Oppenheimer
Capital Preservation Fund
Prospectus dated September 22, 1999
Oppenheimer Capital Preservation Fund is a diversified mutual fund that
seeks high current income while seeking to maintain a stable value per share. In
seeking its objective, the Fund may invest in shares of Oppenheimer Limited Term
Government Fund, Oppenheimer Bond Fund, Money Market Fund, Inc., Oppenheimer
U.S. Government Trust, and Oppenheimer Strategic Income Fund, and such other
Oppenheimer funds as the Fund's investment adviser determines is appropriate.
The Fund may also invest in debt securities of foreign and domestic companies,
U.S. Government and foreign government debt securities, and money market
instruments and certain hedging instruments. The Fund also invests in contracts
issued by financial institutions, such as insurance companies and banks, that
are intended to stabilize the value per share of the Fund. The Fund's shares are
offered solely to participant-directed qualified retirement plans and 403(b)(7)
custodial plans meeting specified criteria.
The Fund is not a money market fund, and there can be no assurance that it
will be able to maintain a stable net asset value per share or otherwise achieve
its objective
This Prospectus explains concisely what you should know before investing
in the Fund. Please read this Prospectus carefully and keep it for future
reference. You can find more detailed information about the Fund in the
September 22, 1999 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
(Oppenheimer funds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other agency, and
involve investment risks, including the possible loss of the principal amount
invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
24
Contents
A B O U T T H E F U N D
Expenses
A Brief Overview of the Fund
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
A B O U T FUND A C C O U N TS
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
How to Sell Shares
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for administration, distribution of
its shares and other services and those expenses are subtracted from the Fund's
assets to calculate the Fund's net asset value per share. In addition, the Fund
will indirectly bear its pro-rata share of the expenses of the underlying funds
in which it invests. All Plans (throughout this Prospectus, "shareholder" and
"Plan" refers to the retirement plans that are eligible to purchase shares of
the Fund) therefore pay those expenses indirectly. Plans pay other expenses
directly, such as sales charges and account transaction charges. The following
tables are provided to help shareholders understand their direct expenses of
investing in the Fund and the share of the Fund's business operating expenses
that they will bear indirectly.
O Shareholder Transaction Expenses are charges a shareholder pays when it
buys or sells shares of the Fund. Please refer to "About Your Account" starting
on page __ for an explanation of how and when these charges apply.
Class A Class B Class C Class Y
Shares Shares Shares Shares
- ------------------------------------------------------------------------------
Maximum Sales 3.50% None None None
Charge on
Purchases (as a %
of offering price)
- ------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (as a % of the lower
of the original offering price
or redemption proceeds) None(1) 4% in the first 1% if None
year, declining shares are
to 1% in the redeemed
fifth year and within 12
eliminated months of
thereafter(2) purchase(2)
- ------------------------------------------------------------------------------
Maximum Sales Charge None None None None
on Reinvested
Dividends
- ------------------------------------------------------------------------------
Exchange Fee None None None None
- ------------------------------------------------------------------------------
Redemption Fee 2.0%(3) 2.0%(3) 2.0%(3) 2.0%(3)
(1) If you invest $500,000 or more in Class A shares, you may have to pay a
sales charge of up to 1% if you sell your shares within 18 calendar months from
the end of the calendar month during which you purchased those shares. See "How
to Buy Shares -- Buying Class A Shares," below. (2) See "How to Buy Shares --
Buying Class B Shares," and "How to Buy Shares -- Buying Class C Shares" below,
for more information on the contingent deferred sales charges. (3) Redemptions
of shares that are not directed by Plan participants for the reasons described
below and that are made on less than twelve months' prior written notice to the
Fund are subject to a redemption fee payable to the Fund of 2% of the proceeds
of the redemption. Under normal circumstances, redemptions of shares that are
directed by Plan participants for reasons of death, disability, retirement,
employment termination, loans, hardship, and other Plan permitted withdrawals
are not subject to a redemption fee. In addition, there is a $10 transaction fee
for redemptions paid by Federal Funds wire, but not for redemptions paid by
check or by ACH transfer through AccountLink. See "How to Sell Shares".
O Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the Fund
pays management fees to its investment advisor, OppenheimerFunds, Inc. (which is
referred to in this Prospectus as the "Manager"). The rates of the Manager's
fees are set forth in "How the Fund is Managed" below. The Fund has other
regular expenses for services, such as transfer agent fees, custodial fees paid
to a bank that holds the Fund's portfolio securities, audit fees and legal
expenses. In addition, the Fund indirectly bears its pro-rata share of the
management fees and other expenses of the underlying Oppenheimer funds in which
it invests. Therefore, the investment returns of the Fund will be net of the
expenses of the underlying Oppenheimer funds in which it invests. The following
chart shows the expense ratio of each of the underlying Oppenheimer funds in
which the Fund may invest, as of each fund's most recent fiscal year end.
Total Fund
Fund Fiscal Year End Operating Expenses
Oppenheimer Bond Fund (Class Y)* 12/31/98 0.97%
Oppenheimer Limited-Term
Government Fund (Class Y)* 9/30/98 0.58%
Oppenheimer Money Market Fund, Inc. 7/31/99 0.78%
Oppenheimer Strategic Income Fund (Class Y) 9/30/98 0.58%
Oppenheimer U.S. Government Trust (Class Y) 8/31/98 0.73%
- ---------------
* Restated to reflect anticipated expenses for its current fiscal year.
The Manager initially anticipates allocating the Fund's assets among the
following Oppenheimer funds as follows: 66% in Class Y shares of Limited Term
Government Fund, 4% in Class Y shares of Bond Fund, 11% in shares of Money
Market Fund, Inc. and 19% in Class Y shares of Strategic Income Fund. That
allocation may change from time to time. Assuming such an allocation of Fund
assets and based on a weighted average of the expense ratios of those underlying
funds, the combined Annual Fund Operating Expenses, representing both direct and
indirect fund expenses a shareholder in the Fund will bear, would be as follows:
Combined Annual Fund Operating Expenses (as a percentage of average net
assets)
Class A Class B Class C Class Y
Shares Shares Shares Shares
- ------------------------------------------------------------------------------
Management Fees* 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------------------------
12b-1 Plan Fees 0.25% 1.00% 1.00% None
- ------------------------------------------------------------------------------
Other Expenses* 0.71% 0.71% 0.71% 0.71%
- ------------------------------------------------------------------------------
Total Fund Operating Expenses 1.71% 2.46% 2.46% 1.46%
- ---------------
* Including the fees and expenses paid by the underlying funds in which the Fund
invests. While the Manager does not anticipate changing the allocation of the
Fund's assets in the underlying funds often, if that allocation is weighted more
to shares in Bond Fund, Money Market Fund, Inc. or U.S. Government Trust, the
Combined Annual Fund Operating Expenses of the Fund would be more than those
shown above.
The management fees paid by the Fund are reduced by the management fees
paid by the underlying funds attributable to investments by the Fund in shares
of such underlying funds so that shareholders do not pay management fees twice.
The "Management Fees" set forth in the table below are those fees paid directly
by the Fund, reduced by the management fees paid to the Manager by the
underlying funds, assuming the allocation of the Fund's assets to the underlying
funds described above. The "Other Expenses" set forth in the table below are
those fees paid directly by the Fund.
Direct Annual Fund Operating Expenses (as a percentage of average net assets)
Class A Class B Class C Class Y
Shares Shares Shares Shares
- ------------------------------------------------------------------------------
Management Fees
(net of management fees paid
by underlying funds) 0.29% 0.29% 0.29% 0.29%
- ------------------------------------------------------------------------------
12b-1 Plan Fees 0.25% 1.00% 1.00% None
- ------------------------------------------------------------------------------
Other Expenses 0.55% 0.55% 0.55% 0.55%
- ------------------------------------------------------------------------------
Total Fund Operating Expenses 1.09% 1.84% 1.84% 0.84%
The "12b-1 Plan Fees" for Class A shares are the service plan fees (which
can be up to a maximum of 0.25% of average annual net assets of that class), and
for Class B and Class C shares, are the service plan fees (which can be up to a
maximum of 0.25%) and the asset-based sales charges of 0.75%. Because the Fund
is a new fund and has no operating history, the rates for the management fee and
the 12b-1 fees are stated in the table above to be the maximum rates that can be
charged. These plans are described in greater detail in "How to Buy Shares."
"Other Expenses" in the table above are estimated based on the Manager's
projections of those expenses in the Fund's first year of operations.
The actual expenses for each class of shares in the Fund's current fiscal
year and in future years may be more or less than the numbers in the chart,
depending on a number of factors, including the actual amount of the Fund's
assets represented by each class of shares.
O Examples. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical examples shown below. Assume that a
Plan makes a $1,000 investment in each class of shares of the Fund, and the
Fund's annual return is 5%, and that its operating expenses for each class are
the ones shown in the Combined Annual Fund Operating Expenses table above. If a
Plan were to redeem its shares at the end of each period shown below, its
investment would incur the following expenses by the end of 1 and 3 years.
1 year 3 years
- -----------------------------------------------------------------
Class A Shares $53 $90
- -----------------------------------------------------------------
Class B Shares $65 $97
- -----------------------------------------------------------------
Class C Shares $35 $77
- -----------------------------------------------------------------
Class Y Shares $15 $46
If a Plan were to redeem its shares at the end of each period shown below
and the redemption fee applied, its investment would incur the following
expenses by the end of 1 and 3 years:
1 year 3 years
- -----------------------------------------------------------------
Class A Shares $72 $107
- -----------------------------------------------------------------
Class B Shares $85 $117
- -----------------------------------------------------------------
Class C Shares $55 $97
- -----------------------------------------------------------------
Class Y Shares $35 $66
If a Plan did not redeem its investment, it would incur the following
expenses:
Class A Shares $52 $87
- -----------------------------------------------------------------
Class B Shares $25 $77
- -----------------------------------------------------------------
Class C Shares $25 $77
- ----------------------------------------------------------------
Class Y Shares $15 $46
In the first example, expenses include the Class A initial sales charge and the
applicable Class B or Class C contingent deferred sales charge but do not
include the redemption fee. In the second example, expenses include the Class A
initial sales charge and the applicable Class B or Class C contingent deferred
sales charge and the applicable 2% redemption fee. In the third example, Class A
expenses include the initial sales charge, but Class B and Class C expenses do
not include contingent deferred sales charges and do not include the redemption
fee. Because of the effect of the asset-based sales charge and the contingent
deferred sales charge on Class B and Class C shares, long-term Class B and Class
C shareholders could pay the economic equivalent of more than the maximum
front-end sales charge allowed under applicable regulations. For Class B
shareholders, the automatic conversion of Class B shares into Class A shares is
designed to minimize the likelihood that this will occur. Please refer to "How
to Buy Shares" for more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete information can
be found. Plan sponsors and/or Plan participants should carefully read the
entire Prospectus before making a decision about investing or directing that a
portion of their plan account be invested in the Fund. Keep the Prospectus for
reference after investing, particularly for information about Plan accounts,
such as how to sell or exchange shares.
O What is the Fund's Investment Objective? The Fund's investment objective
is to seek high current income while seeking to maintain a stable value per
share.
O What Does the Fund Invest In? The Fund will normally allocate its assets
among Class Y shares of Oppenheimer Limited Term Government Fund, Class Y shares
of Oppenheimer Bond Fund, Class Y shares of Oppenheimer U.S. Government Trust,
Class Y shares of Oppenheimer Strategic Income Fund, shares of Oppenheimer Money
Market Fund, Inc. and other cash equivalents, shares of such other Oppenheimer
funds as the Manager determines is appropriate and contracts ("Wrapper
Agreements") with financial institutions, such as insurance companies and banks,
that are intended to stabilize the value per share of the Fund. The Fund may
also purchase debt securities of foreign and domestic companies, U.S. government
and foreign government debt securities, money market instruments, and certain
hedging instruments. Further information about the investment policies and
investment techniques and strategies of the underlying Oppenheimer funds can be
found in "Description of Underlying Funds" and in the Statement of Additional
Information,as well as in the prospectuses of each of the underlying funds.
O Who Manages the Fund? The Fund's investment advisor is OppenheimerFunds,
Inc., which (including subsidiaries) advises investment company portfolios
having over $110 billion in assets at June 30, 1999. The Manager is paid an
advisory fee by the Fund, based on its net assets. The Fund's portfolio manager,
who is primarily responsible for allocating the Fund's assets among the
underlying funds and choosing other debt securities to purchase, is John
Kowalik. The Fund's Board of Trustees, elected by shareholders, oversees the
investment advisor and the portfolio manager. Please refer to "How the Fund is
Managed," starting on page __ for more information about the Manager and its
fees.
<PAGE>
O How Risky is the Fund? The value of the shares of the underlying funds
and other investments held by the Fund will fluctuate based upon changes in
domestic interest rates, market conditions, and other economic and political
news. In general, the prices of these securities will tend to rise when interest
rates fall, and fall when interest rates rise. The Wrapper Agreements are
intended to stabilize the Fund's value per share by offsetting fluctuations in
the value of the Fund's portfolio investments under certain conditions. Under
most circumstances, the combination of the portfolio securities and Wrapper
Agreements is expected to provide Fund shareholders with a consistent net asset
value per share and a current rate of return that is higher than most short-term
fixed income mutual funds over most time periods. However, there can be no
guarantee that the Fund will achieve its investment objective or maintain a
constant price per share. There is also no guarantee that any Plan or Plan
participant will realize the same investment return as might be realized by a
direct investment in shares of the underlying funds or other debt securities the
Fund may purchase without the Wrapper Agreements, or that the Fund's rate of
return will be higher than that of most short-term fixed income mutual funds.
The Fund incurs costs in connection with its investment in Wrapper
Agreements which will reduce the Fund's investment return. An issuer of a
Wrapper Agreement could default on its obligations under the agreement or the
Fund might be unable to obtain Wrapper Agreements covering all of its assets.
The default or the inability to obtain Wrapper Agreements might result in a
decline in the value of the Fund's shares. Moreover, in valuing a Wrapper
Agreement, the Board of Trustees of the Fund may determine that such agreement
should not be carried by the Fund at a value sufficient to maintain the Funds
net asset value per share. Please refer to "Main Risks of Investing in the Fund"
starting on page __ and to the Statement of Additional Information for a more
complete discussion of the Fund's investment risks.
O How Can Plan Participants Buy Shares? Shares of the Fund are offered
solely to participant-directed qualified retirement plans and 403(b)(7)
Custodial Plans meeting specified criteria ("Plans"). Plan participant purchases
of Fund shares are handled in accordance with each Plan's specific provisions.
Plan participants should contact their Plan administrator for details concerning
how they may purchase shares of the Fund. It is the responsibility of the Plan
administrator or other Plan service provider to forward instructions for
purchase transactions to the Fund's transfer agent.
O Will Plan Participants Pay a Sales Charge to Buy Shares? The Fund has
four classes of shares. Each class of shares has the same investment portfolio,
but different expenses. Class A shares are offered with a front-end sales
charge, starting at 3.5% and reduced for larger purchases. Class B and Class C
shares are offered without front-end sales charges, but may be subject to a
contingent deferred sales charge if redeemed within 5 years or 12 months,
respectively, of purchase. There is also an annual asset-based sales charge on
Class B and Class C shares. Class Y shares are offered without a front-end and
contingent-deferred sales charges. Class Y shares are only available for plans
that have special agreements with the Distributor.
O How Can Plan Participants Sell Their Shares? Plan participant redemptions
of Fund shares are handled in accordance with each Plan's specific provisions.
Plans may have different provisions with respect to the timing and method of
redemptions by Plan participants. Plan participants should contact their Plan
administrator for details concerning how they may redeem shares of the Fund. It
is the responsibility of the Plan administrator or other Plan service provider
to forward instructions for redemption transactions to the Fund's transfer
agent.
O How Has the Fund Performed? The Fund measures its performance by quoting
a yield, dividend yield, average annual total return and cumulative total
return, which measure historical performance. Those returns can be compared to
the yields and total returns (over similar periods) of other mutual funds. Of
course, other funds may have different objectives, investments, and levels of
risk. The Fund's performance can also be compared to various unmanaged indices
or results of other mutual funds with similar investment objectives. Please
remember that past performance does not guarantee future results.
Stable Net Asset Value. The Fund's purchase of Wrapper Agreements is intended to
maintain a stable net asset value of $10 for the Fund's shares. Under most
circumstances, the net asset value of an investor's shares should be the same
upon redemption as it was when purchased. Investors should understand that, in
return for the stable net asset value protection provided by the Wrapper
Agreements, the shareholder foregoes any gains realized by the Fund from its
portfolio investments, except as may be reflected in the Fund's Crediting Rate,
described below.
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks high current income while seeking to maintain a
stable value per share.
Investment Policies and Strategies. The Fund intends, under normal
circumstances, to seek its investment objective by allocating at least 85% of
its total assets among Class Y shares of Oppenheimer Limited-Term Government
Fund, Class Y shares of Oppenheimer Bond Fund, Class Y shares of Oppenheimer
U.S. Government Trust, Class Y shares of Oppenheimer Strategic Income Fund,
shares of Oppenheimer Money Market Fund, Inc. and other cash equivalents, and
shares of such other Oppenheimer funds as the Manager determines is appropriate.
The Fund may at any time purchase debt securities of foreign and domestic
companies, U.S. government and foreign government debt securities, money market
instruments, and certain hedging instruments either exclusively or in addition
to its investment in shares of the Oppenheimer funds described above. In
addition, the Fund intends to enter into Wrapper Agreements with insurance
companies, banks or other financial institutions ("Wrapper Providers") that are
rated, at the time of purchase, in one of the top three long-term rating
categories by Moody's Investors Service, Inc.("Moody's") or Standard & Poor's
Rating Services ("Standard & Poor's"). There is no active trading market for
Wrapper Agreements, and none is expected to develop; therefore, they will be
considered illiquid. The aggregate value of all Wrapper Agreements and all other
illiquid securities will not exceed 15% of the Fund's net assets. The Fund is
not a money market fund, and there can be no assurance that it will be able to
maintain a stable net asset value per share.
The Fund anticipates that under normal market conditions, it will seek to
maintain an average effective portfolio duration of not more than three years.
The Fund measures its portfolio duration on a "dollar-weighted" basis.
"Effective portfolio duration" refers to the expected percentage change in the
value of the Fund's portfolio resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if the portfolio has an effective duration of three years, a 1%
increase in general interest rates would be expected to cause the portfolio to
decline in value by about 3%. It is a measure of portfolio volatility and is one
of the basic tools used by the Manager in allocating the Fund's assets among the
underlying funds and other investments. However, the calculation of duration of
the Fund's portfolio cannot be relied on as an exact prediction of future
volatility. Even though the Fund intends that its dollar-weighted average
effective portfolio duration will generally not exceed three years, certain
market conditions may temporarily increase the Fund's duration beyond its
target.
Description of Underlying Funds
As described above, the Fund will, under normal circumstances, invest in
shares of Oppenheimer Limited-Term Government Fund, Oppenheimer Bond Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Strategic Income Fund, and
Oppenheimer Money Market Fund (collectively referred to as the "underlying
funds"). These underlying funds were chosen as investments for the Fund based on
the Manager's determination that they would provide an optimal return for which
Wrapper Agreements are available. The following is a brief description of the
investment objective and policies of the underlying funds. Those objectives and
policies may change from time to time without the need for approval from the
Fund's shareholders. Additional information about the underlying funds is
contained in the Statement of Additional Information, and in the prospectus for
each underlying fund. To obtain a prospectus of any of the underlying funds,
simply call the toll-free number listed on the back cover of this prospectus.
<PAGE>
The Oppenheimer Limited-Term Government Fund's ("Limited-Term Government
Fund") investment objective is to seek high current return and safety of
principal. The Limited-Term Government Fund seeks its objective by investing
only in obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, including mortgage-backed securities, and repurchase
agreements on such securities. The Limited-Term Government Fund may also write
covered calls and use certain types of securities called "derivative
investments" and hedging instruments to try to manage duration, enhance income
and manage investment risks. Under normal circumstances, the Fund will invest at
least 65% of its net assets but not more than 90% of its net assets in Class Y
shares of Limited-Term Government Fund.
The Oppenheimer Bond Fund's ("Bond Fund") investment objective is to seek a
high level of current income by investing mainly in debt instruments. Under
normal market conditions, the Bond Fund invests at least 65% of its total assets
in investment grade debt securities issued by foreign or domestic issuers. These
include (i) investment-grade debt securities rated BBB or above by Standard &
Poor's Corporation or Baa or above by Moody's Investors Service, Inc. or another
nationally recognized statistical rating organization, or, if unrated, are of
comparable quality as determined by the Manager; (ii) securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities or obligations secured by such securities; and (iii)
high-quality, short-term money market instruments.
The Bond Fund may invest up to 35% of its total assets in non-investment
grade debt instruments (commonly referred to as "junk bonds") issued by foreign
or domestic issuers. Although non-investment grade securities generally offer
the potential for higher income than investment grade securities, they may be
subject to greater market fluctuations and a greater risk of default because of
the issuer's low creditworthiness. The Bond Fund may also write covered calls
and use certain types of securities called "derivative instruments" and hedging
instruments to try to manage investment risks. Under normal circumstances, the
Fund will invest no more than 20% of its net assets in Class Y shares of Bond
Fund.
The Oppenheimer U.S. Government Trust's ("U.S. Government Trust")
investment objective is to seek high current income consistent with
preservation of capital. U.S. Government Trust primarily invests in debt
instruments issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements on such securities. U.S.
Government Trust may write covered calls and use certain hedging instruments
approved by its Board of Trustees to try to enhance income and to manage
investment risks. U.S. Government Securities that the U.S. Government Trust
invests in include collateralized mortgage obligations ("CMO's") whose
payment of principal and interest generated by the pool of mortgages is
passed through to the U.S. Government Trust. CMO's may be issued in a
variety of classes or series that have different maturities and levels of
volatility. U.S. Government Trust may also invest in "stripped" CMO's or
mortgage-backed securities. Stripped mortgage-backed securities usually have
two classes that receive different proportions of the interest and principal
payments. In certain cases, one class will receive all of the interest
payments, while the other class will receive all of the principal value on
maturity. Under normal circumstances, the Fund will not invest more than 15%
of its net assets in Class Y shares of U.S. Government Trust.
<PAGE>
The Oppenheimer Strategic Income Fund's ("Strategic Income Fund")
investment objective is to seek high current income by investing mainly in debt
securities and by writing covered call options on them. The Strategic Income
Fund invests principally in three market sectors: (1) debt securities of foreign
governments and companies, (2) U.S. Government securities, and (3) lower-rated,
high yield debt securities of U.S. companies. Under normal market conditions,
the Strategic Income Fund will invest in each of these three sectors, but from
time to time the Manager will adjust the amounts the Strategic Income Fund
invests in each sector. The Strategic Income Fund may invest up to 100% of its
assets in any one sector if the Manager believes that in doing so the Strategic
Income Fund can achieve its objective without undue risk to its assets. Under
normal circumstances, the Fund will not invest more than 20% of its net assets
in Class Y shares of Strategic Income Fund.
Oppenheimer Money Market Fund's ("Money Market Fund") investment objective
is to seek the maximum current income that is consistent with stability of
principal. Money Market Fund seeks its objective by investing in short-term
highly liquid securities that meet specific credit quality standards under the
Investment Company Act of 1940. The money market securities the Money Market
Fund invests in may include U.S. Government securities, repurchase agreements,
certificates of deposit and high quality commercial paper issued by companies.
The Money Market Fund attempts to maintain a stable share price of $1.00 per
share, but there is no guarantee it will do so. Under normal circumstances, the
Fund will invest up to 10% of its net assets in shares of Money Market Fund,
Inc. and may invest up to 100% of its net assets in shares of Money Market Fund,
Inc. for temporary defensive purposes.
Wrapper Agreements
Each Wrapper Agreement the Fund enters into will obligate the Wrapper
Provider to maintain the "Book Value" of a portion of the Fund's investments
("Covered Assets") up to a specified maximum dollar amount, upon the occurrence
of certain events. The Fund may elect not to cover with Wrapper Agreements any
debt securities with a remaining maturity of 60 days or less and any cash or
short-term investments. Payments made by a Wrapper Provider are designed to
enable the Fund to make redemption payments reflecting the purchase price of the
Covered Assets rather than the market value of the Covered Assets. The Book
Value of the Covered Assets is their purchase price minus the sale price of
Covered Assets liquidated to fund share redemptions, plus interest on the
Covered Assets accrued at a rate calculated pursuant to a formula specified in
the Wrapper Agreement ("Crediting Rate") and less an adjustment to reflect any
defaulted securities. In the case of most Wrapper Agreements purchased by the
Fund, the Crediting Rate is based on the actual income earned on the Covered
Assets plus or minus an adjustment to amortize any gains and losses (realized
and unrealized) on the Covered Assets. The Crediting Rate is normally reset
monthly. However, if there is a material change in interest rates, or purchases
or redemptions of Fund shares, the Crediting Rate may be reset more frequently
than monthly. The Fund's yield will be equal to the Crediting Rate less Fund
expenses.
The Crediting Rate can change as the difference between market value and
Book Value of the Covered Assets, duration of the Fund, or portfolio yield
changes. As a result, while the Crediting Rate will generally reflect movements
in market rates of interest, it may at any time be more or less than those rates
or the actual income earned on the Covered Assets. For example, assuming a yield
on the Covered Assets of 5.00%, a duration of three years, and a market value
that is less than Book Value by 2.4%, then the Crediting Rate could be more than
4.10%. Conversely, assuming a yield on Covered Assets of 5.00%, a duration of
three years, and a market value that is greater than Book Value by 1.5%, then
the Fund's Crediting Rate could be more than 5.50%. The degree of any such
increase or decrease in the Crediting Rate will also depend on the duration of
the Fund. Since any differences between the market value and Book Value are
amortized over a period equal to the duration of the Fund, any differences
between Book Value and market value will be amortized faster as duration
decreases, and slower as duration increases. For example, assuming a yield of 5%
on the Covered Assets, a duration of 2.5, and a market value that is less than
Book Value by 2.4%, then the Crediting Rate could be less than 4.00%.
Conversely, if the yield on the Covered Assets was 5%, the duration was 2.5, and
a market value that is greater than Book Value by 1.5%, then the Crediting Rate
could be above 5.60%.
The Crediting Rate may also be impacted by defaulted securities and by
increases and decreases of the amount of Covered Assets as a result of Plan
contributions and distributions tied to the sale and redemption of Fund shares.
While the Crediting Rate may be significantly greater or less than current
interest rates, in no event will the Crediting Rate fall below zero percent
under the Wrapper Agreements entered into by the Fund.
Under the terms of a typical Wrapper Agreement purchased by the Fund, if
the Covered Assets plus accrued income are insufficient to provide proceeds for
redemption of Fund shares by Plan participants, the Wrapper Provider becomes
obligated to pay to the Fund its share of the amount required to redeem the
shares at their Book Value. Because it is anticipated that each Wrapper
Agreement will cover all Covered Assets up to a specified dollar amount, if more
than one Wrapper Provider becomes obligated to pay to the Fund the difference
between Book Value and the market value of the Covered Assets, each Wrapper
Provider will be obligated to pay a pro-rata amount in proportion to the maximum
dollar amount of coverage provided. Thus, the Fund will not have the option of
choosing which Wrapper Agreement to draw upon in any such payment situation.
However, if a portion of a Wrapper Agreement is to be assigned as a
payment-in-kind to a Plan, the Fund will have the discretion to choose to
allocate the payment to a single Wrapper Agreement. In that circumstance, the
Fund expects to address subsequent requests for such assignments to a different
Wrapper Provider until each Wrapper Provider has made roughly its pro rata share
of such assignments.
The terms of the Wrapper Agreements may vary concerning exactly when these
payments must actually be made between the Fund and the Wrapper Provider. In
most cases, payments will be due under a Wrapper Agreement only upon termination
of the Wrapper Agreement, upon total liquidation of the Covered Assets or when
the market value of the Covered Assets falls below a certain percentage of their
Book Value. Certain terminations, such as when a new Wrapper Provider is
substituted for an existing Wrapper Provider, may not trigger a payment
obligation. Additionally, a Wrapper Provider's obligation to make payments for
Plan withdrawals (as opposed to those directed by Plan participants) may require
adjustments to the Crediting Rate and increases in the Fund's holdings of short
term investments, which might adversely affect the return of the Fund.
If, to effectuate a redemption payment, the Fund is required to liquidate
all Covered Assets, the Wrap Provider may be obligated to pay to the Fund all or
some of the difference between the market value and corresponding Book Value of
such Covered Assets (if market value is less than Book Value). If, on the other
hand, the market value of the liquidated Covered Assets is greater than the
corresponding Book Value, the Fund may be obligated to pay all or some of the
difference to the Wrap Provider.
The terms of a Wrapper Agreement may require that the Covered Assets have a
specified duration or maturity, consist of specified types of securities or be
of a specified credit quality. The Fund will purchase Wrapper Agreements whose
criteria in this regard are consistent with the Fund's investment objectives and
policies as set forth in this Prospectus and the Statement of Additional
Information, although in some cases the Wrapper Agreement may require more
restrictive investment objectives and policies than otherwise permitted by the
Prospectus and Statement of Additional Information. The Wrapper Agreement also
may permit the Wrapper Provider to terminate the Wrapper Agreement with no
obligation to make a payment to the Fund if the Fund changes the investment
objectives, policies and restrictions set forth in this Prospectus and the
Statement of Additional Information, without the consent of the Wrapper
Provider. In the event of termination by a Wrapper Provider, the Fund may or may
not be able to contract with a substitute Wrapper Provider. If it is unable to
contract with a replacement Wrapper Provider, the Fund may be unable to maintain
a stable net asset value.
A Wrapper Agreement may be terminable upon notice by the Fund or a default
by either the Fund or Wrapper Provider. A Wrapper Agreement may also be
terminable at Book Value upon notice by the Wrapper Provider if the difference
between market value and Book Value exceeds 10% of net assets. For reasons other
than default, either the Fund or the Wrapper Provider may elect to terminate the
Wrapper Agreement through a fixed maturity conversion. This means that the
Wrapper Agreement will terminate on a future date which is generally determined
by adding the duration of the Covered Assets to the date either party makes such
an election (e.g., if the election date is 6/15/2001, and the duration of the
Covered Assets is three years, the Wrapper Agreement will terminate on
6/14/2004). In addition, after such an election is made, the Fund may be
required to reduce the duration of the Covered Assets to equal the remaining
time until the termination of the Wrap Agreement. By doing so, the yield of the
Fund may also decrease.
Generally, at termination of a Wrapper Agreement, the Wrapper Provider will
be required to pay the Fund any excess in Book Value over the value of the
Covered Assets. However, if the Wrapper Agreement terminates because of a
default by the Fund or upon written notice by the Fund (other than through a
fixed maturity conversion), no such payment is made.
Other Securities the Fund May Purchase. From time to time, when the Manager
determines that it would be advantageous to the Fund, the Fund may invest in any
of the securities described below either exclusively or in addition to its
investment in shares of the underlying funds. The Wrapper Agreements the Fund
purchases may contain certain investment restrictions which limit the Fund's
ability to invest in some or all of the following:
U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
These are referred to as "U.S. government securities" in this Prospectus.
|X| U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years), and Treasury bonds (which have maturities
of more than ten years). Treasury securities are backed by the full faith and
credit of the United States as to timely payments of interest and repayments of
principal. The Fund can also buy U. S. Treasury securities that have been
"stripped" of their coupons by a Federal Reserve Bank, zero-coupon U.S. Treasury
securities described below, and Treasury Inflation-Protection Securities
("TIPS").
|X| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
|_| Mortgage-Related U.S. Government Securities. The Fund can buy
interests in pools of residential or commercial mortgages, in the form of
collateralized mortgage obligations ("CMOs") and other "pass-through"
mortgage securities. CMOs that are U.S. government securities have collateral
to secure payment of interest and principal. They may be issued in different
series each having different interest rates and maturities. The collateral is
either in the form of mortgage pass-through certificates issued or guaranteed
by a U.S. agency or instrumentality or mortgage loans insured by a U.S.
government agency. The Fund can have substantial amounts of its assets
invested in mortgage-related U.S. government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds in
other securities paying interest at lower rates, which could reduce the Fund's
yield.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term security,
subject to greater fluctuations in value. These prepayment risks can make the
prices of CMOs very volatile when interest rates change. The prices of
longer-term debt securities tend to fluctuate more than those of shorter-term
debt securities.
High-Yield, Lower-Grade Debt Securities of U.S. Issuers. The Fund can purchase a
variety of lower-grade, high-yield debt securities of U.S. issuers, including
bonds, debentures, notes, preferred stocks, loan participation interests,
structured notes, asset-backed securities, among others, to seek high current
income. These securities are sometimes called "junk bonds." The Fund has no
requirements as to the maturity of the debt securities it can buy, or as to the
market capitalization range of the issuers of those securities. The Fund will
not invest more than 10% of its net assets in high yield, lower-grade debt
securities.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating Service
or similar ratings by other nationally-recognized rating organizations. The Fund
can invest in securities rated as low as "C" or "D" or which are in default at
the time the Fund buys them. While securities rated "Baa" by Moody's or "BBB" by
S&P are considered "investment grade," they have some speculative
characteristics.
The Manager does not rely solely on ratings issued by rating organizations
when selecting investments for the Fund. The Fund can buy unrated securities
that offer high current income. The Manager may assign a rating to an unrated
security that is equivalent to the rating of a rated security that the Manager
believes offers comparable yields and risks.
While investment-grade securities are subject to risks of non-payment of
interest and principal, generally, higher yielding lower-grade bonds, whether
rated or unrated, have greater risks than investment-grade securities. They may
be subject to greater market fluctuations and risk of loss of income and
principal than investment-grade securities. There may be less of a market for
them and therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
make the payments of interest and principal due on the bonds. These risks mean
that the Fund may not achieve the expected income from lower-grade securities.
|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest in
mortgage-backed securities issued by private issuers, which do not offer the
credit backing of U.S. government securities. Primarily these include
multi-class debt or pass-through certificates secured by mortgage loans. They
may be issued by banks, savings and loans, mortgage bankers and other
non-governmental issuers. Private issuer mortgage-backed securities are subject
to the credit risks of the issuers (as well as the interest rate risks and
prepayment risks of CMOs, discussed above), although in some cases they may be
supported by insurance or guarantees.
|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by the loans or
other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of the
interest. These securities are subject to the risk of default by the issuer as
well as by the borrowers of the underlying loans in the pool.
Foreign Debt Securities. The Fund can buy a variety of debt securities issued by
foreign governments and companies, as well as "supra-national" entities, such as
the World Bank. They can include bonds, debentures, and notes, including
derivative investments called "structured" notes, described below. The Fund will
not invest 25% or more of its total assets in debt securities of any one foreign
government or in debt securities of companies in any one industry. The Fund has
no requirements as to the maturity range of the foreign debt securities it can
buy, or as to the market capitalization range of the issuers of those
securities.
The Fund's foreign debt investments can be denominated in U.S. dollars or
in foreign currencies. The Fund will buy foreign currency only in connection
with the purchase and sale of foreign securities and not for speculation.
The Fund can buy "Brady Bonds," which are U.S.-dollar denominated debt
securities collateralized by zero-coupon U.S. Treasury securities. They are
typically issued by emerging markets countries and are considered speculative
securities with higher risks of default.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees may change non-fundamental policies without shareholder
approval, although significant changes will be described in supplements or
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a majority of the Fund's outstanding voting
shares. The Fund's investment objective is a fundamental policy. The Fund's
investment policies and techniques are not fundamental unless this Prospectus or
the Statement of Additional Information says that a particular policy is
fundamental.
Main Risks of Investing in the Fund
All investments carry risks to some degree. Funds that invest in
fixed-income securities may be subject to credit risks and interest rate risks.
However, the Wrapper Agreements the Fund purchases are intended to stabilize the
Fund's value per share by offsetting fluctuations in the value of the shares of
the underlying funds and other debt securities the Fund may purchase, under
certain conditions. Even so, there are risks that the provider of a Wrapper
Agreement could default on its obligations under the agreement or the Fund might
be unable to obtain Wrapper Agreements covering all of its assets. If either of
those events were to occur, the Fund may not be able to maintain a stable net
asset value of $10.
Special Risks of Wrapper Agreements. The Fund expects that the use of Wrapper
Agreements will, under most anticipated circumstances, permit the Fund to
maintain a constant NAV per share and to pay dividends that will generally
reflect over time both the income of, and market gains and losses on, the
Covered Assets held by the Fund less the expenses of the Fund. However, there
can be no guarantee that the Fund will maintain a constant NAV per share or that
any Plan or Plan participant will realize the same investment return as might be
realized by investing directly in the Fund's portfolio securities other than the
Wrapper Agreements. For example, under the valuation procedures adopted by the
Fund's Board of Trustees, the Crediting Rate under the Wrapper Agreements is an
important factor in determining the return realized by Fund shareholders. Under
certain circumstances (i.e., rising interest rates during a period when net Fund
redemptions are at a high level), the Crediting Rate, and thus a shareholder's
return, may be substantially below that of otherwise comparable investments,
such as a short-term fixed income fund. Additionally, a Plan may realize more or
less than the actual investment return on the Fund's shares depending upon the
timing of the Plan's purchases and redemption of Fund shares, as well as those
of other Plans.
Wrapper Agreements usually do not require the Wrap Provider to assume the
credit risk associated with the issuer of any Covered Assets. Therefore,
defaults by, and downgrades below investment grade of, the issuer of a Covered
Asset usually will cause such Covered Assets to be removed from the coverage of
a Wrapper Agreement. In addition, certain other downgrades of Covered Assets
will cause such Covered Assets to be removed from the coverage of a Wrapper
Agreement unless and until such asset's credit rating is upgraded to its former
level. In these situations, the termination of the coverage of such Covered
Assets in most circumstances will cause the value of the Wrapper Agreements to
decrease by an amount essentially equal to the difference between the purchase
price and the fair market value of such assets. In such an event, the Fund may
suffer a decrease in its net asset value.
<PAGE>
Furthermore, a default or threat of default by the issuer of a Wrapper
Agreement on its obligations might result in a decrease in the value of the
Fund's shares. There can be no assurance that the Fund will be able at all times
to obtain Wrapper Agreements. Although it is the current intention of the Fund
to obtain such agreements covering all of its assets, the Fund may elect not to
cover some or all of its assets with Wrapper Agreements for any reason, but
primarily if Wrapper Agreements become unavailable due to uncompetitive cost
which, in the Manager's sole discretion, render their purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Fund were unable
to obtain a replacement Wrapper Agreement, Plan participants redeeming shares
might experience losses if the market value of the Fund's assets no longer
covered by the Wrapper Agreement is below Book Value. The combination of the
default of a Wrapper Provider and an inability to obtain a replacement agreement
could render the Fund unable to achieve its investment objective of maintaining
a stable NAV per share. If the Board of Trustees of the Fund determines that a
Wrapper Provider is unable to make payments when due, the Board may assign a
fair value to the Wrapper Agreement that is less than the difference between the
Book Value and the market value of the applicable Covered Assets and the Fund
might be unable to maintain NAV stability.
Some Wrapper Agreements may require that the Fund maintain a specified
percentage of its total assets in the Money Market Fund or cash equivalents
("Liquidity Reserve"). The Liquidity Reserve must be used for the payment of
withdrawals from the Fund and Fund expenses. The obligation to maintain a
Liquidity Reserve may result in a lower return for the Fund than if these assets
were invested in shares of the other underlying funds. The Liquidity Reserve
required by all Wrapper Agreements is not expected to exceed 20% of the Fund's
total assets. However, the Liquidity Reserve amount may be required to be
increased above this limit as a result of anticipated Plan redemptions within
one year. Please see the Statement of Additional Information Fund for additional
information concerning Wrapper Agreements, including the risks of investing in
them.
Special Risks of Investing in Underlying Funds and Fixed-Income Securities. The
value of the shares of the underlying funds and other investments will fluctuate
based upon changes in domestic interest rates, market conditions, and other
economic and political news. In general, the prices of these securities will
rise when interest rates fall, and fall when interest rates rise.
|X| Special Risks of Hedging Instruments. The use of hedging instruments
requires special skills and knowledge of investment techniques that are
different from what is required for normal portfolio management. If the Manager
uses 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 or if it could not close out a
position because of an illiquid market for the future or option.
|X| Year 2000 Risks. Because many computer software systems in use today
cannot distinguish the year 2000 from the year 1900, the markets for securities
in which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. Data processing errors by corporate and government issuers of
securities could result in production problems and economic uncertainties, and
those issuers may incur substantial costs in attempting to prevent or fix such
errors, all of which could have a negative effect on the Fund's investments and
returns.
O Borrowing. The Fund may borrow up to 33% of the value of its net assets
from banks or, if approved by the Trustees and if the necessary regulatory
approvals are obtained, from affiliated funds on an unsecured basis to raise
cash for liquidity purposes. The Fund can borrow only if it maintains a 300%
ratio of net assets to borrowing at all times in the manner set forth in the
Investment Company Act. If the Fund engages in borrowing, it may be subject to
greater costs than funds that do not borrow. If the Fund purchases additional
securities when borrowings exceed 5% of its total assets, the Fund is considered
to be engaged in leveraging. Leveraging by means of borrowing may exaggerate the
effect of any increase or decrease in the value of the Covered Assets. More
detail is provided in "Borrowing for Liquidity" in the Statement of Additional
Information.
Investment Techniques and Strategies
To seek its objective, the Fund can also use the investment techniques and
strategies described below. The Manager might not always use all of the
different types of techniques and investments described below. These techniques
involve certain risks, although some are designed to help reduce investment
risk.
|X| Zero-Coupon and "Stripped" Securities. Some of the government and
corporate debt securities the Fund may buy are zero-coupon bonds that pay no
interest. They are issued at a substantial discount from their face value.
"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.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-bearing securities. The Fund may
have to pay out the imputed income on zero-coupon securities without receiving
the actual cash currently. Interest-only securities are particularly sensitive
to changes in interest rates.
The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities are
also sensitive to changes in interest rates. When prepayments tend to fall, the
timing of the cash flows to these securities increases, making them more
sensitive to changes in interest rates. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price.
|X| Participation Interests in Loans. These securities represent an
undivided fractional interest in a loan obligation by a borrower. They are
typically purchased from banks or dealers that have made the loan or are members
of the loan syndicate. The loans may be to foreign or U.S. companies. The Fund
does not invest more than 5% of its net assets in participation interests of any
one borrower. They are subject to the risk of default by the borrower. If the
borrower fails to pay interest or repay principal, the Fund can lose money on
its investment.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "delayed-delivery" basis. These terms refer to securities that have been
created and for which a market exists, but which are not available for immediate
delivery. There might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
|X| Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's investments. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. A Wrapper Agreement is
considered to be an illiquid security. A restricted security is one that has a
contractual restriction on its resale or which cannot be sold publicly until it
is registered under the Securities Act of 1933. The Fund will not invest more
than 15% of its net assets in illiquid or restricted securities. Certain
restricted securities that are eligible for resale to qualified institutional
purchasers may not be subject to that limit. The Manager monitors holdings of
illiquid securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity. In the event that the fair market value
of all illiquid assets, including Wrapper Agreements, exceeds 15% of the fair
market value of the Fund's net assets as a result of events other than the
purchase of illiquid assets, there exists the risk that the Fund will not be
able to maintain a stable net asset value, and the Fund will take steps to
reduce in an orderly manner the percentage of illiquid assets in the Fund such
that illiquid assets will not exceed 15% of the Fund's net assets.
|X| Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In the broadest sense, exchange-traded
options, futures contracts, structured notes, CMOs and other hedging instruments
the Fund can use may be considered "derivative investments." In addition to
using hedging instruments, the Fund can use other derivative investments because
they offer the potential for increased income.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the U.S.
and abroad may also influence the performance of derivatives. As a result of
these risks the Fund could realize less principal or income from the investment
than expected. Certain derivative investments held by the Fund may be illiquid.
|_| "Structured" Notes. The Fund can buy "structured" notes, which
are specially-designed derivative debt investments with principal payments or
interest payments that are linked to the value of an index (such as a currency
or securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.
The principal and/or interest payments depend on the performance of one or
more other securities or indices, and the values of these notes will therefore
fall or rise in response to the changes in the values of the underlying security
or index. They are subject to both credit and interest rate risks and therefore
the Fund could receive more or less than it originally invested when the notes
mature, or it might receive less interest than the stated coupon payment if the
underlying investment or index does not perform as anticipated. Their values may
be very volatile and they may have a limited trading market, making it difficult
for the Fund to sell its investment at an acceptable price.
|X| Hedging. The Fund can buy and sell certain kinds of futures contracts,
put and call options, forward contracts and options on futures and broadly-based
securities indices. These are all referred to as "hedging instruments." The Fund
does not use hedging instruments for speculative purposes, and has limits on its
use of them. The Fund is not required to use hedging instruments in seeking its
goal.
The Fund could buy and sell options, futures and forward contracts for a
number of purposes. It might do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or to
establish a position in the securities market as a temporary substitute for
purchasing individual securities. It might do so to try to manage duration,
enhance income and manage investment risks. To the extent hedging instruments
reduce fluctuations in the market value of the Covered Assets, they will also
reduce the risk exposure to the Wrapper Providers.
Some of these strategies can be used to hedge the Fund's portfolio against
price fluctuations. Other hedging strategies, such as buying futures and call
options, would tend to increase the Fund's exposure to the securities market.
Forward contracts can be used to try to manage foreign currency risks on the
Fund's foreign investments. Foreign currency options may be used to try to
protect against declines in the dollar value of foreign securities the Fund
owns, or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options could be used to provide income to the
Fund for liquidity purposes or to raise cash to distribute to shareholders.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, 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 and will not be able to realize any profit if the
investment has increased in value 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 Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return. The
Fund could also experience losses if the prices of its futures and options
positions were not correlated with its other investments or if it could not
close out a position because of an illiquid market.
|X| Repurchase Agreements. The Fund may enter into repurchase agreements.
In a repurchase transaction, the Fund buys a security and simultaneously sells
it to the vendor for delivery at a future date. The Fund will not enter into
repurchase agreements unless ownership and control of the securities subject to
the agreement are transferred to the Fund. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the resale price on the
delivery date, the Fund may experience costs in disposing of the collateral and
may experience losses if there is any delay in doing so. The Fund will not enter
into a repurchase agreement that will cause more than 10% of its net assets to
be subject to repurchase agreements maturing in more than seven days. There is
no limit on the amount of the Fund's net assets that may be subject to
repurchase agreements of seven days or less.
Other Investment Restrictions. The Fund has certain investment restrictions
that are fundamental policies. Under these restrictions, the Fund cannot:
|_| concentrate investments. That means the Fund cannot invest 25% or more
of its total assets in any single industry. However, there is no limitation on
investments in affiliated funds and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
|_| buy securities issued or guaranteed by any one issuer if more than 5%
of its total assets would be invested in securities of that issuer or if it
would then own more than 10% of that issuer's voting securities. This limitation
applies to 75% of the Fund's total assets. The limit does not apply to
securities issued by the U.S. Government or any of its agencies or
instrumentalities.
Unless the Prospectus states that a percentage restriction applies on an
ongoing basis, it applies only at the time the Fund makes an investment, and the
Fund need not sell securities to meet the percentage limits if the value of the
investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" in the Statement of
Additional Information.
<PAGE>
How the Fund is Managed
Organization and History. The Fund was organized June 2, 1998 as a Massachusetts
business trust. The Fund is an open-end, diversified management investment
company, with an unlimited number of authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
periodically meet throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. The Trustees are elected
by shareholders of the Fund; the initial Board was elected by the Manager as
sole initial shareholder. "Trustees and Officers of the Fund" in the Statement
of Additional Information names the Trustees and officers of the Fund and
provides more information about them. Although the Fund will not normally hold
annual meetings of Fund shareholders, it may hold shareholder meetings from time
to time on important matters, and shareholders have the right to call a meeting
to remove a Trustee or to take other action described in the Fund's Declaration
of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. The Board has done
so, and the Fund currently has four classes of shares, Class A, Class B, Class C
and Class Y. All classes invest in the same investment portfolio. Each class has
its own dividends and distributions and pays certain expenses, which may be
different for the different classes. Each class may have a different net asset
value. Each share has one vote at shareholder meetings, with fractional shares
voting proportionally. Only shares of a particular class vote as a class on
matters that affect that class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handling its day-to-day business. The Manager carries out its
duties, subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement which states the Manager's responsibilities. The
Agreement sets forth the fees paid by the Fund to the Manager and describes the
expenses that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1960. As of June
30, 1999, the Manager (including subsidiaries) managed assets of more than $110
billion, including private accounts and investment companies having more than
five million shareholder accounts. The Manager is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by senior officers of
the Manager and controlled by Massachusetts Mutual Life Insurance Company.
<PAGE>
The management services provided to the Fund by the Manager, and the
services provided by the Distributor and the Transfer Agent to shareholders,
depend on the smooth functioning of their computer systems. Many computer
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated. Failure to properly recognize dates
after 1999 could have a negative impact on handling securities trades, pricing
and accounting services. The Manager, the Distributor and Transfer Agent have
been actively 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, because
the services they provide depend on the interaction of their computer systems
with the computer systems of brokers, information services and other parties,
any failure on the part of the computer systems of those third parties to deal
with the year 2000 may also have a negative effect on the services provided to
the Fund.
O Portfolio Manager. The Portfolio Manager of the Fund is John Kowalik, who
is a Vice President of the Fund and Senior Vice President of the Manager. He is
the person principally responsible for the day-to-day management of the Fund's
portfolio. Mr. Kowalik also serves as an officer and portfolio manager for other
Oppenheimer funds. Previously, Mr. Kowalik was Managing Director and Senior
Portfolio Manager with Prudential Investments Global Fixed Income Group.
O Fees and Expenses. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional assets
as the Fund grows: 0.75% of the first $200 million of average annual net assets
of the Fund, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% of the next $200 million and 0.50% of
average annual net assets over $1 billion. That fee shall be reduced by the
management fees received by the Manager during the period from the underlying
funds attributable to investments by the Fund in shares of such underlying
funds. This is to assure that the management fee paid directly and indirectly by
the Fund to the Manager shall not exceed the fees described above.
The Fund pays expenses related to its daily operations, such as management
fees, custodian fees, Trustees' fees, transfer agency fees, Wrapper Agreement
fees, legal fees and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, shareholders pay
those expenses indirectly by reducing the Fund's yield. More information about
the other expenses paid by the Fund is contained in the Statement of Additional
Information.
O The Distributor. The Fund's shares are sold through dealers, brokers and
other financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
O The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for the other Oppenheimer funds. Plan sponsors should direct
inquiries about their Plan accounts to the Transfer Agent at the address and
toll-free number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total return"
and "yield" to illustrate its performance. The performance of each class of
shares is shown separately, because the performance of each class of shares will
usually be different as a result of the different kinds of expenses each class
bears. These returns measure the performance of a hypothetical account in the
Fund over various periods, and do not show the performance of each shareholder's
account (which will vary if dividends are received in cash, or shares are sold
or purchased). The Fund's performance data may help you see how well your
investment has done over time and to compare it to other mutual funds or market
indices.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions of
future returns or performance. This performance data is described below, but
more detailed information about how total returns and yields are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's performance. The
Fund's investment performance will vary over time, depending on market
conditions, the composition of the portfolio, expenses and which class of shares
purchased.
O Total Returns. There are different types of "total returns" used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted. Total
returns normally will not reflect the deduction of the 2% redemption fee. If
that fee were included, total returns would be less. However, total returns may
also be quoted at "net asset value," without including the effect of the sales
charge and those returns would be less if sales charges were deducted.
O Yield. Different types of yields may be quoted to show performance. Each
class of shares calculates its standardized yield by dividing the annualized net
investment income per share on the portfolio during a 30-day period by the
maximum offering price on the last day of the period. The yield of each class
will differ because of the different expenses of each class of shares. The yield
data represents a hypothetical investment return on the portfolio, and does not
measure an investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend yield is
calculated by dividing the dividends of a class paid for a stated period by the
maximum offering price on the last day of the period and annualizing the result.
Yields for Class A shares normally reflect the deduction of the maximum initial
sales charge, but not the deduction of the redemption fee, and may also be shown
without deducting the sales charge. Yields for Class B shares and Class C shares
do not reflect the deduction of the contingent deferred sales charge or the
redemption fee.
ABOUT FUND ACCOUNTS
How to Buy Shares
Plan Participants. The purchase of Fund shares by Plan participants are handled
in accordance with each Plan's specific provisions. Plan participants should
contact their Plan administrator for details concerning how they may purchase
shares of the Fund. It is the responsibility of the Plan administrator or other
Plan service provider to forward instructions for purchase transactions to the
Fund's transfer agent. The following discussion of how to purchase Fund shares
is intended for the Plan administrator or other Plan service provider.
Classes of Shares. The Fund offers Plans four different classes of shares. The
different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will likely have different
share prices.
<PAGE>
O Class A Shares. If a Plan purchases Class A shares, it will pay an
initial sales charge on investments up to $500,000. If a Plan purchases Class A
shares as part of an investment of at least $500,000 in shares of one or more
Oppenheimer funds, it will not pay an initial sales charge, but if the Plan
sells any of those shares within 18 months of buying them, it may pay a
contingent deferred sales charge, described below. The amount of that sales
charge will vary depending on the amount invested. Sales charge rates are
described in "Buying Class A Shares," below.
O Class B Shares. If a Plan purchases Class B shares, it will pay no sales
charge at the time of purchase, but if it sells those shares within five years
of buying them, the Plan may pay a contingent deferred sales charge. That sales
charge varies depending on how long the Plan owned the shares as described in
"Buying Class B Shares," below.
O Class C Shares. If a Plan purchases Class C Shares, it will pay no sales
charge at the time of purchase, but if the Plan sells those shares within 12
months of buying them, it may pay a contingent deferred sales charge of 1%, as
discussed in "Buying Class C Shares", below.
O Class Y Shares. Class Y Shares are sold at net asset value per share
without the imposition of a sales charge at the time of purchase to retirement
plans that have a special agreement with the Distributor. Class Y shares are not
subject to a contingent deferred sales charge, asset-based sales charge or
service fee.
Are There Restrictions on Which Plans May Purchase Shares of the Fund and When?
The Wrapper Agreements will limit the availability of the sale of Fund shares to
only those Plans which satisfy certain underwriting criteria. As a precondition
to eligibility to purchase shares of the Fund, each Plan sponsor will be
required to sign a document which will, among other things, certify to the fact
that the Plan satisfies the underwriting criteria. A Plan will not be permitted
to purchase shares of the Fund if it offers a competing investment option (i.e.,
a fixed-income security having a duration of three years or less) for the
investment of plan contributions. In addition, if a Plan purchases shares of the
Fund and later redeems all of the Fund shares and transfers the redemption
proceeds to a Plan investment that would be considered a competing investment,
the Plan will not be permitted to subsequently purchase shares of the Fund for a
period of three years from the date of final redemption from the Fund.
How Much Must a Plan Invest? A Plan can open a Fund account in Class A, B, or C
shares with a minimum initial investment of $1,000 and make additional
investments at any time with as little as $25.
How are Shares Purchased? A Plan can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Distributor or directly through the Distributor. The Distributor may appoint
certain servicing agents as the Distributor's agent to accept purchase and
redemption orders. Be sure to specify either Class A, Class B, Class C or, if
the Plan qualifies, Class Y shares on the Account Application when opening Fund
accounts. If a plan does not choose a Class of shares, its investment in the
Fund will be made in Class A shares.
Buying Shares Through A Dealer. The Plan's designated dealer will place purchase
orders with the Distributor on behalf of the Plan. The Distributor may pay
additional periodic compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by the
dealer or financial institution for its own account or for its customers.
O Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If the Plan
doesn't list a dealer on the application, the Distributor will act as the Plan's
agent in buying the shares. However, we recommend that the Plan discuss its
investment first with a financial advisor, to be sure it is appropriate for the
Plan.
<PAGE>
O At What Prices Are Shares Sold? Shares of the Fund are sold at the public
offering price based on the net asset value (and any initial sales charge that
applies) that is next determined after the Distributor receives the purchase
order in Denver, Colorado, or the order is received and transmitted to the
Distributor by an entity authorized by the Fund to accept purchase or redemption
orders. The Fund has authorized the Distributor, certain broker-dealers and
agents or intermediaries designated by the Distributor or those broker-dealers
to accept orders. In most cases, to enable a Plan to receive that day's offering
price, the Distributor or an authorized entity must receive the purchase order
by the time of day The New York Stock Exchange closes, which is normally 4:00
P.M., New York time, but may be earlier on some days (all references to time in
this Prospectus mean "New York time"). The net asset value of each class of
shares is determined as of that time on each day The New York Stock Exchange is
open (which is a "regular business day"). The Fund expects to maintain a $10 net
asset value.
If a Plan buys shares through a dealer, the dealer must receive the
purchase order by the close of The New York Stock Exchange on a regular business
day and normally your order must be transmitted to the Distributor so that it is
received before the Distributor's close of business that day, which is normally
5:00 P.M. The Distributor, in its sole discretion, may reject any purchase order
for the Fund's shares.
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, where purchases are not subject to an initial sales charge, the
offering price may be net asset value. In some cases, reduced sales charges may
be available, as described below. Out of the amount a Plan invests, the Fund
receives the net asset value to invest for Plan accounts. The sales charge
varies depending on the amount purchased. A portion of the sales charge may be
retained by the Distributor and allocated to the dealer as commission. The
Distributor reserves the right to reallow the entire commission to dealers. If
that occurs, the dealer may be considered an "underwriter" under Federal
securities laws. The current sales charge rates and commissions paid to dealers
and brokers are as follows:
Front-End Front-End
Sales Charge Sales Charge Commission
As Percentage of As Percentage of As Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- ------------------------------------------------------------------------------
Less than $100,000 3.50% 3.63% 3.00%
- ------------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.00% 3.09% 2.50%
- ------------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
O Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds in the following cases:
G Purchases by a retirement plan qualified under section 401(a) or
401(k) of the Internal Revenue Code if the retirement plan has total plan
assets of $500,000;
G Purchases by a retirement plan qualified under sections 401(a) or
401(k) of the Internal Revenue Code, by a non-qualified deferred
compensation plan, employee benefit plan, group retirement plan or an
employee=s 403(b)(7) custodial plan (all of these plans are collectively
referred to as ARetirement Plans@), that: (1) buys shares costing $500,000
or more or (2) has, at the time of purchase, 100 or more eligible
participants, or (3) certifies that it projects to have annual plan
purchases of $200,000 or more.
The Distributor pays dealers of record commissions on those purchases
in an amount equal to 0.25%. That commission will be paid only on those
purchases that were not previously subject to a front-end sales charge and
dealer commission. No sales commission will be paid to the dealer, broker or
financial institution on sales of Class A shares purchased with the redemption
proceeds of shares of a mutual fund offered as an investment option in a
Retirement Plan in which Oppenheimer funds are also offered as investment
options under a special arrangement with the Distributor if the purchase occurs
more than 30 days after the addition of the Oppenheimer funds as an investment
option to the Retirement Plan.
If a Plan redeems 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") will be deducted from the redemption
proceeds. That sales charge may be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares (not including shares purchased
by reinvestment of dividends or capital gain distributions) or (2) the original
offering price (which is the original net asset value) of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to the selling dealer on all Class A
shares of all Oppenheimer funds the Plan purchased subject to the Class A
contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable, the
Fund will first redeem shares that are not subject to the sales charge,
including shares purchased by reinvestment of dividends and capital gains, and
then will redeem other shares in the order that the Plan purchased them. The
Class A contingent deferred sales charge is waived in certain cases described in
"Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 months of the end of the
calendar month of the purchase of the exchanged shares, the sales charge will
apply.
Reduced Sales Charges for Class A Share Purchases. A Plan 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.
O Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent which conditions apply.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not subject
to any Class A sales charges and no dealer commission is paid:
G retirement plans established by present or former officers, directors,
trustees and employees (and their "immediate families" as defined in "Reduced
Sales Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates;
G registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
G 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;
G retirement plans established by employees and registered representatives
(and their spouses) of dealers or brokers described above or financial
institutions that have entered into sales arrangements with such dealers or
brokers (and are identified to the Distributor) or with the Distributor; the
purchaser must certify to the Distributor at the time of purchase that the
purchase is for the purchaser's own retirement plan account (or for the
retirement plan of such employee's spouse or minor children);
G dealers, brokers or registered investment advisors that have entered
into an agreement with the Distributor providing specifically for the use of
shares of the Fund in particular products or employee benefit plans 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);
G retirement plans and deferred compensation plans and trusts used to fund
those Plans (including, for example, plans qualified or created under sections
401(a), 403(b) or 457 of the Internal Revenue Code), and "rabbi trusts" that buy
shares for their own accounts, in each case if those purchases are made through
a broker or agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases;
G retirement plans established for 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;
G retirement accounts for which Oppenheimer Capital is the investment
advisor (the Distributor must be advised of this arrangement);
G qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements are
consummated and share purchases commenced by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges and no dealer commission is paid:
G shares sold to the Manager or its affiliates;
G shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
G shares purchased by the reinvestment of loan repayments by a participant
in a retirement plan for which the Manager or one of its affiliates acts as
sponsor;
<PAGE>
G 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; and
G 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 the shares with the proceeds of shares redeemed in the prior 30 days
from a mutual fund (other than a fund managed by the Manager or any of its
subsidiaries) on which an initial sales charge or contingent deferred sales
charge was paid (this waiver also applies to shares purchased by exchange of
shares of Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner); this waiver must be requested when the purchase order is placed
for shares of the Fund, and the Distributor may require evidence of a Plan's
qualification for this waiver.
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:
G to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
G involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
G for distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes: (1) following
the death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must occur after the
participant=s account was established); (2) to return excess contributions; (3)
to return contributions made due to a mistake of fact; (4) hardship withdrawals,
as defined in the plan; (5) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (6) to meet the minimum distribution
requirements of the Internal Revenue Code; (7) to 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 (not
applicable to 403(b)(7) custodial plans if the participant is less than age 55);
(10) participant-directed redemptions to purchase shares of a mutual fund (other
than a fund managed by the Manger or its subsidiary) if the plan has made
special arrangements with the Distributor; or (11) plan termination or
Ain-service distributions@, if the redemption proceeds are rolled over directly
to an OppenheimerFunds-sponsored IRA;
G for distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan; and
G for distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing for this
waiver.
O Service Plan for Class A Shares. The Fund has adopted a Service Plan for
Class A shares to reimburse the Distributor for a portion of its costs incurred
in connection with the personal service and maintenance of accounts that hold
Class A shares. Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of the Fund. The
Distributor uses all of those fees to compensate dealers, brokers, banks and
other financial institutions quarterly for providing personal service and
maintenance of Plan accounts that hold Class A shares and to reimburse itself
(if the Fund's Board of Trustees authorizes such reimbursements, which it has
not yet done) for its other expenditures under the Service Plan.
<PAGE>
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. Payments are made by the
Distributor quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the dealer or its
customers. The payments under the Service Plan increase the annual expenses of
Class A shares. For more details, please refer to "Distribution and Service
Plans" in the Statement of Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
five years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original purchase price (which is the original net asset value). The contingent
deferred sales charge is not imposed on the amount of a Plan's account value
represented by the increase in net asset value over the initial purchase price.
The Class B contingent deferred sales charge is paid to the Distributor to
compensate it for providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 5 years, and (3) shares held the longest during the 5-year period. The
contingent deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on the
number of years since the purchase was made and the dollar amount being
redeemed, according to the following schedule:
Years Since Beginning of Contingent Deferred Sales Charge
Month in which On Redemptions in That Year
Purchase Order Was Accepted (As % of Amount Subject to Charge)
- -----------------------------------------------------------------------------
0-1 4.0%
- -----------------------------------------------------------------------------
1-2 3.0%
- -----------------------------------------------------------------------------
2-3 2.0%
- -----------------------------------------------------------------------------
3-4 2.0%
- -----------------------------------------------------------------------------
4-5 1.0%
----------------------------------------------------------------------------
5 and following None
In the table, a "year" is a 12-month period. All purchases are considered
to have been made on the first regular business day of the month in which the
purchase was made.
O Automatic Conversion of Class B Shares. 72 months after a Plan purchases
Class B shares, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and Class
C Shares" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed within
12 months of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original purchase price (which is the original net asset value). The contingent
deferred sales charge is not imposed on the amount of a Plan's account value
represented by the increase in net asset value over the initial purchase price.
The Class C contingent deferred sales charge is paid to compensate the
Distributor for its expenses of providing distribution-related services to the
Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months, and (3) shares held the longest during the 12-month period.
All purchases are considered to have been made on the first regular business day
of the month in which the purchase was made.
O Distribution and Service Plans for Class B and Class C Shares. The Fund
has adopted Distribution and Service Plans for Class B and Class C shares to
compensate the Distributor for distributing Class B and C shares and servicing
accounts. Under the Distribution and Service Plans, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% per year on Class B
shares that are outstanding for 6 years or less and on Class C shares. The
Distributor also receives a service fee of 0.25% per year under each
Distribution and Service Plan.
Under each Distribution and Service Plan, both fees are computed on the
average of the net asset value of shares in the respective class, determined as
of the close of each regular business day during the period. The asset-based
sales charge and service fees increase Class B and Class C expenses by up to
1.00% of the net assets per year of the respective class.
The Distributor uses the service fees to compensate dealers for providing
personal services for Plan accounts that hold Class B or C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the 0.25% service fees to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares have
been held for a year, the Distributor pays the service fees to dealers on a
quarterly basis.
<PAGE>
The asset-based sales charge allows investors to buy Class B or C shares
without a front-end sales charge while allowing the Distributor to compensate
dealers that sell those shares. The Fund pays the asset-based sales charges to
the Distributor for its services rendered in distributing Class B and Class C
shares. Those payments are at a fixed rate that is not related to the
Distributor=s expenses. The services rendered by the Distributor include paying
and financing the payment of sales commissions, service fees and other costs of
distributing and selling Class B and Class C shares.
The Distributor currently pays sales commissions of 2.75% 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 3.00% of the
purchase price. The Fund pays the asset-based sales charge to the Distributor
for its services rendered in connection with the distribution of Class B shares.
Those payments, retained by the Distributor, are at a fixed rate which is not
related to the Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions, service fees, and
other costs of distributing and selling Class B shares. If a dealer has a
special agreement with the Distributor, the Distributor will pay the Class B
service fee and the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commission and service fee advance at the time of purchase.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is therefore
1.00% of the purchase price. The Distributor retains the asset-based sales
charge during the first year Class C shares are outstanding to recoup sales
commissions it has paid, the advances of service fee payments it has made, and
its financing cost and other expenses. If a dealer has a special agreement with
the Distributor, the Distributor shall pay the Class C service fee and
asset-based sales charge to the dealer quarterly in lieu of paying the sales
commission and service fee advance at the time of purchase. The Distributor
plans to pay the asset-based sales charge as an ongoing commission to the dealer
on Class C shares that have been outstanding for a year or more.
Because the Distributor's actual expenses in selling Class B and C shares
may be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plans for Class B and C shares, those expenses may be carried over and
paid in future years. If either Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for certain expenses it incurred before the Plan was
terminated.
O Waivers of Class B and Class C Sales Charges. The Class B and Class C
contingent deferred sales charges will not be applied to shares purchased in
certain types of transactions nor will it apply to Class B and Class C shares
redeemed in certain circumstances as described below. The reasons for this
policy are in "Reduced Sales Charges" in the Statement of Additional
Information. In order to receive a waiver of the Class B or Class C contingent
deferred sales charge, you must notify the Transfer Agent which conditions
apply.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemptions of shares in
the following cases:
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| 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.
|_| 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.
|_| 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. (5) To make distributions required under a
Qualified Domestic Relations
Order.
(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 (not applicable to 403(b)(7)
custodial plans).
(9) On account of the participant's separation from service (not
applicable to 403(b)(7) custodial plans if the participant is less
than age 55).
(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 annually (measured from the
establishment of the Automatic Withdrawal Plan).
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:
G 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; G shares issued in plans of
reorganization to which the Fund is a party;
and
G shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," below.
G shares sold to the Manager or its affiliates.
Special Shareholder Services. The shareholder services described below may be
available to your plan, depending on the systems capabilities of your
recordkeeper. Please check with your Plan recordkeeper for details.
AccountLink. OppenheimerFunds AccountLink links a Plan's Fund account to it's
account at a bank or financial institution to enable the Plan to send money
electronically between those accounts to perform a number of types of account
transactions. These include sending dividends and distributions or Automatic
Withdrawal Plan payments directly to its bank account. Please call the Transfer
Agent for more information.
AccountLink privileges should be requested on the Application used to buy
shares, or on the dealer's settlement instructions if the Plan buys shares
through a dealer. After the Plan's account is established, it can request
AccountLink privileges by sending signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each Plan account as well
as to the Plan's dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After a Plan establishes AccountLink for its Fund account, any change of bank
account information must be made by signature-guaranteed instructions to the
Transfer Agent signed by the Plan Trustee or Plan Sponsor.
<PAGE>
O PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system
that enables Plan sponsors or Plan administrators to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after obtaining a Personal Identification
Number (PIN), by calling the special PhoneLink number: 1-800-533-3310. If the
participant accounts are maintained by a Plan recordkeeper, then the plan
participants will not be able to access their records through PhoneLink. Those
participants should contact the Plan recordkeeper for information about
accessing their plan accounts via telephone. Participants in the
OppenheimerFunds-sponsored Pinnacle 401(k) Plan may call 1-800-411-6971 to
access their plan accounts via telephone.
G Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, the Plan Sponsor or Plan Trustee can exchange shares
automatically by phone from the Plan's Fund account to certain other Oppenheimer
funds accounts the Plan has already established by calling the special PhoneLink
number. Please refer to "How to Exchange Shares," below, for details.
G Selling Shares. A Plan can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to the
Plan's AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
Shareholder Transactions by Fax. Requests for certain account transactions may
be sent to the Transfer Agent by fax (telecopier). Please call 1-800-525-7048
for information about which transactions are included. Transaction requests
submitted by fax are subject to the same rules and restrictions as written and
telephone requests described in this Prospectus
OppenheimerFunds Internet Web Site. Information about the Fund, including Plan
account balances, daily share prices, market and Fund portfolio information, may
be obtained by visiting the OppenheimerFunds Internet Web Site, at the following
Internet address: http://www.oppenheimerfunds.com. Additionally, certain account
transactions may be requested by the Plan fiduciary authorized to perform
transactions on behalf of the Plan as well as by the dealer representative of
record, through a special section of that Web Site. To access that section of
the Web Site, you must first obtain a personal identification number ("PIN") by
calling OppenheimerFunds PhoneLink at 1-800-533-3310. If the Plan sponsor does
not wish to have Internet account transactions capability for its plan accounts,
please call our customer service representatives at 1-800-525-7048. To find out
more information about Internet transactions and procedures, please visit the
Web Site. This web site is not available for plan participant accounts
maintained by a Plan recordkeeper. Those participants should contact their Plan
recordkeeper for information about accessing their plan accounts via the
Internet. Participants in the OppenheimerFunds-sponsored Pinnacle 401(k) Plan
may access their plan account information by visiting the OppenheimerFunds
Internet Web Site listed above and then follow the prompts for Pinnacle Online.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
a Plan to sell shares automatically or exchange them to another Oppenheimer
funds account on a regular basis:
<PAGE>
O Automatic Withdrawal Plans. If the Plan's Fund account is worth $5,000
or more, the Plan can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The checks
may be sent to the Plan Trustee or Plan Sponsor or sent automatically to the
Plan's bank account on AccountLink. You may even set up certain types of
withdrawals of up to $1,500 per month by telephone. Consult the Statement of
Additional Information for more details.
O Automatic Exchange Plans. A Plan can authorize the Transfer Agent to
exchange an amount established in advance automatically for shares of up to five
other Oppenheimer funds (other then Oppenheimer Money Market Fund, Oppenheimer
Limited-Term Government Fund or Oppenheimer Cash Reserves) on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum purchase for each other Oppenheimer funds account is $25. These
exchanges are subject to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If a Plan redeems some or all of its Class A or Class B
shares of the Fund, it has up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies to Class A shares that are
purchased subject to an initial sales charge and to Class A or Class B shares on
which the Plan paid a contingent deferred sales charge when it redeemed them.
This privilege does not apply to Class C shares. The Plan Trustee or Plan
Sponsor must be sure to ask the Distributor for this privilege when sending
payment. Please consult the Statement of Additional Information for more
details.
Retirement Plans. Fund shares are available as an investment solely to
participant directed qualified retirement plans and 403(b)(7) Custodial plans.
If you participate in a plan sponsored by your employer, the plan trustee or
administrator must make the purchase of shares for your retirement plan account.
The Distributor offers a number of different retirement plans that can be used
by individuals and employers; not all of which may invest in the Fund.
G Individual Retirement Accounts including rollover IRAs and Roth IRAs,
for individuals and their spouses and SIMPLE IRAs for employers
G 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
G SEP-IRAs (Simplified Employee Pension Plans) for small business owners
or people with income from self-employment
G Pension and Profit-Sharing Plans for self-employed persons and other
employers
G 401(k) prototype retirement plans for businesses
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
<PAGE>
Plan Participants. The redemption of Fund shares by Plan participants are
handled in accordance with each Plan's specific provisions. Plans may have
different provisions with respect to the timing and method of redemptions by
Plan participants. Plan participants should contact their Plan administrator for
details concerning how they may redeem shares of the Fund. It is the
responsibility of the Plan administrator or other Plan service providers to
forward instructions for redemption transactions to the Fund's transfer agent.
The following discussion pertains to the Plan sponsor or Plan administrator.
Plan Sponsors and Plan Administrators. A Plan can arrange to take money out of
its Fund account by selling (redeeming) some or all of its shares on any regular
business day. A Plan's shares will be sold at the next net asset value
calculated after an order is received and accepted by the Transfer Agent. The
Fund offers Plans a number of ways to sell Fund shares: in writing or by
telephone. A Plan can also set up Automatic Withdrawal Plans to redeem shares on
a regular basis, as described above. If the Plan's administrator has questions
about any of these procedures, please call the Transfer Agent first, at
1-800-525-7048, for assistance.
Redemption Fees. Redemptions of Fund shares made for reasons other than benefit
responsive withdrawals by Plan participants, and that are made on less than
twelve months' prior written notice to the Fund, will be subject to a redemption
fee of 2.0% of the proceeds of the redemption, whether the redemption is made in
kind (described below) or in cash. The redemption fee is paid to the Fund and is
intended to compensate the Fund for expenses associated with the redemption of
Fund shares.
A benefit sensitive withdrawal is defined as a withdrawal that occurs due
to the Plan participant's death, retirement, disability or separation from
service; to fund Plan participant loans and other "in service" withdrawals made
pursuant to the terms of the Plan. The Fund reserves the right to withhold from
the redemption proceeds the 2.0% redemption fee if 15% or more of Plan assets
invested in the Fund are redeemed within five business days pending a
determination of whether the redemption fee is applicable. See the Statement of
Additional Information for information about the applicability of the Redemption
Fee to withdrawals caused by certain employer events.
Redemption In-Kind. The Fund reserves the right to honor any requests for
redemptions by making payment in whole or in part in Covered Assets and in
Wrapper Agreements, selected solely in the discretion of the Manager. To the
extent that a redemption in kind includes Wrapper Agreements, the Fund will
assign to the redeeming Plan one or more Wrapper Agreements issued by the
Wrapper Providers covering the Covered Assets distributed in kind. The terms and
conditions of Wrapper Agreements provided to a redeeming Plan will be the same
or substantially similar to the terms and conditions of the Wrapper Agreements
held by the Fund. If the redeeming Plan does not meet the Wrapper Provider's
underwriting requirements, the Wrapper Provider may reserve the right to
terminate the Wrapper Agreement issued in an in-kind redemption at market value.
Please refer to "Redemptions In-Kind" in the Statement of Additional Information
for further details.
O Certain Requests Require a Signature Guarantee. To protect the Plan and
the Fund from fraud, certain redemption requests must be in writing and must
include a guarantee of the Plan sponsor's or Plan administrator's signature in
the following situations (there may be other situations also requiring a
signature guarantee):
G The Plan wishes to redeem more than $50,000 worth of shares and receive
a check
G The redemption check is not payable to the Plan listed on the account
statement
G The redemption check is not sent to the Plan's address of record on the
account statement
G Shares are being transferred to a Fund account with a different owner or
name
G Shares are redeemed by someone other than the owners (such as an
Executor)
<PAGE>
O Where Can a Plan Sponsor or Plan Administrator Have His/Her Signature
Guaranteed? The Transfer Agent will accept a guarantee of the Plan sponsor's or
Plan administrator's signature by a number of financial institutions, including:
a U.S. bank, trust company, credit union or savings association, or by a foreign
bank that has a U.S. correspondent bank, or by a U.S. registered dealer or
broker in securities, municipal securities or government securities, or by a
U.S. national securities exchange, a registered securities association or a
clearing agency. The Plan sponsor or Plan administrator must include his/her
fiduciary title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
G The Plan's name
G The Fund's name
G The Plan's account number (from the account statement) G The dollar
amount or number of shares to be redeemed G Any special payment
instructions G Any share certificates for the shares being sold G The
signatures of all persons authorized to negotiate the account on
behalf of the Plan
G Any special requirements or documents requested by the Transfer Agent to
assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or express mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. Plan sponsors and Plan administrators may also sell
shares by telephone. To receive the redemption price on a regular business day,
all calls 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. Plan sponsors and Plan administrators may not redeem shares held in an
OppenheimerFunds-sponsored retirement plan or under a share certificate by
telephone.
G To redeem shares through a service representative, call 1-800-852-8457 G
To redeem shares automatically on PhoneLink, call 1-800-533-3310
A Plan may have a check sent to the address on the account statement, or,
if the Plan has linked its Fund account to its bank account on AccountLink, the
Plan may have the proceeds wired to that bank account.
<PAGE>
O Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by
telephone, once in any 7-day period. The check must be payable to all owners of
record of the shares and must be sent to the address on the account statement.
This service is not available within 30 days of changing the address on an
account.
O Telephone Redemptions Through AccountLink or Wire. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated when
establishing AccountLink. Normally the ACH transfer to the Plan's bank is
initiated on the business day after the redemption. A Plan does not receive
dividends on the proceeds of the shares redeemed while they are waiting to be
transferred.
Selling Shares Through a Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please call your dealer for more
information about this procedure and refer to "Special Arrangements for
Repurchase of Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of those Oppenheimer funds
designated as investment options for your Plan at net asset value per share at
the time of exchange, without sales charge. Shares of the Fund may not be
exchanged for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer
Limited-Term Government Fund or Oppenheimer Cash Reserves (referred to as
"competing funds"). If a Plan offers any competing fund as an investment option,
any exchanges of Fund shares for shares of other Oppenheimer funds which are not
competing funds, must remain in that other Oppenheimer fund for at least 90 days
before those assets may be exchanged for shares of a competing fund. To exchange
shares, the Plan must meet several conditions:
G Shares of the fund selected for exchange must be available for sale in
the Plan sponsor's state of organization.
G The prospectuses of this Fund and the fund whose shares the Plan wants
to buy must offer the exchange privilege.
G The Plan must hold the shares purchased when it establishes its account
for at least 7 days before the Plan can exchange them; after the account is open
7 days, the Plan can exchange shares every regular business day.
G The Plan must meet the minimum purchase requirements for the fund it
purchased by exchange.
G Before exchanging into a fund, the Plan sponsor should obtain and read
its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, the Plan 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. Please refer
to "How to Exchange Shares" in the Statement of Additional Information for more
details.
Exchanges may be requested in writing or by telephone:
O Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by the Plan sponsor or Plan administrator. Send it to the Transfer
Agent at the addresses listed in "How to Sell Shares."
<PAGE>
O Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
names and address. Shares held under certificates may not be exchanged by
telephone.
There are certain exchange policies shareholders should be aware of:
G Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of The New York Stock Exchange that day, which is normally 4:00 P.M. but may be
earlier on some days. However, either fund may delay the purchase of shares of
the fund being exchanged into up to 7 days if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For example,
the receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might require the disposition of securities at a time or price
disadvantageous to the Fund.
G Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
G The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund will attempt to provide shareholders notice whenever it
is reasonably able to do so, it may impose these changes at any time.
G If the Transfer Agent cannot exchange all the shares a shareholder
requests because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
O Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange which is normally 4:00 P.M., but may be
earlier on some days, on each day the Exchange is open by dividing the value of
the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities, including the Wrapper Agreements, to
determine net asset value. In general, securities values are based on market
value. Investments that do not have readily available market quotations, such as
Wrapper Agreements, are valued at fair value according to guidelines established
by the Fund's Board. These procedures are described more completely in the
Statement of Additional Information.
<PAGE>
Pursuant to procedures adopted by the Fund's Board of Trustees, fair value
of a Wrapper Agreement generally will be equal to the difference between the
Book Value and the market value of the Covered Assets. If the market value of
the Covered Assets is greater than their Book Value, the value of the Wrapper
Agreement will be reflected as a liability of the Fund for valuation purposes in
the amount of the difference, i.e., a negative value, reflecting the potential
liability of the Fund to the provider of the Wrapper Agreement. The Fund will
segregate liquid assets equal to the amount of such potential liability. If,
upon liquidation of all Covered Assets the value of the Wrapper Agreements is
zero or less, then the Wrapper Providers will have no payment obligation to the
Fund under the Wrapper Agreements. If the market value of the Covered Assets is
less than their Book Value, the value of the Wrapper Agreement will be reflected
as an asset of the Fund in the amount of the difference, i.e., a positive value,
reflecting the potential liability of the provider of the Wrapper Agreement to
the Fund. In performing its fair value determination, the Fund's Board expects
to consider the creditworthiness, willingness and ability of a provider of a
Wrapper Agreement to pay amounts due under the Wrapper Agreements. If the Board
determines that a provider of Wrapper Agreements is unable to make such
payments, the Board may assign a fair value to the Wrapper Agreement that is
less than the difference between the Book Value and the market value of the
applicable Covered Assets. If the Board were to materially discount the value of
a Wrapper Agreement, the Fund would be unable to maintain a stable net asset
value.
O The offering of shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be suspended
by the Board of Trustees at any time the Board believes it is in the Fund's best
interest to do so.
O Telephone Transaction Privileges for redemptions or exchanges may be
modified, suspended or terminated by the Fund at any time. If an account has
more than one person authorized to negotiate the account, the Fund and the
Transfer Agent may rely on the instructions of any one such individual.
Telephone privileges apply to each person authorized to negotiate the account
and the dealer representative of record for the account unless and until the
Transfer Agent receives cancellation instructions from a person authorized to
negotiate the account.
O The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If a Plan sponsor or Plan administrator is unable to
reach the Transfer Agent during periods of unusual market activity, those
individuals may not be able to complete a telephone transaction and should
consider placing an order by mail.
O Redemption or transfer requests will not be honored until the Transfer
Agent receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
O Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously.
<PAGE>
O Payment for redeemed shares is made ordinarily in cash and forwarded by
check or through AccountLink (as elected by the shareholder under the redemption
procedures described above) within 7 days after the Transfer Agent receives
redemption instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer, payment will
be forwarded within 3 business days. The Transfer Agent may delay forwarding a
check or processing a payment via AccountLink for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much as 10
days from the date the shares were purchased. That delay may be avoided if a
Plan purchases shares by federal funds wire, certified check or arrange with its
bank to provide telephone or written assurance to the Transfer Agent that its
purchase payment has cleared.
O Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $1,000, and in some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
O "Backup Withholding" of Federal income tax may be applied at the rate of
31% from dividends, distributions and redemption proceeds (including exchanges)
if a Plan sponsor fails to furnish the Fund a correct and properly certified
Taxpayer Identification Number of the Plan or the Plan sponsor when they sign
the application.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B, Class C
and Class Y shares from net investment income each regular business day and pays
those dividends to shareholders monthly. Normally, dividends are paid on the
last business day every month, but the Board of Trustees can change that date.
Distributions may be made monthly from any net short-term capital gains the Fund
realizes in selling securities. Dividends paid on Class Y shares generally are
expected to be higher than for Class A, Class B and Class C shares because
expenses allocable to Class A, Class B and Class C shares will generally be
higher.
The Fund may declare and pay dividends in amounts which are not equal to
the amount of the net investment income it actually earns. In the event
distributions exceed the income earned by the Fund, the excess may be considered
a return of capital. In the event the income earned by the Fund exceeds the
amount of the dividends distributed, the Fund may make an additional
distribution of such excess amount. The Board of Trustees, in an effort to
maintain a stable NAV per share in the event of an additional distribution, may
declare, effective on the ex-distribution date of an additional distribution, a
reverse split of the shares of the Fund in an amount that will cause the total
number of shares held by each shareholder, including shares acquired on
reinvestment of that distribution, to remain the same as before that
distribution was paid.
Capital Gains. The Fund may make distributions annually in December out of any
net short-term or long-term capital gains, and the Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year, which is October 31st. Long-term capital gains will be separately
identified in the tax information the Fund sends to the Plan sponsor or Plan
administrator after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund will pay any
capital gains distributions in a particular year. Since shares of the Fund are
sold only to Plans, it is expected that all dividends and capital gains
distributions will be reinvested in additional shares of the Fund.
<PAGE>
Taxes. The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. As a regulated investment company,
the Fund will not be subject to U.S. federal income tax on its investment
company taxable income and net capital gain, if any, that it distributes to its
shareholders. For Plan participants utilizing the Fund as an investment option
under their Plan, dividend and capital gain distributions from the Fund
generally will not be subject to current taxation, but will accumulate on a
tax-deferred basis. In general, Plans are governed by a complex set of tax
rules. Plan participants should contact their Plan administrator, the Plan's
Summary Plan Description, and/or a professional tax advisor regarding the tax
consequences of participating in the Plan and of any Plan contributions or
withdrawals.
This information is only a summary of certain federal tax information
about Fund investments. More information is contained in the Statement of
Additional Information.
<PAGE>
Oppenheimer Capital Preservation Fund
Two World Trade Center
New York, NY 10048-0203
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
No dealer, broker, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or
made, such information and representations must not be relied upon as having
been authorized by the Fund, OppenheimerFunds, Inc., OppenheimerFunds
Distributor, Inc. or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such an
offer in such state.
*Printed on recycled paper
stabpsp.#4
<PAGE>
Oppenheimer Capital Preservation Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated September 22, 1999
This Statement of Additional Information of Oppenheimer Capital
Preservation Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus dated
September 22, 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 or by calling the Transfer Agent at the
toll-free number shown above.
Contents Page
About the Fund
Investment Objective and Policies..................................
Other Investment Techniques and Strategies......................
Other Investment Restrictions...................................
How the Fund is Managed............................................
Organization and History........................................
Trustees and Officers of the Fund...............................
The Manager and Its Affiliates..................................
Brokerage Policies of the Fund.....................................
Performance of the Fund............................................
Distribution and Service Plans.....................................
About Your Account
How to Buy Shares..................................................
How to Sell Share..................................................
How to Exchange Shares.............................................
Dividends, Capital Gains and Taxes.................................
Additional Information about the Fund..............................
Financial Information About the Fund
Independent Auditors' Report.......................................
Financial Statements...............................................
Appendix
Industry Classifications........................................A-1
<PAGE>
-34-
<PAGE>
ABOUT THE FUND
Investment Objective And Policies. The investment objective and policies of
the Fund are described in the Prospectus.
Investment Policies and Strategies of Underlying Oppenheimer Funds. The
Prospectus contains a brief description of Oppenheimer Limited-Term Government
Fund ("Limited-Term Government Fund"), Oppenheimer Bond Fund ("Bond Fund"),
Oppenheimer U.S. Government Trust ("U.S. Government Trust"), Oppenheimer
Strategic Income Fund ("Strategic Income Fund"), and Oppenheimer Money Market
Fund, Inc. ("Money Market Fund") (collectively referred to as the "underlying
funds"), including each underlying funds investment objective. Set forth below
is supplemental information about the types of securities each underlying fund
may invest in, as well as strategies each underlying fund may use to try to
achieve its objective. For more complete information about each underlying
fund's investment policies and strategies, please refer to each underlying
fund's prospectus. You may obtain a copy of each underlying fund's prospectus by
calling 1-800-525-7048.
O U.S. Government Securities. Each of the underlying Funds may purchase
U.S. Government securities. These include obligations issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities. These may
include direct obligations of the U.S. Treasury, such as Treasury bills, notes
and bonds. Other U.S. Government Securities are supported by the full faith and
credit of the United States, such as pass-through certificates issued by the
Government National Mortgage Association. Others may be supported by the right
of the issuer to borrow from the U.S. Treasury, such as securities of Federal
Home Loan Banks. Others may be supported only by the credit of the
instrumentality, such as obligations of the Federal National Mortgage
Association.
O Mortgage-Backed Securities. Limited-Term Government Fund, Bond Fund,
U.S. Government Trust and Strategic Income Fund may also purchase
mortgage-backed securities and collateralized mortgage obligations issued or
guaranteed by the U.S. government or its agencies or instrumentalities. Bond
Fund may also purchase mortgage-backed securities and collateralized mortgage
obligations issued by private issuers. Limited-Term Government Fund, Bond Fund,
U.S. Government Trust and Strategic Income Fund may also invest in "stripped"
mortgage-backed securities, CMOs or other securities issued by agencies or
instrumentalities of the U.S. Government, and Bond Fund may invest in
private-issuer stripped securities. Limited-Term Government Fund, Bond Fund,
U.S. Government Trust and Strategic Income Fund may also enter into "forward
roll" transactions with mortgage backed securities. In a forward roll
transaction, the fund sells mortgage-backed securities it holds to banks or
other buyers and simultaneously agrees to repurchase a similar security from
that party at a later date at an agreed-upon price.
O Asset-Backed Securities. Bond Fund, Strategic Income Fund and Money
Market Fund may invest in asset-backed securities (securities that represent
interests in pools of consumer loans and other trade receivables, similar to
mortgage-backed securities).
O Zero Coupon Securities. Bond Fund and Strategic Income Fund may invest
in zero coupon securities (securities which may be issued by the U.S.
government, its agencies or instrumentalities or by private issuers, that are
offered at a substantial discount from their face value and do not pay interest
but mature at face value), and Strategic Income Fund and Bond Fund may invest in
zero coupon corporate securities (which are similar to U.S. Government zero
coupon Treasury securities but are issued by companies).
O Debt Securities of Domestic Companies. Bond Fund and Strategic Income
Fund may invest in debt securities of U.S. companies. Those corporate debt
securities may be rated as low as "D" by Standard & Poor's or "C" by Moody's.
Bond Fund may invest up to 35% of its assets in lower-grade securities (often
called junk bonds) and Strategic Income Fund may invest up to 100% of its assets
in junk bonds.
O Debt Securities of Foreign Governments and Companies. Bond Fund and
Strategic Income Fund may invest in debt securities issued or guaranteed by
foreign companies, "supranational" entities such as the World Bank, and foreign
governments or their agencies. These foreign securities may include debt
obligations such as government bonds, debentures issued by companies and notes.
Some of these debt securities may have variable interest rates or "floating"
interest rates that change in different market conditions.
O Preferred Stocks. Bond Fund and Strategic Income Fund may invest in
preferred stocks. Preferred stocks, unlike common stocks, generally offers a
stated dividend rate payable from the corporation's earnings.
O Participation Interests. Strategic Income Fund may acquire participation
interests in loans that are made to U.S. or foreign companies. They may be
interests in, or assignments of, the loan and are acquired from banks or brokers
that have made the loan or are members of the lending syndicate.
O Short-term Debt Securities. In addition to U.S. Government securities,
the Money Market Fund will invest in the following types of money market
securities: (i) bank obligations, such as time deposits, certificates of deposit
and bankers' acceptances, of a domestic bank or foreign bank with total assets
of at least $1 billion, (ii) commercial paper, (iii) corporate obligations, (iv)
other money market obligations other than those listed above if they are subject
to repurchase agreements or guaranteed as to their principal and interest by a
domestic bank having total assets in excess of $500 million or by a corporation
whose commercial paper may be purchased by the fund, and (v) U.S.
dollar-denominated short-term investments that the Money Market Fund's Board of
Directors determines present minimal credit risk and which are of "high quality"
as determined by a nationally-recognized statistical rating organization. Money
Market Fund is required to purchase only those securities that the fund's
manager, under Board-approved procedures, has determined have minimal credit
risks and have a high credit rating.
The investment techniques and strategies used by the underlying funds
include the following:
Each underlying fund may invest in illiquid and restricted securities, and
repurchase agreements. Limited-Term Government Fund, U.S. Government Trust,
Strategic Income Fund and Bond Fund may purchase securities on a "when-issued"
and delayed delivery basis (securities that have been created and for which a
market exists, but which are not available for immediate delivery), and hedging
instruments, including certain kinds of futures contracts and put and call
options, and options on futures, or enter into interest rate swap agreements.
Bond Fund and Strategic Income Fund may enter into foreign currency exchange
contracts. None of the underlying funds use hedging instruments for speculative
purposes. Limited-Term Government Fund, U.S. Government Trust, Strategic Income
Fund and Bond Fund may also invest in derivative investments (a
specially-designed investment whose performance is linked to the performance of
another investment or security, such as an option, future or index).
Limited-Term Government Fund and U.S. Government Trust may enter into reverse
repurchase agreements and Bond Fund and U.S. Government Trust may lend their
portfolio securities, subject to certain limitations, to brokers, dealers and
other financial institutions.
<PAGE>
O Investment Risks of Investing in the Underlying Funds. All investments
carry risks to some degree, whether they are risks that market prices of the
investment will fluctuate (this is known as Amarket risk@) or that the
underlying issuer will experience financial difficulties and may default on its
obligation under a fixed-income investment to pay interest and repay principal
(this is referred to as Acredit risk@). These general investment risks, and the
special risks of certain types of investments that certain underlying funds may
hold are described under "Other Securities the Fund May Purchase." They affect
the value of each underlying fund's investments, their investment performance,
and the prices of their shares.
Wrapper Agreements. Wrapper Agreements are structured with a number of
different features. Wrapper Agreements purchased by the Fund are of three basic
types: (1) non-participating, (2) participating and (3) "hybrid". In addition,
the Wrapper Agreements will either be of fixed-maturity or open-end maturity
("evergreen"). The Fund enters into particular types of Wrapper Agreements
depending upon their respective cost to the Fund and the Wrapper Provider's
creditworthiness, as well as upon other factors. Under most circumstances, it is
anticipated that the Fund will enter into participating or hybrid Wrapper
Agreements of open-end maturity.
Under a non-participating Wrapper Agreement, the Wrapper Provider becomes
obligated to make a payment to the Fund whenever the Fund sells Covered Assets
at a price below Book Value to meet withdrawals of a type covered by the Wrapper
Agreement (a "Benefit Event"). Conversely, the Fund becomes obligated to make a
payment to the Wrapper Provider whenever the Fund sells Covered Assets at a
price above their Book Value in response to a Benefit Event. In neither case is
the Crediting Rate adjusted at the time of the Benefit Event. Accordingly, under
this type of Wrapper Agreement, while the Fund is protected against decreases in
the market value of the Covered Assets below Book Value, it does not realize
increases in the market value of the Covered Assets above Book Value; those
increases are realized by the Wrapper Providers.
Under a participating Wrapper Agreement, the obligation of the Wrapper
Provider or the Fund to make payments to each other typically does not arise
until all of the Covered Assets have been liquidated. Instead of payments being
made on the occurrence of each Benefit Event, the obligation to pay is a factor
in the periodic adjustment of the Crediting Rate. A participating Wrapper
Agreement may require that any accrued gains left in the Fund that are not
distributed through the Crediting Rate prior to the liquidation of all Covered
Assets will be paid to the Wrapper Provider.
Under a hybrid Wrapper Agreement, the obligation of the Wrapper Provider
or the Fund to make payments does not arise until withdrawals exceed a specified
percentage of the Covered Assets, after which time payment covering the
difference between market value and Book Value will occur.
A fixed-maturity Wrapper Agreement terminates at a specified date, at
which time settlement of any difference between Book Value and market value of
the Covered Assets occurs. A fixed-maturity Wrapper Agreement tends to ensure
that the Covered Assets provide a relatively fixed rate of return over a
specified period of time through bond immunization, which targets the duration
of the Covered Assets to the remaining life of the Wrapper Agreement.
An evergreen Wrapper Agreement has no fixed maturity date on which payment
must be made, and the rate of return on the Covered Assets accordingly tends to
vary. Unlike the rate of return under a fixed-maturity Wrapper Agreement, the
rate of return on assets covered by an evergreen Wrapper Agreement tends to more
closely track prevailing market interest rates and thus tends to rise when
interest rates rise and fall when interest rates fall. An evergreen Wrapper
Agreement may be converted into a fixed-maturity Wrapper Agreement that will
mature in the number of years equal to the duration of the Covered Assets.
<PAGE>
Wrapper Providers are banks, insurance companies and other financial
institutions. The number of Wrapper Providers have been increased in recent
years. There are currently approximately 19 Wrapper Providers rated in the top
two long-term rating categories by Moody's, S&P or another nationally recognized
statistical rating organization. The cost of Wrapper Agreements is typically
0.10% to 0.25% per dollar of Covered Asset per annum. The Fund will expense the
cost of the Wrapper Agreements.
As described in the Prospectus, the Wrapper Agreements are considered
illiquid securities. Therefore, the value of all Wrapper Agreements and other
illiquid securities will not exceed 15% of the Fund's net assets. If the value
of all Wrapper Agreements and other illiquid securities exceeds 15% of the
Fund's net assets at any time, the Fund's net asset value may decrease and the
Fund's investment Manager, OppenheimerFunds, Inc., will take steps to reduce the
value of the Wrapper Agreements to 15% or less of net assets.
If a Wrapper Agreement is terminated by the Wrapper Provider, normally,
the Wrapper Provider will be required to make a single sum payment equal to the
positive value of the terminating Wrapper Provider's share of the Covered Assets
on a mutually agreed to maturity date that will not be earlier than the
effective date of termination, plus a number of years equal to the duration of
the Fund on the date of termination. If the value of the Wrapper Agreement on
the maturity date is zero or less, no payment will be required by the Wrapper
Provider. However, the Wrapper Agreements may provide the Wrapper Providers with
the ability to terminate the Wrapper Agreements with no further obligation to
the Fund if the Manager allows distributions from the Fund other than for
benefit sensitive payments to plan participants, if the Fund's Manager or the
Fund's objective or investment policies are changed without the consent of the
Wrapper Provider, the Fund's assets are invested in securities other than as set
forth in the Prospectus, someone other than the Manager exercises investment
discretion over the Fund, the Wrapper fees remain unpaid for a stated period of
time, the Fund is terminated or amended or its administrative practices or
change in law are changed in a manner that may materially alter the Wrapper
Provider's duties, rights, obligations or liabilities or materially alter
deposits to or withdrawals from the Fund, the Manager permits plans to invest in
the Fund that do not meet the Wrapper Agreement's stated underwriting standards,
or the Fund's Investment Company Act registration lapses or is suspended.
O Risks of Investing in Wrapper Agreements. In the event of the default of
a Wrapper Provider, the Fund could potentially lose the Book Value protections
provided by the Wrapper Agreements with that Wrapper Provider. However, the
impact of such a default on the Fund as a whole may be minimal or non-existent
if the market value of the Covered Assets thereunder is greater than their Book
Value at the time of the default, because the Wrapper Provider would have no
obligation to make payments to the Fund under those circumstances. In addition,
the Fund may be able to obtain another Wrapper Agreement from another Wrapper
Provider to provide Book Value protections with respect to those Covered Assets.
The cost of the replacement Wrapper Agreement might be higher than the initial
Wrapper Agreement due to market conditions or if the market value of those
Covered Assets is less than their Book Value at the time of entering into the
replacement agreement. Such cost would also be in addition to any premiums
previously paid to the defaulting Wrapper Provider. If the Fund were unable to
obtain a replacement Wrapper Agreement, participants redeeming Shares might
experience losses if the market value of the Fund's assets no longer covered by
the Wrapper Agreement is below Book Value. The combination of the default of a
Wrapper Provider and an inability to obtain a replacement agreement could render
the Fund unable to achieve its investment objective of seeking to maintain a
stable value per Share.
With respect to payments made under the Wrapper Agreements between the
Fund and the Wrapper Provider, some Wrapper Agreements, as noted in the Fund's
prospectus, provide that payments may be due upon disposition of the Covered
Assets or upon termination of the Wrapper Agreement. In none of these cases,
however, would the terms of the Wrapper Agreements specify which Covered Assets
are to be disposed of or liquidated. Moreover, because it is anticipated that
each Wrapper Agreement will cover all Covered Assets up to a specified dollar
amount, if more than one Wrapper Provider becomes obligated to pay to the Fund
the difference between Book Value and market value, each Wrapper Provider will
pay a pro-rata amount in proportion to the maximum dollar amount of coverage
provided. Thus, the Fund will not have the option of choosing which Wrapper
Agreement to draw upon in any such payment situation. In the event of
termination of a Wrapper Agreement or conversion of an evergreen Wrapper
Agreement to a fixed maturity, some Wrapper Agreements may require that the
duration of some portion of the Fund's portfolio securities be reduced to
correspond to the fixed maturity or termination date. That may adversely effect
the yield of the Fund.
The Wrapper Agreements typically provide that either the Wrap Provider or
the Fund may terminate the Wrapper Agreement upon specified notice to the other
party. If a Wrapper Agreement is terminated the Fund intends to purchase a new
Wrapper Agreement from another financial institution on terms substantially
similar to those of the terminated Wrapper Agreement. However, there may be
certain circumstances in which substitute Wrapper Agreements are unavailable or
are available only on terms the Fund considers disadvantageous.
<PAGE>
In such circumstances, the Wrapper Agreements permit the Fund to convert
the terminating Wrapper Agreement into a maturing Wrapper Agreement. The
maturity period for a terminating Wrapper Agreement will approximate the
investment duration of the Fund at that time. During that maturity period the
terminating Wrapper Agreement will apply to a distinct investment portfolio
within the Fund. That distinct portfolio will be managed to a declining
investment duration, as required by the Wrapper Agreement. The terminating Wrap
Provider will continue to be responsible for paying its proportionate share of
any payments required to satisfy redemption requests. The terminating Wrapper
Agreement will have a distinct Crediting Rate, reflecting its distinct
investment portfolio. The Fund's overall Crediting Rate will reflect a blending
of the Crediting Rate on the terminating Wrapper Agreement and the Crediting
Rate on the remaining Wrapper Agreements.
Other Securities the Fund May Purchase. From time to time, when the Manager
determines that it would be advantageous to the Fund, the Fund may invest in any
of the securities described below either exclusively or in addition to its
investment in the underlying funds. The Wrapper Agreements the Fund purchases
may contain certain investment restrictions which limit the Fund's ability to
invest in some or all of the following:
|_| Foreign Debt Obligations. The debt obligations of foreign
governments and entities may or may not be supported by the full faith and
credit of the foreign government. The Fund may buy securities issued by certain
supra-national entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international
banking organizations and related government agencies. Examples are the
International Bank for Reconstruction and Development (commonly called the
"World Bank"), the Asian Development bank and the Inter-American Development
Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
The Fund can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate discount
bonds. They are generally collateralized in full as to repayment of principal at
maturity by U.S. Treasury zero-coupon obligations that have the same maturity as
the Brady Bonds. Brady Bonds can be viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity.
Those uncollateralized amounts constitute what is called the "residual risk."
If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not be
distributed to investors, nor will those obligations be sold to distribute the
proceeds. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds. The defaulted bonds will continue to
remain outstanding, and the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. Because of the residual risk of Brady Bonds and the history of
defaults with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, Brady Bonds are considered speculative
investments.
|_| Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing
markets abroad may also offer special opportunities for investing but have
greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject
to the risk of greater political and economic instability, which can greatly
affect the volatility of prices of securities in those countries. The Manager
will consider these factors when evaluating securities in these markets, because
the selection of those securities must be consistent with the Fund's investment
objective.
|_| Risks of Conversion to Euro. On January 1, 1999, eleven countries
in the European Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lire) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress securities
values. o vendors the Fund depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Fund buys), the
Manager (which must price the Fund's investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in
settlements and additional costs to the Fund. o exchange contracts and
derivatives that are outstanding during the transition to the euro. The
lack of currency rate calculations between the affected currencies and the
need to update the Fund's contracts could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's Custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|X| Debt Securities. The Fund can invest in a variety of debt
securities to seek its objective. Foreign debt securities are subject to the
risks of foreign securities described above. In general, debt securities are
also subject to two additional types of risk: credit risk and interest rate
risk.
|_| Credit Risks. Credit risk relates to the ability of the issuer to
meet interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater extent
that lower-yield, higher-quality bonds.
The Fund's debt investments can include high yield, non-investment-grade
bonds (commonly referred to as "junk bonds"). Investment-grade bonds are bonds
rated at least "Baa" by Moody's Investors Service, Inc., at least "BBB" by
Standard & Poor's Ratings Group or Duff & Phelps, Inc., or that have comparable
ratings by another nationally-recognized rating organization.
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research to
evaluate a security's credit-worthiness. If securities the Fund buys are
unrated, they are assigned a rating by the Manager of comparable quality to
bonds having similar yield and risk characteristics within a rating category of
a rating organization.
The Fund does not have investment policies establishing specific maturity
ranges for the Fund's investments, and they may be within any maturity range
(short, medium or long) depending on the Manager's evaluation of investment
opportunities available within the debt securities markets. The Fund may shift
its investment focus to securities of longer maturity as interest rates decline
and to securities of shorter maturity as interest rates rise.
|_| Interest Rate Risk. Interest rate risk refers to the fluctuations
in value of fixed-income securities resulting from the inverse relationship
between price and yield. For example, an increase in general interest rates will
tend to reduce the market value of already-issued fixed-income investments, and
a decline in general interest rates will tend to increase their value. In
addition, debt securities with longer maturities, which tend to have higher
yields, are subject to potentially greater fluctuations in value from changes in
interest rates than obligations with shorter maturities.
|_| Special Risks of Lower-Grade Securities. The Fund can invest
directly up to 10% of its net assets in lower-grade debt securities, if the
Manager believes it is consistent with the Fund's objective. Because lower-rated
securities tend to offer higher yields than investment grade securities, the
Fund may invest in lower-grade securities to try to achieve higher income.
"Lower-grade" debt securities are those rated below "investment grade"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
considered part of the Fund's portfolio of lower-grade securities. The Fund can
invest in securities rated as low as "C" or "D" or which may be in default at
the time the Fund buys them.
Some of the special credit risks of lower-grade securities are discussed
below. There is a greater risk that the issuer may default on its obligation to
pay interest or to repay principal than in the case of investment grade
securities. The issuer's low creditworthiness may increase the potential for its
insolvency. An overall decline in values in the high yield bond market is also
more likely during a period of a general economic downturn. An economic downturn
or an increase in interest rates could severely disrupt the market for high
yield bonds, adversely affecting the values of outstanding bonds as well as the
ability of issuers to pay interest or repay principal. In the case of foreign
high yield bonds, these risks are in addition to the special risk of foreign
investing discussed in the Prospectus and in this Statement of Additional
Information.
To the extent they can be converted into stock, convertible securities may
be less subject to some of these risks than non-convertible high yield bonds,
since stock may be more liquid and less affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics.
|X| 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
maturity. 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,
(2) 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.
|X| U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other government agencies or federally-chartered
corporate entities referred to as "instrumentalities." The obligations of U.S.
government agencies or instrumentalities in which the Fund may invest may or may
not be guaranteed or supported by the "full faith and credit" of the United
States. "Full faith and credit" means generally that the taxing power of the
U.S. government is pledged to the payment of interest and repayment of principal
on a security. If a security is not backed by the full faith and credit of the
United States, the owner of the security must look principally to the agency
issuing the obligation for repayment. The owner might not be able to assert a
claim against the United States if the issuing agency or instrumentality does
not meet its commitment. The Fund will invest in securities of U.S. government
agencies and instrumentalities only if the Manager is satisfied that the credit
risk with respect to the agency or instrumentality is minimal.
|_| U.S. Treasury Obligations. These include Treasury bills
(maturities of one year or less when issued), Treasury notes (maturities of from
one to ten years), and Treasury bonds (maturities of more than ten years).
Treasury securities are backed by the full faith and credit of the United States
as to timely payments of interest and repayments of principal. They also can
include U. S. Treasury securities that have been "stripped" by a Federal Reserve
Bank, zero-coupon U.S. Treasury securities described below, and Treasury
Inflation-Protection Securities ("TIPS").
|_| 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.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| U.S. Government Mortgage-Related Securities. The Fund
can invest in a variety of mortgage-related securities that are issued by
U.S. government agencies or instrumentalities, some of which are described
below.
|_| 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 issuers, 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.
|_| Federal Home Loan Mortgage Corporation Certificates
("FHLMC"). 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 (iii) 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.
|_| 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.
|_| Zero-Coupon U.S. Government Securities. The Fund may buy
zero-coupon U.S. government securities. These will typically be U.S. Treasury
Notes and Bonds that have been stripped of their unmatured interest coupons,
the coupons themselves, or certificates representing interests in those
stripped debt obligations and coupons.
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.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which
the Fund trades its portfolio securities during its fiscal year. For example, if
a fund sold all of its securities during the year, its portfolio turnover rate
would have been 100%. The Fund's portfolio turnover rate will fluctuate from
year to year, but it is not expected that the Fund's portfolio turnover rate
will exceed 100%.
Increased turnover of the debt securities the Fund purchases directly
creates higher brokerage and transaction costs for the Fund, which may reduce
its overall performance. The Fund incurs no brokerage and transaction costs when
it buys and sells shares of the underlying funds. Additionally, the realization
of capital gains from selling portfolio securities may result in distributions
of taxable long-term capital gains to shareholders, since the Fund will normally
distribute all of its capital gains realized each year, to avoid excise taxes
under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times
and at times may not use them.
|X| Other Zero-Coupon Securities. The Fund may buy zero-coupon and delayed
interest securities, and "stripped" securities of corporations and of foreign
government issuers. These are similar in structure to zero-coupon and "stripped"
U.S. government securities, but in the case of foreign government securities may
or may not be backed by the "full faith and credit" of the issuing foreign
government. Zero-coupon securities issued by foreign governments and by
corporations will be subject to greater credit risks than U.S. government
zero-coupon securities.
|X| "Stripped" Mortgage-Related Securities. The Fund can 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.
|X| Preferred Stocks. Preferred stock, unlike common stock, has a
stated dividend rate payable from the corporation's earnings. Preferred
stock dividends may be cumulative or non-cumulative, participating, or
auction rate. "Cumulative" dividend provisions require all or a portion of
prior unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
|X| Floating Rate and Variable Rate Obligations. Variable rate obligations
can 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 adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate 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 Manager 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.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund may invest
in securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" (or "forward-commitment") basis. When-issued and
delayed-delivery are terms that refer 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 (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of entering
into the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books 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.
|X| Participation Interests. The Fund may invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made by
the issuing financial institution in the proportion that the buyers
participation interest bears to the total principal amount of the loan. No more
than 5% of the Fund's net assets can be invested in participation interests of
the same borrower. The issuing financial institution may have no obligation to
the Fund other than to pay the Fund the proportionate amount of the principal
and interest payments it receives.
Participation interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of principal
and interest on the loan. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares in the absence of the Wrapper Agreements. If the
issuing financial institution fails to perform its obligations under the
participation agreement, the Fund might incur costs and delays in realizing
payment and suffer a loss of principal and/or interest.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Manager will monitor the vendor's creditworthiness requirements to
confirm that the vendor is financially sound and will continuously monitor the
collateral's value.
|X| Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's investments. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
|X| 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 liquid assets
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.
|X| Loans of Portfolio Securities. To raise cash for liquidity purposes or
income, the Fund can lend its portfolio securities to brokers, dealers and other
types of financial institutions approved by the Fund's Board of Trustees. These
loans are limited to not more than 25% of the value of the Fund's total assets.
The Fund currently does not intend to lend securities, but if it does so, such
loans will not likely exceed 5% of the Fund's total assets.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, securities of the U.S. government or
its agencies or instrumentalities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
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.
|X| Borrowing for Leverage. The Fund has the ability to borrow from banks
on an unsecured basis to invest the borrowed funds in portfolio securities. This
speculative technique is known as "leverage." The Fund may borrow only from
banks. Under current regulatory requirements, borrowings can be made only to the
extent that the value of the Fund's assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings (including the proposed
borrowing). If the value of the Fund's assets fails to meet this 300% asset
coverage requirement, the Fund will reduce its bank debt within three days to
meet the requirement. To do so, the Fund might have to sell a portion of its
investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, the Fund's net asset value per share might fluctuate
more than that of funds that do not borrow. Currently, the Fund does not
contemplate using this technique in the next year but if it does so, it will not
likely be to a substantial degree.
|X| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer loans.
They are issued by trusts or special-purpose corporations. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interests in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due. However, the enhancement, if any, might not be for the full par value of
the security. If the enhancement is exhausted and any required payments of
interest or repayments of principal are not made, the Fund could suffer losses
on its investment or delays in receiving payment.
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. Unlike mortgage-backed securities,
asset-backed securities typically do not have the benefit of a security interest
in the underlying collateral.
|X| Derivatives. The Fund can invest in a variety of derivative
investments to seek income or for hedging purposes. Some derivative investments
the Fund can use are the hedging instruments described below in this Statement
of Additional Information.
Among the derivative investments the Fund can invest in are structured
notes called "index-linked" or "currency-linked" notes. Principal and/or
interest payments on index-linked notes depend on the performance of an
underlying index. Currency-indexed securities are typically short-term or
intermediate-term debt securities. Their value at maturity or the rates at which
they pay income are determined by the change in value of the U.S. dollar against
one or more foreign currencies or an index. In some cases, these securities may
pay an amount at maturity based on a multiple of the amount of the relative
currency movements. This type of index security offers the potential for
increased income or principal payments but at a greater risk of loss than a
typical debt security of the same maturity and credit quality.
Other derivative investments the Fund can use include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or it
is payable in an amount based on the price of the issuer's common stock at the
time of maturity. Both alternatives present a risk that the amount payable at
maturity will be less than the principal amount of the debt because the price of
the issuer's common stock might not be as high as the Manager expected.
|X| Hedging. The Fund can use hedging instruments. It is not obligated to
use them in seeking its objective. 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 that have appreciated, or to
facilitate selling securities for investment reasons, the Fund could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures. Covered calls may
also be used to increase the Fund's income.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
|_| buy futures, or
|_| buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate to
(1) broadly-based securities indices (these are referred to as "financial
futures"), (2) commodities (these are referred to as "commodity index futures"),
(3) debt securities (these are referred to as "interest rate futures"), and (4)
foreign currencies (these are referred to as "forward contracts").
A broadly-based bond index is used as the basis for trading bond index
futures. They may in some cases be based on bonds of issuers in a particular
industry or group of industries. A bond index assigns relative values to the
securities included in the index and its value fluctuates in response to the
changes in value of the underlying securities. A bond index cannot be purchased
or sold directly. These contracts obligate the seller to deliver, and the
purchaser to take, cash to settle the futures transaction. There is no delivery
made of the underlying securities to settle the futures obligation. Either party
may also settle the transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
The Fund can 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.
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.
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 (other than forward
contracts) are effected through a clearinghouse associated with the exchange on
which the contracts are traded.
|_| Put and Call Options. The Fund may buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
|_| Writing Covered Call Options. The Fund can write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered. That means
the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable the Fund to satisfy its obligations if the
call is exercised. There is no limit on the amount of the Fund's total assets
that may be subject to covered calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by 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.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for Federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
require the Fund to deliver a futures contract. It would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging policies.
|_| Writing Put Options. The Fund can sell put options on securities,
broadly-based securities indices, foreign currencies and futures. A put option
on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Fund will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price.
If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can purchase calls on
securities, broadly-based securities indices, foreign currencies and futures. It
may do so to protect against the possibility that the Fund's portfolio will not
participate in an anticipated rise in the securities market. When the Fund buys
a call (other than in a closing purchase transaction), it pays a premium. The
Fund then has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price.
The Fund benefits only if it sells the call at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the call and
the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts on securities, broadly-based securities indices,
foreign currencies and futures, whether or not it owns the underlying
investment. When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a seller of
a put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may also purchase calls and puts on spread options. Spread
options pay the difference between two interest rates, two exchange rates or two
referenced assets. Spread options are used to hedge the decline in the value of
an interest rate, currency or asset compared to a reference or base interest
rate, currency or asset. The risks associated with spread options are similar to
those of interest rate options, foreign exchange options and debt or equity
options.
The Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
|_| Buying and Selling Options on Foreign Currencies. The Fund can
buy and sell calls and puts on foreign currencies. They include puts and calls
that trade on a securities or commodities exchange or in the over-the-counter
markets or are quoted by major recognized dealers in such options. The Fund
could use these calls and puts to try to protect against declines in the dollar
value of foreign securities and increases in the dollar cost of foreign
securities the Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its Custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in a segregated account with the Fund's Custodian
bank.
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
|_| Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
|_| Interest Rate Swap Transactions. The Fund can enter into interest rate
swap agreements. In an interest rate swap, the Fund and another party exchange
their right to receive or their obligation to pay interest on a security. For
example, they might swap the right to receive floating rate payments for fixed
rate payments. The Fund can enter into swaps only on securities that it owns.
The Fund will not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will segregate liquid assets (such as cash or U.S.
government securities) to cover any amounts it could owe under swaps that exceed
the amounts it is entitled to receive, and it will adjust that amount daily, as
needed.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party. Under
these agreements, if a default results 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 for each swap. It is measured by 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."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same adviser as the Fund (or an adviser that is an affiliate of the Fund's
adviser). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
|_| 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.
|X| Temporary Defensive Investments. When market conditions are unstable,
or the Manager believes it is otherwise appropriate to reduce the Fund's
duration, the Fund can invest in a variety of debt securities for defensive
purposes. The Fund can also purchase these securities for liquidity purposes to
meet cash needs due to the redemption of Fund shares, or to hold while waiting
to reinvest cash received from the sale of other portfolio securities. The
Fund's temporary defensive investments can include the following short-term
(maturing in one year or less) dollar-denominated debt obligations: |_|
obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
|_| commercial paper (short-term, unsecured promissory notes) of domestic or
foreign companies,
|_| debt obligations of domestic or foreign corporate issuers, |_| certificates
of deposit and bankers' acceptances of domestic and foreign
banks having total assets in excess of $1 billion, and |_| repurchase
agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.
<PAGE>
Other Investment Restrictions
The Fund's most significant investment restriction is set forth in the
Prospectus. There are additional investment restrictions that the Fund must
follow that are also fundamental policies. Fundamental policies and the Fund's
investment objective, cannot be changed without the vote of a "majority" of the
Fund's outstanding voting securities. Under the Investment Company Act, such a
"majority" vote is defined as the vote of the holders of the lesser of (i) 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 (ii)
more than 50% of the outstanding shares.
FUNDAMENTAL POLICIES: Under these additional restrictions, the Fund
cannot:
(1) purchase or sell real estate, commodities or commodity contracts;
however, the Fund may use hedging instruments approved by its Board whether or
not such hedging instruments are considered commodities or commodity contracts;
(2) underwrite securities except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities held in its
portfolio;
(3) lend money, except that the Fund may (a) lend its portfolio
securities, (b) purchase debt securities which are permitted by the Fund's
investment policies and restrictions, (c) enter into repurchase agreements, and
(d) lend money to other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3% of the value
of its total assets (taken at market value at the time of such loans) subject to
obtaining all required authorizations and regulatory approvals;
(4) borrow money in excesss of one-third of the value of its total assets.
The Fund can borrow only from other affiliated funds and from banks for
temporary or emergency purposes, and the Fund can borrow only from banks for
investment purposes. The Fund can borrow only if it maintains a 300% ratio of
assets to borrowings at all times in the manner set forth in the Investment
Company Act of 1940;
(5) issue "senior securities," but this does not prohibit certain
investment activities for which assets of the Fund are designated as segregated,
or margin, collateral or escrow arrangements are established, to cover the
related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
Non-Fundamental Investment Restrictions. The following operating policies
of the Fund are not fundamental policies and, as such, may be changed by vote of
a majority of the Fund's Board of Trustees without shareholder approval. These
additional restrictions provide that the Fund cannot:
|_| purchase securities on margin. However, the Fund can make margin
deposits when using hedging instruments permitted by any of its other
policies.
|_| invest in companies for the purpose of acquiring control or management
of those companies.
The percentage restrictions described above and in the Prospectus are
applicable only at the time of investment and require no action by the Fund as a
result of subsequent changes in value of the investments or the size of the
Fund.
How the Fund is Managed
Organization and History
As a Massachusetts business trust, the Fund is not required to hold, and
does not plan to hold, regular annual meetings of shareholders. The Fund will
hold meetings when required to do so by the Investment Company Act or other
applicable law, or when a shareholder meeting is called by the Trustees or upon
proper request of the shareholders. Shareholders have the right, upon the
declaration in writing or vote of two-thirds of the outstanding shares of the
Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of at least 10% of its outstanding shares. In addition, if the Trustees receive
a request from at least 10 shareholders (who have been shareholders for at least
six months) holding shares of the Fund valued at $25,000 or more or holding at
least 1% of the Fund's outstanding shares, whichever is less, stating that they
wish to communicate with other shareholders to request a meeting to remove a
Trustee, the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense, or the Trustees may take such other
action as set forth under Section 16(c) of the Investment Company Act.
Shares of the Fund represent an interest in the Fund proportionately equal
to the interest of each other share of the same class and entitle the holder to
one vote per share (and a fractional vote for a fractional share) on matters
submitted to their vote at shareholders' meetings. Shareholders of the Fund vote
together in the aggregate on certain matters at shareholders' meetings, such as
the election of Trustees and ratification of appointment of auditors for the
Trust. Shareholders of a particular class vote separately on proposals which
affect that class, and shareholders of a class which is not affected by that
matter are not entitled to vote on the proposal. Shareholders of a class vote on
certain amendments to the Distribution and/or Service Plans if the amendments
affect that class.
The Trustees are authorized to create new series and classes of series.
The Trustees may reclassify unissued shares of the Trust or its series or
classes into additional series or classes of shares. The Trustees may also
divide or combine the shares of a class into a greater or lesser number of
shares provided that the proportionate beneficial interest of a shareholder in
the Fund is not changed. Shares do not have cumulative voting rights or
preemptive or subscription rights. Shares may be voted in person or by proxy.
<PAGE>
-60-
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides for
indemnification and reimbursement of expenses out of its property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Fund, and any shareholder of
the Fund, agrees under the Fund's Declaration of Trust to look solely to the
assets of the Fund for satisfaction of any claim or demand which may arise out
of any dealings with the Fund, and the Trustees shall have no personal liability
to any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five years are set forth below. The address for each Trustee and officer is Two
World Trade Center, New York, New York 10048-0203, unless another address is
listed below. All of the Trustees are also trustees or directors of Oppenheimer
Growth Fund, Oppenheimer Municipal Bond Fund, Oppenheimer Money Market Fund,
Inc., Oppenheimer Capital Appreciation Fund, Oppenheimer U.S. Government Trust,
Oppenheimer New York Municipal Fund, Oppenheimer California Municipal Fund,
Oppenheimer Multi-State Municipal Trust, Oppenheimer Multiple Strategies Fund,
Oppenheimer Developing Markets Fund, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Discovery Fund, Oppenheimer Enterprise Fund, Oppenheimer Series
Fund, Inc., Oppenheimer International Growth Fund, Oppenheimer Global Fund,
Oppenheimer Global Growth & Income Fund, Oppenheimer Multi-Sector Income Trust,
Oppenheimer World Bond Fund, Oppenheimer Europe Fund, Oppenheimer International
Small Company Fund and Oppenheimer Large Cap Growth Fund (collectively, the "New
York-based Oppenheimer funds"), except that Ms. Macaskill and Mr. Griffiths are
not directors of Oppenheimer Money Market Fund, Inc. and Mr. Griffiths is not a
trustee of Oppenheimer Discovery Fund. Ms. Macaskill and Messrs. Bishop,
Donohue, Farrar, Wixted and Zack hold the same offices with the other New
York-based Oppenheimer funds as with the Fund. As of the date of this Statement
of Additional Information, the Trustees and officers of the Fund do not own any
shares.
Leon Levy, Chairman of the Board of Trustees, Age: 74.
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since
1982) and Chairman of Avatar Holdings, Inc. (real estate development).
Robert G. Galli, Trustee, Age: 66.
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 -
December 1997); Executive Vice President of the Manager (December 1977 - October
1995); Executive Vice President and a director (April 1986 - October 1995) of
HarbourView Asset Management Corporation, an investment advisor subsidiary of
the Manager.
Phillip A. Griffiths, Trustee+; Age 60.
97 Olden Lane, Princeton, N. J. 08540
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991)
and a member of the National Academy of Sciences (since 1979); formerly a
director of Bankers Trust Corporation (1994 through June, 1999), Provost and
Professor of Mathematics at Duke University (1983 - 1991), a director of
Research Triangle Institute, Raleigh, N.C. (1983 - 1991), and a Professor of
Mathematics at Harvard University (1972 - 1983).
Benjamin Lipstein, Trustee, Age: 76.
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Trustee, Age: 51.1#
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, an investment adviser
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; 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 Oppenheimer Real Asset
Management, Inc. (since July 1996); President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund management
subsidiary of the Manager and of Oppenheimer Millennium Funds plc; President and
a director of other Oppenheimer funds; a director of Prudential Corporation plc
(a U.K. financial service company).
Elizabeth B. Moynihan, Trustee, Age: 70.
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute), Executive Committee of Board of Trustees of the
National Building Museum; a member of the Trustees Council, Preservation League
of New York State.
Kenneth A. Randall, Trustee, Age: 72.
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), and Prime Retail,
Inc. (real estate investment trust); formerly President and Chief Executive
Officer of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American
Motorists Insurance Company and American Manufacturers Mutual Insurance Company.
Edward V. Regan, Trustee, Age: 69.
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of RBAsset
(real estate manager); a director of OffitBank; Trustee, Financial Accounting
Foundation (FASB and GASB); formerly New York State Comptroller and trustee, New
York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 67.
8 Sound Shore Drive, Greenwich, Connecticut 06830
Chairman of The Directorship Group, Inc. (corporate governance consulting and
executive recruiting); a director of Professional Staff Limited (a U.K.
temporary staffing company); a life trustee of International House
(non-profit educational organization), and a trustee of the Greenwich
Historical Society.
Donald W. Spiro, Vice Chairman and Trustee, Age: 73.
399 Ski Trail, Smoke Rise, New Jersey 07405
Formerly Chairman Emeritus (August 1991 - September 1999), Chairman (November
1987 - January 1991) and a director (January 1969 - September 1999) of the
Manager; Formerly President and Director of the Distributor (July 1978 - January
1992).
Pauline Trigere, Trustee, Age: 86.
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of P.T. Concept (design and sale of
women's fashions).
Clayton K. Yeutter, Trustee, Age: 68.
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a law firm); a director of Zurich Financial
Services (financial services), Zurich Allied AG and Allied Zurich p.l.c.
(insurance investment management); Caterpillar, Inc. (machinery), ConAgra,
Inc. (food and agricultural products), Farmers Insurance Company (insurance),
FMC Corp. (chemicals and machinery) and Texas Instruments, Inc.
(electronics); formerly (in descending chronological order), Counsellor to
the President (Bush) for Domestic Policy, Chairman of the Republican National
Committee, Secretary of the U.S. Department of Agriculture, U.S. Trade
Representative.
Andrew J. Donohue, 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 Oppenheimer Real Asset Management, Inc. (since July 1996);
General Counsel (since May 1996) and Secretary (since April 1997) of Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 40.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund
Controller for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 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.
John S. Kowalik, Vice President and Portfolio Manager, Age: 42.
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 (1989- 1998).
Brian W. Wixted, Treasurer, Age: 39.
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.
? Remuneration of Trustees. The officers of the Fund and certain Trustees
of the Fund (Ms. Macaskill and Mr. Spiro) who are affiliated with the Manager
receive no salary or fee from the Fund. The remaining Trustees of the Fund are
expected to receive the compensation shown below from the Fund with respect to
the Fund's current fiscal year. The compensation from all of the New York-based
Oppenheimer funds is compensation received as a director, trustee or member of a
committee of the Board during the 1998 calendar year.
Retirement Total
Aggregate Benefits Compensation
Compensation Accrued as From All
From Part of Fund New York-based
Name and Position the Fund(1) Expenses Oppenheimer
Funds(2)
Leon Levy, $2,981 $1,979 $162,600
Chairman and Trustee
Robert G. Galli $ 462 $0 $113,383.33
Study Committee Member,
Audit Committee Member
and Trustee
Benjamin Lipstein $3,259 $2,393 $140,550
Study Committee Chairman,
Audit Committee Member
and Trustee
Elizabeth B. Moynihan $ 610 $0 $ 99,000
Study Committee Member
and Trustee
Kenneth A. Randall $1,801 $1,242 $ 90,800
Audit Committee Chairman
and Trustee
Edward V. Regan $ 553 $0 $ 89,800
Proxy Committee Chairman,
Audit Committee Member
and Trustee
<PAGE>
Russell S. Reynolds, Jr. $ 779 $ 365 $ 67,200
Proxy Committee Member
and Trustee
Pauline Trigere, Trustee $1,166 $ 797 $ 60,000
Clayton K. Yeutter(3) $ 414 $0 $ 67,200
Proxy Committee Member
and Trustee
- ----------------------
(1) Estimated to be received during the Fund=s current fiscal year ending
September 30, 1999. (2) For the 1998 calendar year. There are 20 New York-based
Oppenheimer funds. For Mr. Galli, his total compensation for the 1998 calendar
year also includes compensation from 13 other funds for which he serves as a
Trustee or Director. (3) Includes $12,706 deferred under the Deferred
Compensation Plan described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five years of service in which the
highest compensation was received. A Trustee must serve as trustee for any of
the New York-based Oppenheimer funds for at least 15 years to be eligible for
the maximum payment. Each Trustee's retirement benefits will depend on the
amount of the Trustee's future compensation and length of service. Therefore the
amount of those benefits cannot be determined at this time, nor can we estimate
the number of years of credited service that will be used to determine those
benefits.
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 Trustees' 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.
Major Shareholders. As of the date of this Statement of Additional Information,
the Manager was the sole initial shareholder of the Fund's outstanding Class A,
Class B, Class C and Class Y shares.
The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer
Acquisition Corporation ("OAC"), a holding company controlled by Massachusetts
Mutual Life Insurance Company. The Manager and the Fund have a Code of Ethics.
It is designed to detect and prevent improper personal trading by certain
employees, including portfolio managers, that would compete with or take
advantage of the Fund's portfolio transactions. Compliance with the Code of
Ethics is carefully monitored and strictly enforced by the Manager.
<PAGE>
O The Investment Advisory Agreement. The Investment 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 Investment
Advisory Agreement or by the Distributor under the Distribution Agreement are
paid by the Fund. The Investment Advisory Agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal, and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain printing
and registration costs and non-recurring expenses, including litigation. The
management fees paid by the Fund to the Manager are calculated at the rates
described in the Prospectus, which are applied to the assets of the Fund as a
whole. The fees are allocated to each class of shares based upon the relative
proportion of the Fund's net assets represented by that class.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties under the Investment Advisory
Agreement, the Manager is not liable for any loss resulting from any good faith
errors or omissions in connection with any matters to which the Agreement
relates. The Investment Advisory Agreement permits the Manager to act as
investment advisor to any other person, firm or corporation.
O The Distributor. Under its Distribution Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's Class A, Class B, Class C and Class Y shares but is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales (other than those paid under the Distribution and Service Plans, but
including advertising and the cost of printing and mailing prospectuses other
than those furnished to existing shareholders), are borne by the Distributor.
For additional information about distribution of the Fund's shares and the
expenses connected with such activities, please refer to "Distribution and
Service Plans," below.
O The Transfer Agent. OppenheimerFunds Services, the Fund's transfer
agent, is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and administrative
functions.
Performance of the Fund
Yield and Total Return Information. From time to time the "standardized yield,"
"dividend yield," "average annual total return", "total return," and "total
return at net asset value" of an investment in a class of the Fund may be
advertised. An explanation of how yields and total returns are calculated for
each class and the components of those calculations is set forth below.
The Fund's advertisement of its performance must, under applicable rules
of the Securities and Exchange Commission, include the average annual total
returns for each advertised class of shares of the Fund for the 1, 5 and 10-year
periods (or the life of the class, if less) as of the most recently ended
calendar quarter prior to the publication of the advertisement. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yields and total returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original cost. Yields and
total returns for any given past period are not a prediction or representation
by the Fund of future yields or rates of return on its shares. The yields and
total returns of Class A, Class B, Class C and Class Y shares of the Fund are
affected by portfolio quality, the type of investments the Fund holds and its
operating expenses allocated to a particular class.
O Yield
|_| Standardized Yield. The "standardized yield" (referred to as "yield")
is shown for a class of shares for a stated 30-day period. It is not based on
actual distributions paid by the Fund to shareholders in the 30-day period, but
is a hypothetical yield based upon the net investment income from the Fund's
portfolio investments for that period. It may therefore differ from the
"dividend yield" for the same class of shares, described below. It is calculated
using the following formula set forth in rules adopted by the Securities and
Exchange Commission, designed to assure uniformity in the way that all funds
calculate their yields:
Standardized Yield = 2[(a-b 6
--- + 1) - 1]
cd
The symbols above represent the following factors:
a =dividends and interest earned during the 30-day period.
b =expenses accrued for the period (net of any expense reimbursements).
c =the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d =the maximum offering price per share of the class on the last day of
the period, using the current maximum sales charge rate adjusted for
undistributed net investment income.
<PAGE>
The standardized yield for a 30-day period may differ from its yield for
any other period. The SEC formula assumes that the standardized yield for a
30-day period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. Additionally, because each class of shares
is subject to different expenses, it is likely that the standardized yields of
the Fund's classes of shares will differ for any 30-day period.
G Dividend Yield. The Fund may quote a "dividend yield" for each class of
its shares. Dividend yield is based on the dividends paid on shares of a class
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated 30-day period are added together and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment
date)
The maximum offering price for Class A shares includes the maximum initial
sales charge. The maximum offering price for Class B and Class C shares is the
net asset value per share, without considering the effect of contingent deferred
sales charges. The Class A dividend yield may also be quoted without deducting
the maximum initial sales charge.
O Total Return Information
G Average Annual Total Returns. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of
that investment according to the following formula:
1/n
ERV
--- - 1 = Average Annual Total Return
P
G Cumulative Total Returns. The cumulative "total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV-P
----- = Cumulative Total Return
P
In calculating total returns for Class A shares, the current maximum sales
charge of 3.50% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
discussed below). For Class B shares, the payment of the current contingent
deferred sales charge (4.0% for the first year, 3.0% for the second year, 2.0%
for the third and fourth years, 1.0% in the fifth year and none thereafter) is
applied to the investment result for the time period shown (unless the total
return is shown at net asset value, as described below). For Class C shares, the
1.0% contingent deferred sales charge is applied to the investment result for
the one-year period (or less). The 2% redemption fee normally will not be
deducted in determining total return. If it is deducted, total return will be
less. Total returns also assume that all dividends and capital gains
distributions during the period are reinvested to buy additional shares at net
asset value per share, and that the investment is redeemed at the end of the
period.
G Total Returns at Net Asset Value. From time to time the Fund may also
quote an "average annual total return at net asset value" or a cumulative "total
return at net asset value" for Class A, Class B, Class C or Class Y shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B, Class C or Class Y shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated investment
companies, including the Fund, and ranks their performance for various periods
based on categories relating to investment objectives. The Lipper performance
rankings are based on total returns that include the reinvestment of capital
gains distributions and income dividends but does not take sales charges or
taxes into consideration.
From time to time the Fund may publish the star ranking of the performance
of its Class A, Class B, Class C or Class Y shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds, municipal bond funds, based on risk-adjusted total
investment returns. Investment return measures a fund's or class=s one, three,
five and ten-year average annual total returns (depending on the inception of
the fund or class) in excess of 90-day U.S. Treasury bill returns after
considering the fund=s sales charges and expenses. Risk measures a fund=s or
class=s performance below 90-day U.S. Treasury bill returns. Risk and investment
return are combined to produce star rankings reflecting performance relative to
the average fund in a fund's category. Five stars is the "highest" ranking (top
10%), four stars is "above average" (next 22.5%), three stars is "average" (next
35%), two stars is "below average" (next 22.5%) and one star is "lowest" (bottom
10%). The current star ranking is the fund=s or class=s 3-year ranking or its
combined 3-and 5-year ranking (weighted 60%/40%, respectively, or its combined
3-,5- and 10-year ranking (weighted 40%, 30% and 30%, respectively), depending
on the inception of the fund or class. Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar Category. In addition to its star rankings, Morningstar also
categorizes and compares a fund=s 3-year performance based on Morningstar=s
classification of the fund=s investments and investment style, rather than how a
fund defines its investment objective. Morningstar=s four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
<PAGE>
The performance of the Fund's Class A, Class B, Class C, or Class Y shares
may also be compared in publications to (i) the performance of various market
indices or other investments for which reliable performance data is available,
and (ii) to averages, performance rankings or other benchmarks prepared by
recognized mutual fund statistical services.
From time to time the Fund may also include in its advertisements and
sales literature performance information about the Fund or rankings of the
Fund's performance cited in newspapers or periodicals, such as The New York
Times. These articles may include quotations of performance from other sources,
such as Lipper or Morningstar.
From time to time, the Fund's Manager may publish rankings or ratings of
the Manager (or the Transfer Agent), by independent third-parties, on the
investor services provided by them to shareholders of the Oppenheimer funds,
other than the performance rankings of the Oppenheimer funds themselves. These
ratings or rankings of shareholder/investor services by third parties may
compare the Oppenheimer funds services to those of other mutual fund families
selected by the rating or ranking services, and may be based upon the opinions
of the rating or ranking service itself, using its own research or judgment, or
based upon surveys of investors, brokers, shareholders or others, in relation to
other equity funds.
When comparing yield, total return and investment risk of an investment in
Class A, Class B, Class C or Class Y shares of the Fund with other investments,
investors should understand that certain other investments have different risk
characteristics than an investment in shares of the Fund. For example,
certificates of deposit may have fixed rates of return and may be insured as to
principal and interest by the FDIC, while the Fund's returns will fluctuate and
its share values and returns are not guaranteed. U.S. Treasury securities are
guaranteed as to principal and interest by the full faith and credit of the U.S.
government.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A Shares and Distribution
and Service Plans for Class B and Class C shares of the Fund under Rule 12b-1 of
the Investment Company Act, pursuant to which the Fund will compensate the
Distributor in connection with the distribution and/or servicing of the shares
of that class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on that Plan, and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. The shareholder vote for
the Distribution and Service Plans for Class A, Class B and Class C shares was
cast by the Manager as the sole initial holder of Class A, Class B and Class C
shares of the Fund.
In addition, under the Plans, the Manager and the Distributor, in their
sole discretion, from time to time may use their own resources (which, in the
case of the Manager, may include profits from the advisory fee it receives from
the Fund) to make payments to brokers, dealers or other financial institutions
(each is referred to as a "Recipient" under the Plans) for distribution and
administrative services they perform, and those payments are at no cost to the
Fund. The Distributor and the Manager may, in their sole discretion increase or
decrease the amount of payments they make to Recipients from their own
resources.
<PAGE>
Unless terminated as described below, each Plan continues in effect from
year to year but only as long as such continuance is specifically approved at
least annually by the Fund's Board of Trustees including its Independent
Trustees by a vote cast in person at a meeting called for the purpose of voting
on such continuance. Each Plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class. No Plan may be amended to increase materially the amount of
payments to be made unless such amendment is approved by shareholders of the
class affected by the amendment. In addition, because Class B shares of the Fund
automatically convert into Class A shares after six years, the Fund is required
by a Securities and Exchange Commission rule to obtain the approval of Class B
as well as Class A shareholders for a proposed amendment to the Class A Plan
that would materially increase payments under the Class A Plan. Such approval
must be by a "majority" of the Class A and Class B shares (as defined in the
Investment Company Act), voting separately by class. All material amendments
must be approved by the Board and the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund is to provide
separate written reports to the Fund's Board of Trustees at least quarterly for
its review, detailing the amount of all payments made pursuant to each Plan, the
purpose for which the payments were made and the identity of each Recipient that
received any such payment and the purpose of the payments. Those reports,
including the allocations on which they are based, will be subject to the review
and approval of the Independent Trustees in the exercise of their fiduciary
duty. Each Plan further provides that while it is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested persons" of the
Fund is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in such selection and nomination if the final
decision on any such selection or nomination is approved by a majority of the
Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any quarter
if the aggregate net asset value of all Fund shares held by the Recipient for
itself and its customers did not exceed a minimum amount, if any, that may be
determined from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fee at the maximum rate and set no
minimum amount. Any unreimbursed expenses incurred by the Distributor with
respect to Class A shares for any fiscal quarter by the Distributor may not be
recovered under the Class A Plan in subsequent fiscal quarters. Payments
received by the Distributor under the Plan for Class A shares will not be used
to pay any interest expense, carrying charges, or other financial costs, or
allocation of overhead by the Distributor.
The Class B and Class C Plans allow the service fee payments to be paid by
the Distributor to Recipients in advance for the first year Class B and Class C
shares are outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net asset value of the Class B
and Class C shares sold. An exchange of shares does not entitle the Recipient to
an advance payment of the service fee. In the event Class B or Class C shares
are redeemed during the first year such shares are outstanding, the Recipient
will be obligated to repay a pro rata portion of the advance of the service fee
payment to the Distributor.
<PAGE>
Although the Class B and the Class C Plans permit the Distributor to
retain both the asset-based sales charges and the service fee, or to pay
Recipients the service fee on a quarterly basis, without payment in advance, the
Distributor presently intends to pay the service fee to Recipients in the manner
described above. A minimum holding period may be established from time to time
under the Class B Plan and the Class C Plan by the Board. Initially, the Board
has set no minimum holding period. All payments under the Class B Plan and the
Class C Plan are subject to the limitations imposed by the Conduct Rules of the
National Association of Securities Dealers, Inc. The Distributor anticipates
that it will take a number of years for it to recoup (from the Fund's payments
to the Distributor under the Class B or Class C Plan and from contingent
deferred sales charges collected on redeemed Class B or Class C shares) the
sales commissions paid to authorized brokers or dealers.
Asset-based sales charge payments are designed to permit an investor to
purchase shares of the Fund without the assessment of a front-end sales load and
at the same time permit the Distributor to compensate brokers and dealers in
connection with the sale of Class B and Class C shares of the Fund. The Class B
and Class C Plans provide for the Distributor to be compensated at a flat rate
whether the Distributor's distribution expenses are more or less than the
amounts paid by the Fund during that period. Such payments are made in
recognition that the Distributor (i) pays sales commissions to authorized
brokers and dealers at the time of sale, (ii) may finance such commissions
and/or the advance of the service fee payment to Recipients under those Plans or
provide such financing from its own resources, or from an affiliate, (iii)
employs personnel to support distribution of shares, and (iv) 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.
ABOUT A PLAN'S ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B, Class C and Class Y Shares.
The availability of four classes of shares permits a Plan to choose the method
of purchasing shares that is more beneficial to the Plan depending on the amount
of the purchase, the length of time the Plan expects to hold shares and other
relevant circumstances. Plans should understand that the purpose and function of
the deferred sales charge and asset-based sales charge with respect to Class B
and Class C shares are the same as those of the initial sales charge with
respect to Class A shares. Any salesperson or other person entitled to receive
compensation for selling Fund shares may receive different compensation with
respect to one class of shares than the other. The Distributor will not accept
any order for $500,000 or $1 million or more of Class B or Class C shares,
respectively, on behalf of a single Plan (not including dealer "street name" or
omnibus accounts) because generally it will be more advantageous for that Plan
to purchase Class A shares of the Fund instead.
The four classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B and Class C
shares and the dividends payable on Class B and Class C shares will be reduced
by incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B and Class C shares are subject.
<PAGE>
The conversion of Class B shares to Class A shares after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax advisor, to the effect
that the conversion of Class B shares does not constitute a taxable event for
the holder under Federal income tax law. If such a revenue ruling or opinion is
no longer available, the automatic conversion feature may be suspended, in which
event no further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the holder, and absent such exchange, Class B shares might continue to
be subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B, Class C and Class Y shares
recognizes two types of expenses. General expenses that do not pertain
specifically to any class are allocated pro rata to the shares of each class,
based on the percentage of the net assets of such class to the Fund's total net
assets, and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and audit
fees, (iii) printing and mailing costs of shareholder reports, Prospectuses,
Statements of Additional Information and other materials for current
shareholders, (iv) fees to unaffiliated Trustees, (v) custodian expenses, (vi)
share issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such expenses
include (i) Distribution and/or Service Plan fees, (ii) incremental transfer and
shareholder servicing agent fees and expenses, (iii) registration fees and (iv)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per share of
Class A, Class B, Class C and Class Y shares of the Fund are determined as of
the close of business of The New York Stock Exchange (the "Exchange") on each
day the Exchange is open by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class outstanding.
The Exchange normally closes at 4:00 P.M., New York time, but may close earlier
on some days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual holiday schedule (which is
subject to change) states that it will close New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day; it may also close on other days.
Trading may occur in U.S. Government Securities at times when the Exchange is
closed (including weekends and holidays or after 4:00 P.M., on a regular
business day). Because the net asset values of the Fund will not be calculated
on those days, the Fund=s net asset values per share of Class A, Class B, Class
C and Class Y shares of the Fund may be significantly affected on such days when
shareholders may not purchase or redeem shares.
<PAGE>
Pursuant to procedures adopted by the Fund's Board, the Wrapper Value
generally will be equal to the difference between the Book Value and the market
value of the applicable Covered Assets. If the market value of the Covered
Assets is greater than their Book Value, the Wrapper Value will be reflected as
a liability of the Fund in the amount of the difference, i.e., a negative value,
reflecting the potential liability of the Fund to the Wrapper Provider. If the
market value of the Covered Assets is less than their Book Value, the Wrapper
Value will be reflected as an asset of the Fund in the amount of the difference,
i.e., a positive value, reflecting the potential liability of the Wrapper
Provider to the Fund. In performing its fair value determination, the Fund's
Board expects to consider the creditworthiness and ability of a Wrapper Provider
to pay amounts due under the Wrapper Agreement. If the Fund's Board determines
that a Wrapper Provider is unable to make such payments, the Board may assign a
fair value to the Wrapper Agreement that is less than the difference between the
Book Value and the market value of the applicable Covered Assets and the Fund
might be unable to maintain NAV stability.
Puts, calls and futures are valued at the last sales price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing "bid" and
"ask" prices on the principal exchange or on NASDAQ on the valuation date, or,
if none, value shall be the closing "bid" price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between "bid" and "ask"
prices obtained by the Manager from two active market makers. If the Manager is
unable to locate two active market makers willing to give quotes, the security
may be priced at the mean between the "bid" and "asked" prices provided by a
single active market maker (which in certain cases may be the "bid" price if no
"asked" price is available) provided that the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect the current market
value.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor or broker-dealer incurs little or no selling expenses.
|_| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
|_|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
|_|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.
O The Oppenheimer funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-Distributor and include
the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street Growth & Fund Income
Fund Oppenheimer California Municipal Oppenheimer Main Street Small Cap Fund
Fund Oppenheimer Champion Income Fund Oppenheimer MidCap Fund Oppenheimer
Convertible Securities Oppenheimer Multiple Strategies Fund Fund Oppenheimer
Developing Markets Fund Oppenheimer Municipal Bond Fund Oppenheimer Disciplined
Allocation Fund Oppenheimer New York Municipal Fund
Oppenheimer New Jersey Municipal
Oppenheimer Disciplined Value Fund Fund
Oppenheimer Pennsylvania Municipal
Oppenheimer Discovery Fund Fund
Oppenheimer Quest Balanced Value
Oppenheimer Enterprise Fund Fund
Oppenheimer Quest Capital Value
Oppenheimer Capital Income Fund Fund, Inc.
Oppenheimer Quest Global Value
Oppenheimer Europe Fund Fund, Inc.
Oppenheimer Quest Opportunity
Oppenheimer Florida Municipal Fund Value Fund
Oppenheimer Quest Small Cap Value
Oppenheimer Global Fund Fund
Oppenheimer Global Growth & Income
Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Gold & Special
Minerals Fund Oppenheimer Real Asset Fund
Oppenheimer Growth Fund Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund,
Oppenheimer High Yield 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
Limited-Term New York Municipal
Oppenheimer Large Cap Growth Fund Fund
Oppenheimer Limited-Term
Government Fund Rochester Fund Municipals
and the following money market
funds:
Centennial America Fund, Centennial New York Tax
L. P. Exempt Trust
Centennial California Tax
Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Oppenheimer Money Market
Trust Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except Money Market Funds (under certain circumstances
described herein, redemption proceeds of Money Market Fund shares may be subject
to a CDSC).
<PAGE>
O Letters of Intent. A Letter of Intent (referred to as a "Letter") is an
investor's statement in writing to the Distributor of the intention to purchase
Class A shares of the Fund or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period (the "Letter of Intent period"),
which may, at the investor's request, include purchases made up to 90 days prior
to the date of the Letter. The Letter states the investor's intention to make
the aggregate amount of purchases of shares which, when added to the investor's
holdings of shares of those funds, will equal or exceed the amount specified in
the Letter. Purchases made by reinvestment of dividends or distributions of
capital gains and purchases made at net asset value without sales charge do not
count toward satisfying the amount of the Letter. A Letter enables an investor
to count the Class A and Class B shares purchased under the Letter to obtain the
reduced sales charge rate on purchases of Class A shares of the Fund (and other
Oppenheimer funds) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under the Letter
will be made at the public offering price applicable to a single lump-sum
purchase of shares in the intended purchase amount as described in the
Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of Intent
period, when added to the value (at offering price) of the investor's holdings
of shares on the last day of that period, do not equal or exceed the intended
purchase amount, the investor agrees to pay the additional amount of sales
charge applicable to such purchases, as set forth in "Terms of Escrow," below
(as those terms may be amended from time to time). The investor agrees that
shares equal in value to 5% of the intended purchase amount will be held in
escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor
agrees to be bound by the terms of the Prospectus, this Statement of Additional
Information and the Application used for such Letter of Intent, and if such
terms are amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the Transfer
Agent will not hold shares in escrow. If the intended purchase amount under the
Letter entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended amount and exceed the amount needed to qualify for the next
sales charge rate reduction set forth in the applicable prospectus, the sales
charges paid will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed or
paid to the dealer over the amount of commissions that apply to the actual
amount of purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net asset
value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
<PAGE>
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.
G Terms of Escrow That Apply to Letters of Intent
1.Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
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 amount specified in
the Letter, the investor must remit to the Distributor an amount equal to the
difference between the dollar amount of sales charges actually paid and the
amount of sales charges which would have been paid if the total amount purchased
had been made at a single time. Such sales charge adjustment will apply to any
shares redeemed prior to the completion of the Letter. If such difference in
sales charges is not paid within twenty days after a request from the
Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4.By signing the Letter, the investor irrevocably constitutes and appoints
the Transfer Agent as attorney-in-fact to surrender for redemption any or all
escrowed shares.
5.The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include (a) Class A shares
sold with a front-end sales charge or subject to a Class A contingent deferred
sales charge, (b) Class B shares acquired subject to a contingent deferred sales
charge, and (c) Class A shares or Class B shares acquired in exchange for either
(i) Class A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or (ii) Class B
shares of one of the other Oppenheimer funds that were acquired subject to a
contingent deferred sales charge.
6.Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares," and the escrow will
be transferred to that other fund.
<PAGE>
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Retirement Plans. In describing certain types of employee benefit plans that may
purchase Class A shares without being subject to the Class A contingent deferred
sales charge, the term "employee benefit plan" means any plan or arrangement,
whether or not "qualified" under the Internal Revenue Code, including, medical
savings accounts, payroll deduction plans or similar plans in which Class A
shares are purchased by a fiduciary or other person for the account of
participants who are employees of a single employer or of affiliated employers,
if the Fund account is registered in the name of the fiduciary or other person
for the benefit of participants in the plan.
The term "group retirement plan" means any qualified or non-qualified
retirement plan (including 457 plans, SEPs, SARSEPs, 403(b) plans, and SIMPLE
plans) for employees of a corporation or a sole proprietorship, members and
employees of a partnership or association or other organized group of persons
(the members of which may include other groups), if the group has made special
arrangements with the Distributor and all members of the group participating in
the plan purchase Class A shares of the Fund through a single investment dealer,
broker or other financial institution designated by the group. "Group retirement
plan" also includes qualified retirement plans and non-qualified deferred
compensation plans and IRAs that purchase Class A shares of the Fund through a
single investment dealer, broker, or other financial institution, if that
broker-dealer has made special arrangements with the Distributor enabling those
plans to purchase Class A shares of the Fund at net asset value but subject to a
contingent deferred sales charge.
<PAGE>
In addition to the discussion in the Prospectus relating to the ability of
Retirement Plans to purchase Class A shares at net asset value in certain
circumstances, there is no initial sales charge on purchases of Class A shares
of any one or more of the Oppenheimer funds by a Retirement Plan in the
following cases: (i) the recordkeeping for the Retirement Plan is performed on a
daily valuation basis by Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill
Lynch") and, on the date the plan sponsor signs the Merrill Lynch recordkeeping
service agreement, the Retirement Plan has $3 million or more in assets invested
in mutual funds other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM") that are made available pursuant to a Service
Agreement between Merrill Lynch and the mutual fund's principal underwriter or
distributor and in funds advised or managed by MLAM (collectively, the
"Applicable Investments"); (ii) the recordkeeping for the Retirement Plan is
performed on a daily valuation basis by an independent record keeper whose
services are provided under a contract or arrangement between the Retirement
Plan and Merrill Lynch. On the date the plan sponsor signs the Merrill Lynch
record keeping service agreement, the Plan must have $3 million or more in
assets, excluding assets held in money market funds, invested in Applicable
Investments; or (iii) the Plan has 500 or more eligible employees, as determined
by the Merrill Lynch plan conversion manager on the date the plan sponsor signs
the Merrill Lynch record keeping service agreement.
If a Retirement Plan's records are maintained on a daily valuation basis
by Merrill Lynch or an independent record keeper under a contract or alliance
arrangement with Merrill Lynch, and if on the date the plan sponsor signs the
Merrill Lynch record keeping service agreement the Retirement Plan has less than
$3 million in assets, excluding money market funds, invested in Applicable
Investments, then the Retirement Plan may purchase only Class B shares of one or
more of the Oppenheimer funds. Otherwise, the Retirement Plan will be permitted
to purchase Class A shares of one or more of the Oppenheimer funds. Any of those
Retirement Plans that currently invest in Class B shares of the Fund will have
their Class B shares be converted to Class A shares of the Fund once the Plan's
Applicable Investments have reached $5 million.
Any redemptions of shares of the Fund held by Retirement Plans whose
records are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch that are currently
invested in Class B shares of the Fund shall not be subject to the Class B CDSC.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus.
The information below supplements the terms and conditions for redemptions set
forth in the Prospectus.
O Involuntary Redemptions. The Fund's Board of Trustees has the right to
cause the involuntary redemption of the shares held in any account if the
aggregate net asset value of those shares is less than $1,000 or such lesser
amount as the Board may fix. The Board of Trustees will not cause the
involuntary redemption of shares in an account if the aggregate net asset value
of the shares has fallen below the stated minimum solely as a result of market
fluctuations. Should the Board elect to exercise this right, it may also fix, in
accordance with the Investment Company Act, the requirements for any notice to
be given to the shareholders in question (not less than 30 days), or the Board
may set requirements for granting permission to the shareholder to increase the
investment, and set other terms and conditions so that the shares would not be
involuntarily redeemed.
<PAGE>
O Selling Shares by Wire. The wire of redemption proceeds may be delayed
if the Fund's Custodian bank is not open for business on a day when the Fund
would normally authorize the wire to be made, which is usually the Fund's next
regular business day following the redemption. In those circumstances, the wire
will not be transmitted until the next bank business day on which the Fund is
open for business. No dividends will be paid on the proceeds of redeemed shares
awaiting transfer by wire.
O Payments "In Kind." The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, conditions exist
that make cash payments undesirable, or for other reasons 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 and Wrapper Agreements, in lieu of
cash, in conformity with applicable rules of the Securities and Exchange
Commission. The shares of the underlying funds distributed in-kind shall be the
net asset value for those securities and the Wrapper Agreements shall be valued
as they are for purposes of computing the Fund's net asset value. To the extent
that a redemption in-kind includes Wrapper Agreements, the Fund will assign to
the redeeming Plan one or more Wrapper Agreements issued by the Wrapper
Providers covering the securities of the underlying funds that are distributed
in-kind. The terms and conditions of Wrapper Agreements provided to a redeeming
Plan will be the same or substantially similar to the terms and conditions of
the Wrapper Agreements held by the Fund. Wrapper Agreements are not liquid
securities and may impose restrictions on termination or withdrawal, including
notice periods of one year or more for non-participant directed withdrawals. The
maintenance of Wrapper Agreements distributed in-kind may also require that a
Plan pay fees to the Wrapper Provider directly, rather than through the Fund.
Such fees are anticipated to be comparable to the fees paid by the Fund with
respect to Covered Assets (typically 0.10% to 0.25% per dollar of Covered
Assets). And, in most circumstances the Wrapper Agreements will be of value to
the Plan only as long as the Plan holds shares of the underlying funds.
A Wrapper Provider, prior to the assignment of a Wrapper Agreement to a
shareholder, may require the shareholder to represent and warrant that such
assignment does not violate any applicable laws. Moreover, the Wrapper Provider
may require the shareholder to obtain at its own expense the services of a
qualified professional asset manager acceptable to the Wrapper Provider to
manage the Covered Assets distributed in-kind in conformity with the Wrapper
Agreement provisions. In the event a Wrapper Agreement cannot be assigned to the
shareholder, the Fund in its discretion may satisfy the redemption request
through (a) a cash payment, (b) a redemption in-kind consisting entirely of
Covered Assets, (c) a combination of cash and Covered Assets, or (d) the Fund
may give the redeeming shareholder the opportunity to choose between one of the
foregoing options or providing the Fund with 12 months notice of its request for
such redemption (which 12-month notice option would cause the redemption not to
be subject to the redemption fee).
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder.
<PAGE>
O Redemption Fee. As described in the prospectus, any redemption of Fund
shares by the plan sponsor without first providing the Fund's transfer agent at
least 12 months prior written notice, will be subject to a 2% redemption fee in
addition to any applicable contingent deferred sales charge. If a plan (or group
of affiliated plans) holds less than 1% of the outstanding shares of the Fund,
and if any decision or action of an employer or plan sponsor which affects a
significant number of plan participants, such as, but not limited to, plant
closings, divestitures, partial plan termination, bankruptcy, layoff or early
retirement incentive programs, results in redemption of Fund shares without 12
months notice, then those redemptions may be subject to a redemption fee.
However, the redemption fee will not be assessed against any such redemptions
if, as a direct result of such decision or action by the employer or plan
sponsor, the affected Plan participants suffer an immediate, involuntary loss of
employment.
Reinvestment Privilege. Within six months of a redemption, a plan may reinvest
all or part of the redemption proceeds of (i) Class A shares that the plan
purchased subject to an initial sales charge, or (ii) Class B shares on which
the plan paid a contingent deferred sales charge when it redeemed them, without
sales charge. This privilege does not apply to Class C shares. The reinvestment
may be made without sales charge only in Class A shares of the Fund or any of
the other Oppenheimer funds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer Agent
receives the reinvestment order. The shareholder must ask the Distributor for
that privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter any
capital gains tax payable on that gain. If there has been a capital loss on the
redemption, some or all of the loss may not be tax deductible, depending on the
timing and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer funds within 90
days of payment of the sales charge, the shareholder's basis in the shares of
the Fund that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the redemption.
However, in that case, the sales charge would be added to the basis of the
shares acquired by the reinvestment of the redemption proceeds. The Fund may
amend, suspend or cease offering this reinvestment privilege at any time as to
shares redeemed after the date of such amendment, suspension or cessation.
Transfers of Shares. Class A, Class B and Class C shares are not subject to the
payment of a contingent deferred sales charge at the time of transfer to the
name of another person or entity (whether the transfer occurs by absolute
assignment, gift or bequest, not involving, directly or indirectly, a public
sale). The transferred shares will remain subject to the contingent deferred
sales charge, calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder. If less than all shares held in an account are transferred, and
some but not all shares in the account would be subject to a contingent deferred
sales charge if redeemed at the time of transfer, the priorities described in
the Prospectus under "How to Buy Shares" for the imposition of the Class B and
Class C contingent deferred sales charge will be followed in determining the
order in which shares are transferred.
<PAGE>
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the plan and
the Fund's other redemption requirements. Participants (other than self-employed
persons maintaining a plan account in their own name) in
OppenheimerFunds-sponsored prototype pension or profit-sharing or 401(k) plans
may not directly redeem or exchange shares held for their account under those
plans. The employer or plan administrator must sign the request. Distributions
from pension and profit sharing plans are subject to special requirements under
the Internal Revenue Code and certain documents (available from the Transfer
Agent) must be completed before the distribution may be made. Distributions from
retirement plans are subject to withholding requirements under the Internal
Revenue Code, and IRS Form W-4P (available from the Transfer Agent) must be
submitted to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the Transfer
Agent with a certified tax identification number, the Internal Revenue Code
requires that tax be withheld from any distribution even if the shareholder
elects not to have tax withheld. The Fund, the Manager, the Distributor, the
Trustee and the Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not be
responsible for any tax penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. The shareholder should contact the
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
the order placed by the dealer or broker, except that if the Distributor
receives a repurchase order from a dealer or broker after the close of The New
York Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker from its
customer prior to the time the Exchange closes (normally, that is 4:00 P.M., but
may be earlier on some days) and the order was transmitted to and received by
the Distributor prior to its close of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form, with the signature(s) of the registered owners guaranteed on the
redemption document as described in the Prospectus.
Automatic Exchange Plans. By requesting an Automatic Exchange Plan, the
shareholder agrees to the terms and conditions as stated below (and in the
provisions of the OppenheimerFunds Application relating to such Plans), as well
as the Prospectus. These provisions may be amended from time to time by the Fund
and/or the Distributor. When adopted, such amendments will automatically apply
to existing Plans.
O Automatic Exchange Plans. Shareholders can authorize the Transfer Agent
(on the OppenheimerFunds Application or signature-guaranteed instructions) to
exchange a pre-determined amount of shares of the Fund for shares (of the same
class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Exchanges 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.
The Plan may be terminated at any time by the Planholder by writing to the
Transfer Agent. A Plan may also be terminated at any time by the Transfer Agent
upon receiving directions to that effect from the Fund. The Transfer Agent will
also terminate a Plan upon receipt of evidence satisfactory to it of the death
or legal incapacity of the Planholder.
<PAGE>
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of the Oppenheimer funds that
have a single class without a class designation are deemed "Class A" shares for
this purpose. All of the Oppenheimer funds offer Class A, B and C shares except
Oppenheimer Money Market Fund, Inc., Centennial Tax Exempt Trust, Centennial
Government Trust, Centennial New York Tax Exempt Trust, Centennial California
Tax Exempt Trust and Centennial America Fund, L.P., which only offer Class A
shares and Oppenheimer Main Street California Tax Exempt Fund which only offers
Class A and Class B shares (Class B and Class C shares of Oppenheimer Cash
reserves are generally available only by exchange from the same class of shares
of other Oppenheimer funds or through 401 (k) plans). A current list showing
which funds offer which class can be obtained by calling the Distributor at
1-800-525-7048.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Bond Fund for Growth are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange from Class M shares. Otherwise no exchanges of any class of
any Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge (or, if applicable, may be
used to purchase shares of Oppenheimer funds subject to a contingent deferred
sales charge). However, shares of Oppenheimer Money Market Fund, Inc. purchased
with the redemption proceeds of shares of other mutual funds (other than funds
managed by the Manager or its subsidiaries) redeemed within the 30 days prior to
that purchase may subsequently be exchanged for shares of other Oppenheimer
funds without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for that privilege, the investor or the
investor's dealer must notify the Distributor of eligibility for this privilege
at the time the shares of Oppenheimer Money Market Fund, Inc. are purchased,
and, if requested, must supply proof of entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or distributions
from any other of the 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 except
Oppenheimer Money Market Fund, Inc., Oppenheimer Cash Reserves or Oppenheimer
Limited-Term Government Fund.
<PAGE>
No contingent deferred sales charge is imposed on exchanges of shares of
any class purchased subject to a contingent deferred sales charge. However, if
you redeem Class A shares of the Fund that were acquired by exchange of Class A
shares of other Oppenheimer funds purchased subject to a Class A contingent
deferred sales charge within 18 months of the end of the calendar month of the
purchase of the exchanged Class A shares, the Class A contingent deferred sales
charge is imposed on the redeemed shares (see "Class A Contingent Deferred Sales
Charge" in the Prospectus). The Class 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 and Class C contingent deferred sales charge will be followed in
determining the order in which the shares are exchanged. Shareholders should
take into account the effect of any exchange on the applicability and rate of
any contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify whether they intend to exchange Class A, Class B or Class C
shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of more than one account. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available
for exchange without restriction will be exchanged.
When exchanging shares by telephone, the shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans, Automatic Withdrawal Plans and retirement plan contributions will be
switched to the new account unless the Transfer Agent is instructed otherwise.
If all telephone lines are busy (which might occur, for example, during periods
of substantial market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate
transfer of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it (for
example, if the receipt of multiple exchange request from a dealer might require
the disposition of portfolio securities at a time or at a price that might be
disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
<PAGE>
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends on newly purchased shares will
not be declared or paid until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Dividends
will be declared on shares repurchased by a dealer or broker for three business
days following the trade date (i.e., to and including the day prior to
settlement of the repurchase). If all shares in an account are redeemed, all
dividends accrued on shares of the same class in the account will be paid
together with the redemption proceeds.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of the Fund as promptly as possible
after the return of such checks to the Transfer Agent, to enable the investor to
earn a return on otherwise idle funds.
The amount of a class's distributions may vary from time to time depending
on market conditions, the composition of the Fund's portfolio, and expenses
borne by the Fund or borne separately by a class, as described in "Alternative
Sales Arrangements -- Class A, Class B, Class C and Class Y shares" above.
Dividends are calculated in the same manner, at the same time and on the same
day for shares of each class. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A shares as a result of the
asset-based sales charges on Class B and Class C shares, and will also differ in
amount as a consequence of any difference in net asset value between the
classes. Dividends on Class A shares are expected to be lower than dividends on
Class Y shares as a result of the service fee.
If prior distributions must be re-characterized at the end of the fiscal
year as a result of the effect of the Fund's investment policies, shareholders
may have a non-taxable return of capital, which will be identified in notices to
shareholders. A return of capital is a return of a shareholder=s original
investment and is therefore not to be considered a taxable distribution. There
is no fixed dividend rate and there can be no assurance as to the payment of any
dividends or the realization of any capital gains.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund intends to qualify as a
regulated investment company, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine whether
the Fund will qualify, and the Fund might not meet those tests in a particular
year. If it does not qualify, the Fund will be treated for tax purposes as an
ordinary corporation and will receive no tax deduction for payments of dividends
and distributions made to shareholders.
<PAGE>
-61-
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year, or
else the Fund must pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Fund will meet those requirements, the Fund's
Board and the Manager might determine in a particular year that it would be in
the best interest of shareholders for the Fund not to make such distributions at
the required levels and to pay the excise tax on the undistributed amounts. That
would reduce the amount of income or capital gains available for distribution to
shareholders.
Additional Information About The Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, collecting income on the portfolio securities and handling
the delivery of such securities to and from the Fund. The Manager has
represented to the Fund that the banking relationships between the Manager and
with the Custodian have been and will continue to be unrelated to and unaffected
by the relationship between the Fund and the Custodian. It will be the practice
of the Fund to deal with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its affiliates. The
Fund's cash balances with the Custodian in excess of $100,000 are not protected
by Federal deposit insurance. Those uninsured balances at times may be
substantial.
Independent Auditors. The independent auditors of the Fund audit the Fund's
financial statements and perform other related audit services. They also act as
auditors for certain other funds advised by the Manager and its affiliates.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholder
Oppenheimer Capital Preservation Fund:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Preservation Fund as of June 10, 1999. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our procedures include
confirmation of cash in bank by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Oppenheimer
Capital Preservation Fund as of June 10, 1999 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
- ------------------
KPMG LLP
Denver, Colorado
June 10, 1999
<PAGE>
Statement of Assets and Liabilities
June 10, 1999
ASSETS: Composite Class A Class B Class
C Class Y
Cash $103,000 $100,000 $1,000 $1,000
$1,000
Total Assets 103,000
LIABILITIES
Net Assets $103,000
NET ASSETS - Applicable to 10,000 Class A shares, 100 Class B shares, 100 Class
C shares, and 100 Class Y shares of beneficial interest outstanding
$103,000 $100,000 $1,000 $1,000
$1,000
NET ASSET VALUE PER SHARE (net assets divided by 10,000, 100, 100, and 100
shares of beneficial interest for Class A, B,
C, and Y respectively) $10.00 $10.00
$ 10.00 $ 10.00
MAXIMUM OFFERING PRICE PER SHARE (net asset value plus sales charge of 3.50% of
offering price for Class A shares) $10.36 $10.00
$10.00 $10.00
Notes:
1. Oppenheimer Capital Preservation Fund (the "Fund"), a diversified,
open-end management investment company, was formed on June 2, 1998, and
has had no operations through June 9, 1999 other than those relating to
organizational matters and the sale and issuance of 10,000 Class A shares,
100 Class B shares, 100 Class C shares, and 100 Class Y shares of
beneficial interest to OppenheimerFunds, Inc. (OFI).
2. On June 4, 1998 the Fund's Board approved an Investment Advisory Agreement
with OFI, a Service Plan and Agreement for Class A shares of the Fund with
OppenheimerFunds Distributor, Inc. (OFDI) and a General Distributor's
Agreement with OFDI as explained in the Fund's Prospectus and Statement of
Additional Information.
3. OFI assumed all organization costs which were estimated at $42,700.
4. The Fund intends to comply in its initial fiscal year and thereafter with
provisions of the Internal Revenue Code applicable to regulated investment
companies and as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains)
distributed to shareholders.
<PAGE>
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
stabsai.#4
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+Not a Trustee of Oppenheimer Money Market Fund, Inc. or Oppenheimer
Discovery Fund
1Trustee who is an Ainterested person@ of the Fund and of the Manager.
# Not a Director of Oppenheimer Money Market Fund, Inc.
