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
o 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 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 (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company
or trust which is the beneficial owner of such accounts.
o A unit investment trust that has entered into an appropriate agreement
with the Distributor.
o Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
o
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code),
in each case if those purchases are made through a broker, agent or
other financial intermediary that has made special arrangements with
the Distributor for those purchases.
o A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
o A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases): 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 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 through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's customers
to purchase and pay for shares of Oppenheimer funds using the proceeds
of shares redeemed in the prior 30 days from a mutual fund (other than
a fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner. This waiver must be requested when the purchase order
is placed for shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
o Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
o Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate
acts as sponsor.
C. 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 account value adjusted annually.
o Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
o For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan. 2
2 This provision does not apply to IRAs.
(5) Under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t)
of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.3
3 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of the
Manager) if the plan has made special arrangements with the
Distributor. (11) Plan termination or "in-service distributions," if
the redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
o For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
o For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: o Shares redeemed involuntarily,
as described in "Shareholder Account Rules and
Policies," in the applicable Prospectus.
o 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 Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
o Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
o Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
o
<PAGE>
Distributions from Retirement 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
in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.4
4 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic
Relations Order or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.5
5 This provision does not apply to loans from 403(b)(7) custodial plans.
(9) On account of the participant's separation from service.6
6 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary
of the Manager) offered as an investment option in a Retirement
Plan if the plan has made special arrangements with the
Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the
Plan's elimination as investment options under the Plan of all
of the Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age
59 1/2, as long as the aggregate value of the distributions
does not exceed 10% of the account's value, adjusted annually.
(14) Redemptions of Class B shares under an Automatic Withdrawal Plan
for an account other than a Retirement Plan, if the aggregate
value of the redeemed shares does not exceed 10% of the
account's value, adjusted annually.
|_|Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. 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.
o Shares issued in plans of reorganization to which the Fund is a party.
o Shares sold to present or former officers, directors, trustees or
employees (and their "immediate families" as defined above in Section
I.A.) of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
<PAGE>
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds
Who Were Shareholders of Former
Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap
Value Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value
Fund
Oppenheimer Quest Opportunity Value
Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York Tax-Exempt
Income Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: o acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
o purchased by such shareholder by exchange of shares of another Oppenheimer
fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24,
1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest for
Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
<PAGE>
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with: o withdrawals under an
automatic withdrawal plan holding only either Class B or Class C shares if the
annual withdrawal does not exceed 10% of the initial value of the account value,
adjusted annually, and
o liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value
of such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: o redemptions following the
death or disability of the shareholder(s) (as evidenced by a determination of
total disability by the U.S. Social Security Administration);
o withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account value; adjusted annually, and
o
<PAGE>
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
o Oppenheimer U. S. Government Trust,
o Oppenheimer Bond Fund,
o Oppenheimer Disciplined Value Fund and
o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
<PAGE>
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund or any
one or more of the Former Connecticut Mutual Funds totaled $500,000 or
more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996:
(1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section
72(m)(7) of the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5)
<PAGE>
in whole or in part, in connection with shares sold to any state, county,
or city, or any instrumentality, department, authority, or agency
thereof, that is prohibited by applicable investment laws from paying a
sales charge or commission in connection with the purchase of shares of
any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of
Advance America Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of
Oppenheimer Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge: o the Manager and its
affiliates, o present or former officers, directors, trustees and employees (and
their
"immediate families" as defined in the Fund's Statement of Additional
Information) of the Fund, the Manager and its affiliates, and
retirement plans established by them or the prior investment advisor of
the Fund for their employees,
o registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or 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 in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
o dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
o dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
<PAGE>
Oppenheimer Real Asset Fund
Internet Web Site:
www.oppenheimerfunds.com
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 Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
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 LLP
919 Third Avenue
New York, New York 10022
67890
PX735.1299
