O P P E N H E I M E R
Capital Appreciation Fund
Prospectus dated November 1, 1997
Oppenheimer Capital Appreciation Fund is a mutual fund that seeks capital
appreciation as its investment objective. The Fund emphasizes investment in
securities of "growth-type" companies, and cyclical industries that the Fund's
investment manager believes have opportunities for capital growth. The Fund does
not invest to earn current income to distribute to shareholders. The Fund
invests mainly in common stocks, preferred stocks, and convertible securities.
The Fund may use "hedging" instruments, to seek to reduce the risks of market
fluctuations that affect the value of the securities the Fund holds.
Some investment techniques the Fund uses may be considered to be
speculative investment methods that may increase the risks of investing in the
Fund and may also increase the Fund's operating costs. You should carefully
review the risks associated with an investment in the Fund. Please refer to
"Investment Objective and Policies" for more information about the types of
securities the Fund invests in and refer to "Investment Risks" for a discussion
of the risks of investing in the Fund.
This Prospectus explains concisely what you should know before investing
in the Fund. Please read this Prospectus carefully and keep it for future
reference. You can find more detailed information about the Fund in the November
1, 1997, Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
(OppenheimerFunds 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 SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Contents
ABOUT THE FUND
3 Expenses
5 A Brief Overview of the Fund
8 Financial Highlights
12 Investment Objective and Policies
13 Investment Risks
14 Investment Techniques and Strategies
19 Other Investment Restrictions
19 How the Fund is Managed
21 Performance of the Fund
ABOUT YOUR ACCOUNT
25 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
40 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
42 How to Sell Shares
By Mail
By Telephone
44 How to Exchange Shares
46 Shareholder Account Rules and Policies
48 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Arrangements
2
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ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you will bear indirectly.
o Shareholder Transaction Expenses are charges you pay when you buy or
sell shares of the Fund. Please refer to "About Your Account" from pages 25
through {__}49 for an explanation of how and when these charges apply.
Class A Class B Class C Class Y
Shares Shares Shares Shares
Maximum Sales Charge on 5.75% None None None
Purchases (as a % of
offering price)
Maximum Deferred Sales None(1) 5% in the first 1% if shares None
Charge (as a % of the year, declining are redeemed
lower of the original to 1% in the within 12 months
purchase price or sixth year and of purchase(2)
redemption proceeds) eliminated
thereafter(2)
Maximum Sales Charge on None None None None
Reinvested Dividends
Redemption Fee None(3) None(3) None(3) None(3)
Exchange Fee None None None None
(1) If you invest $1 million or more ($500,000 or more for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge on
pages 30 and 31) in Class A shares, you may have to pay a sales charge of up to
1% if you sell your shares within 12 calendar months (18 months for shares
purchased prior to May 1, 1997) from the end of the calendar month during which
you purchased those shares. See "How to Buy Shares -- Buying Class A Shares,"
below. (2) See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares Buying Class C Shares," below, for more information on the contingent
deferred sales charges. (3) There is a $10 transaction fee for redemptions paid
by Federal Funds wire, but not for redemptions paid 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
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investment adviser, OppenheimerFunds, Inc. (which is referred to in this
Prospectus as the "Manager"). The rates of the Manager's fees are set forth in
"How the Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank that
holds the Fund's portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement of
Additional Information.
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 0.68% 0.68% 0.68% 0.68%
12b-1 Plan Fees 0.17% 1.00% 1.00% None
Other Expenses 0.16% 0.18% 0.17% 0.16%
Total Fund Operating 1.01% 1.86% 1.85% 0.84%
Expenses
The numbers for Class A, Class B and Class C shares in the chart above are
based upon the Fund's expenses in its last fiscal year ended August 31, 1997.
These amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that period . The actual expenses for each class of
shares in future years may be more or less than the numbers in the chart,
depending on a number of factors, including changes in the actual amount of the
assets represented by each class of shares. Class Y shares were not available
during the fiscal year ended August 31, 1997. Therefore, the Annual Fund
Operating Expenses for Class Y shares are estimates based on amounts that would
have been payable in that year assuming that Class Y shares were outstanding
during the entire fiscal year.
The "12b-1 Plan Fees" for Class A shares are service fees that may not
exceed 0.25% of average annual net assets of the class. For Class B and Class C
shares, the "12b-1 Plan Fees" are the service fees and the asset-based sales
charge. For Class B and Class C the service fee is 0.25% of average annual net
assets of the class and the asset-based sales charge is 0.75%. These plans are
described in greater detail in "How to Buy Shares."
o Examples. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical examples shown below. Assume that
you make a $1,000 investment in each class of shares of the Fund, and that the
Fund's annual return is 5%, and that its operating expenses for each class are
the ones shown in the Annual Fund Operating Expenses table above. If you were to
redeem your shares at the end of each period shown below, your investment would
incur the following expenses by the end of 1, 3, 5 and 10 years:
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1 year 3 years 5 years 10 years*
Class A Shares $67 $88 $110 $174
Class B Shares $69 $88 $121 $175
Class C Shares $29 $58 $100 $217
Class Y Shares $9 $27 $47 $104
If you did not redeem your investment, it would incur the following expenses:
1 year 3 years 5 years 10 years*
Class A Shares $67 $88 $110 $174
Class B Shares $19 $58 $101 $175
Class C Shares $19 $58 $100 $217
Class Y Shares $9 $27 $47 $104
*In the first example, expenses include the Class A initial sales charge and the
applicable Class B or Class C contingent deferred sales charge. In the second
example, Class A expenses include the initial sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges. The Class B
expenses in years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the effect of the asset-based sales charge and the
contingent deferred sales charge imposed on Class B and Class C shares,
long-term holders of Class B and Class C shares could pay the economic
equivalent of more than the maximum front-end sales charge allowed under
applicable regulations. For Class B shareholders, the automatic conversion of
Class B shares to Class A shares is designed to minimize the likelihood that
this will occur. Please refer to "How to Buy Shares Buying Class B Shares" for
more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to sell or
5
<PAGE>
exchange shares.
o What Is The Fund's Investment Objective? The Fund's investment objective
is to seek capital appreciation.
o What Does the Fund Invest In? To seek capital appreciation, the Fund
primarily invests in common stocks, preferred stocks, and convertible
securities. The Fund may also write covered calls and use certain types of
"hedging instruments" and "derivative investments" to seek to reduce the risks
of market fluctuations that affect the value of the securities the Fund holds.
These investments are more fully explained in "Investment Objective and
Policies" starting on page 12.
o Who Manages the Fund? The Fund's investment adviser (the "Manager") is
OppenheimerFunds, Inc. The Manager, (including subsidiaries), manages investment
company portfolios having over $75 billion in assets at September 30, 1997. The
Manager is paid an advisory fee by the Fund, based on its net assets. The Fund's
portfolio manager, Jane Putnam, is employed by the Manager and is primarily
responsible for the selection of the Fund's securities. The Fund's Board of
Trustees, elected by shareholders, oversees the investment adviser and the
portfolio manager. Please refer to "How the Fund is Managed," starting on page
19 for more information about the Manager and its fees.
o How Risky is the Fund? All investments carry risks to some degree. The
Fund is designed for investors who are willing to accept greater risks of loss
in the hopes of greater gains, and is not intended for those who desire assured
income and preservation of capital. The Fund emphasizes investments in "growth"
stocks that tend to be more volatile than other equity investments. The Fund's
investments in stocks are subject to changes in their value from a number of
factors, such as changes in general stock market movements or changes in value
of particular stocks because of an event affecting the issuer. These changes
affect the value of the Fund's investments and its prices per share. The Fund's
investments in foreign securities are subject to additional risks not associated
with domestic investments, such as the risk of adverse currency fluctuation and
risks associated with investment in underdeveloped countries and markets.
Hedging instruments and derivative investments involve certain risks, as
discussed under "Hedging" and "Derivative Investments," below. The Fund may
borrow money from banks to buy securities, a practice known as leverage that is
subject to certain risks discussed below under "Special Risks Borrowing for
Leverage."
The Fund may be viewed as an aggressive growth fund, and is generally
expected to be more volatile than the other stock funds, the income and growth
funds and the more conservative income funds in the Oppenheimer funds spectrum.
While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased for the portfolio,
and in some cases by using hedging techniques, there is no guarantee of success
in achieving the Fund's objective and your shares may be worth more or less than
their original cost when you redeem them. Please refer to "Investment Risks"
starting on page 13 for a more complete discussion of the Fund's investment
risks.
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<PAGE>
o How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic Investment
Plan under AccountLink. Please refer to "How to Buy Shares" on page 25 for more
details.
o Will I Pay a Sales Charge to Buy Shares? The Fund offers three classes
of shares. Each class of shares has the same investment portfolio but different
expenses. Class A shares are offered with a front-end sales charge, starting at
5.75%, and reduced for larger purchases. Class B shares and Class C shares are
offered without a front-end sales charge, but may be subject to a contingent
deferred sales charge if redeemed within 6 years or 12 months, respectively, of
purchase. There is also an annual asset-based sales charge on Class B shares and
Class C shares.
Please review "How
to Buy Shares" starting on page 25 for more details, including a discussion
about factors you and your financial advisor should consider in determining
which class may be appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail or by telephone
call to the Transfer Agent on any business day, or through your dealer. Please
refer to "How to Sell Shares" on page 42. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to Exchange Shares" on
page 44.
Financial Highlights
The table on the following pages presents selected financial information about
the Fund, including per share data and expense ratios and other data based on
the Fund's average net assets. This information has been audited by KPMG Peat
Marwick LLP, the Fund's independent auditors, whose report on the Fund's
financial statements for the fiscal year ended August 31, 1997 is included in
the Statement of Additional Information. Class Y shares were not publicly
offered during any of the periods shown; therefore information on this class of
shares is not included in the tables below or in the Fund's other financial
statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
-----------------------------------------------------
YEAR ENDED AUGUST 31, YEAR ENDED DECEMBER 31,
1997 1996(3) 1995 1994
===================================================================================================
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C>
Net asset value, beginning of period $30.81 $27.44 $22.63 $25.72
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .18 .11 .24 .20
Net realized and unrealized gain (loss) 11.36 3.26 7.61 (.11)
------ ------ ------- ------
Total income (loss) from investment
operations 11.54 3.37 7.85 .09
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.17) -- (.24) (.20)
Distributions from net realized gain (3.55) -- (2.80) (2.98)
------ ------ ------ ------
Total dividends and distributions to
shareholders (3.72) -- (3.04) (3.18)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $38.63 $30.81 $27.44 $22.63
====== ====== ====== ======
==================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(6) 40.52% 12.28% 34.85%
0.46%
==================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $1,179,362 $788,504 $758,439 $301,698
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 985,813 $789,903 $538,210 $325,003
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) 0.53% 0.55%(7) 1.08% 0.72%
Expenses 1.01% 1.09%(7) 1.03% 1.16%
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 66.0% 45.2% 71.9% 34.7%
Average brokerage commission rate(9) $0.0625 $0.0595 $0.0578 --
</TABLE>
1. For the period from December 1, 1993 (inception of offering) to December 31,
1993. 2. Per share amounts calculated based on the weighted average number of
shares outstanding during the period. 3. For the eight months ended August 31,
1996. The Fund changed its fiscal year end from December 31 to August 31. 4. For
the period from November 1, 1995 (inception of offering) to December 31, 1995.
5. Less than $0.005 per share.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1993 1992 1991(2) 1990 1989 1988 1987
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
$25.25 $23.76 $17.47 $18.26 $16.04 $12.38 $20.49
- ------------------------------------------------------------------------------------------
.13 .16 .27 .39 .59 .27 .17
.86 2.28 6.87 (.78) 2.34 3.74 (3.68)
------ ------ ------ ------- ------ ------ -------
.99 2.44 7.14 (.39) 2.93 4.01 (3.51)
- ------------------------------------------------------------------------------------------
(.12) (.17) (.18) (.40) (.62) (.26) (.31)
(.40) (.78) (.67) -- (.09) (.09) (4.29)
------ ------ ------ ------ ------ ------ ------
(.52) (.95) (.85) (.40) (.71) (.35) (4.60)
- ------------------------------------------------------------------------------------------
$25.72 $25.25 $23.76 $17.47 $18.26 $16.04 $12.38
====== ====== ====== ====== ====== ====== ======
===========================================================================================
3.93% 10.27% 41.33% (2.13)% 18.31% 32.39% (17.95)%
===========================================================================================
$368,806 $401,256 $369,351 $52,526 $66,050 $68,031 $ 60,888
- -------------------------------------------------------------------------------------------
$383,875 $362,295 $209,596 $56,208 $70,874 $68,068 $107,475
- -------------------------------------------------------------------------------------------
0.47% 0.69% 1.25% 2.08% 2.93% 1.64% 0.60%
1.07% 1.09% 1.17% 1.33% 1.27% 1.29% 1.16%
- -------------------------------------------------------------------------------------------
22.9% 42.3% 65.6% 51.2% 68.3% 108.4% 95.1%
-- -- -- -- -- -- --
</TABLE>
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year. 7.
Annualized.
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<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS B
-----------------------------------------
PERIOD ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
1997 1996(3) 1995(4)
============================================================================================
PER SHARE OPERATING DATA:
<S> <C> <C> <C>
Net asset value, beginning of period $30.56 $27.37 $29.77
- --------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .07 --(5) (.14)
Net realized and unrealized gain (loss) 11.05 3.19 .78
------ ------ ------
Total income (loss) from investment operations 11.12 3.19 .64
- --------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.06) -- (.24)
Distributions from net realized gain (3.55) -- (2.80)
------ ------ ------
Total dividends and distributions to
shareholders (3.61) -- (3.04)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $38.07 $30.56 $27.37
====== ====== ======
============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(6) 39.30% 11.65% 1.67%
============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $52,220 $5,448 $2,751
- --------------------------------------------------------------------------------------------
Average net assets (in thousands) $23,678 $4,285 $ 661
- --------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.33)% (0.25)%(7) (0.54)%(7)
Expenses 1.86% 1.94%(7) 2.62%(7)
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 66.0% 45.2% 71.9%
Average brokerage commission rate(9) $0.0625 $0.0595 $0.0578
</TABLE>
8. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1997 were $575,587,380 and $558,414,051, respectively.
<PAGE>
<TABLE>
<CAPTION>
CLASS C
- -----------------------------------------------------------------------
YEAR ENDED AUGUST 31, YEAR ENDED DECEMBER 31,
1997 1996(3) 1995 1994(2) 1993(1)
==========================================================================
<S> <C> <C> <C> <C>
$30.27 $27.11 $22.50 $25.72 $25.92
- --------------------------------------------------------------------------
.01 (.03) .09 -- (.01)
11.03 3.19 7.43 (.15) .31
--------- ------ ------ ------ ------
11.04 3.16 7.52 (.15) .30
- --------------------------------------------------------------------------
-- -- (.11) (.09) (.10)
(3.55) -- (2.80) (2.98) (.40)
------ ------ ------ ------ ------
(3.55) -- (2.91) (3.07) (.50)
------ ------ ------ ------ ------
$37.76 $30.27 $27.11 $22.50 $25.72
====== ====== ====== ====== ======
==========================================================================
39.35% 11.66% 33.56% (0.50)% 2.11%
==========================================================================
$36,148 $10,355 $7,237 $1,066 $8
- --------------------------------------------------------------------------
$19,508 $ 9,053 $3,792 $ 467 $6
- --------------------------------------------------------------------------
(0.32)% (0.30)%(7) 0.19% (0.02)% (0.07)%(7)
1.85% 1.93%(7) 1.90% 2.18% 2.18%(7)
- --------------------------------------------------------------------------
66.0% 45.2% 71.9% 34.7% 22.9%
$0.0625 $0.0595 $0.0578 -- --
</TABLE>
9. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of related
shares purchased and sold. Generally, non-U.S. commissions are lower than U.S.
commissions when expressed as cents per share but higher when expressed as a
percentage of transactions because of the lower per-share prices of many
non-U.S. securities.
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Investment Objective and Policies
Objective. The Fund invests its assets to seek capital appreciation for
shareholders. The Fund does not invest to seek current income to pay to
shareholders.
Investment Policies and Strategies. The Fund seeks its investment objective by
emphasizing investment in securities considered by the Manager to have
appreciation possibilities, primarily common stocks or other equity securities,
including convertible securities, of "growth-type" issuers, and may hold
warrants and rights. These may include securities of U.S. companies or foreign
companies, as discussed below.
The Manager looks for securities that it believes may appreciate in value.
In general, the Manager believes that capital appreciation possibilities are
more likely to be found in the securities of "growth-type" companies. The Fund
seeks superior earnings growth characteristics with respect to its entire
portfolio. The Fund may invest in companies of any size and capitalization, and
at times the Manager may emphasize investment in companies in particular ranges
of size.
The Fund may also seek to take advantage of changes in the business cycle
by investing in companies that are sensitive to those changes, if the Manager
believes they present opportunities for long-term growth. For example, when the
economy is expanding, companies in the consumer durable and technology sectors
may be in a position to benefit from changes in the business cycle and may
present long-term growth opportunities.
When investing the Fund's assets, the Manager considers many factors,
including general economic conditions in the U.S. relative to foreign economies,
and the trends in domestic and foreign stock markets. The Fund may try to hedge
against losses in the value of its portfolio of securities by using hedging
strategies described below.
When market conditions are unstable, the Fund may invest substantial
amounts of its assets in debt securities, such as money market instruments or
government securities, as described below. The Fund's portfolio manager may
employ special investment techniques in selecting securities for the Fund. These
are also described below. Additional information may be found about them under
the same headings in the Statement of Additional Information.
|X| What Are "Growth-Type " Companies? These tend to be either newer
companies that may be developing new products or services, or expanding into new
markets for their products or dominant companies in growing industries that are
growing even faster than the industry through market share gains. Growth-type
companies normally retain a large part of their earnings for research,
development and investment in capital assets. Therefore, they tend not to
emphasize the payment of dividends.
o Can the Fund's Investment Objective and Policies Change? The Fund has an
investment objective, which is described above, as well as investment policies
it follows to try to achieve its objective. Additionally, the Fund uses certain
investment techniques and strategies in carrying out those investment policies.
The Fund's investment policies and techniques are not
8
<PAGE>
"fundamental" unless this Prospectus or the Statement of Additional Information
says that a particular policy is "fundamental." The Fund's investment objective
is a fundamental policy.
Fundamental policies are those that cannot be changed without the approval
of a "majority" of the Fund's outstanding voting shares. The term "majority" is
defined in the Investment Company Act to be a particular percentage of
outstanding voting shares (and this term is explained in the Statement of
Additional Information). The Fund's Board of Trustees may change non-fundamental
policies without shareholder approval, although significant changes will be
described in amendments to this Prospectus.
o Portfolio Turnover. A change in the securities held by the Fund is known
as "portfolio turnover." The Fund may engage frequently in short-term trading to
try to achieve its objective. As a result, the Fund's portfolio turnover may be
higher than other mutual funds, although it is not expected to be more than 100%
each year. The "Financial Highlights," above, show the Fund's portfolio turnover
rate during past fiscal years.
High portfolio turnover and short-term trading may cause the Fund to have
relatively larger commission expenses and transaction costs than funds that do
not engage in short-term trading.
Investment Risks
All investments carry risks to some degree, whether they are risks that market
prices of the investment will fluctuate (this is known as "market risk") or that
the underlying issuer will experience financial difficulties and may default on
its obligation under a fixed-income investment to pay interest and repay
principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income or
preservation of capital. While the Manager tries to reduce risks by diversifying
instruments, by carefully researching securities before they are purchased, and
in some cases by using hedging techniques, changes in overall market prices can
occur at any time, and because the income earned on securities is subject to
change, there is no assurance that the Fund will achieve its investment
objective. When you redeem your shares, they may be worth more or less that what
you paid for them.
o Stock Investment Risks. Because the Fund may invest a substantial
portion (or all) of its assets in stocks, the value of the Fund's portfolio will
be affected by changes in the stock markets.
9
<PAGE>
At times, the stock markets can be volatile and stock prices can change
substantially. This market risk will affect the Fund's net asset values per
share, which will fluctuate as the values of the Fund's portfolio securities
change. Not all stock prices change uniformly or at the same time, not all stock
markets move in the same direction at the same time, and other factors can
affect a particular stock's prices (for example, poor earnings reports by an
issuer, loss of major customers, major litigation against an issuer, changes in
government regulations affecting an industry). Not all of these factors can be
predicted. The Fund attempts to limit market risks by diversifying its
investments, that is, by not holding a substantial amount of the stock of any
one company and by not investing too great a percentage of the Fund's assets in
any one company. Also, the Fund does not concentrate its investments in any one
industry or group of industries.
o Foreign Securities Have Special Risks. While foreign securities offer
special investment opportunities, there are also special risks. The change in
value of a foreign currency against the U.S. dollar will result in a change in
the U.S. dollar value of securities denominated in that foreign currency.
Foreign issuers are not subject to the same accounting and disclosure
requirements that U.S. companies are subject to. The value of foreign
investments may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policy in the U.S. or
abroad, or other political and economic factors. More information about the
risks and potential rewards of investing in foreign securities is contained in
the Statement of Additional Information.
o Hedging instruments can be volatile investments and may involve special
risks. 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 or
if it could not close out a position because of an illiquid market for the
future or option.
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 a
security that has increased in value, the Fund will be required to sell the
security at the call price and will not be able to realize any profit if the
security has increased in value above the call price. If writing a put, there is
a risk that the Fund may be required to buy the underlying security at a
disadvantageous price. The use of forward contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. These risks are described in greater detail in the
Statement of Additional Information.
Investment Techniques and Strategies.
The Fund may also use the investment techniques and strategies described below.
These techniques involve certain risks. The Statement of Additional Information
contains more information about these practices, including limitations on their
use that are designed to reduce some of the risks.
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o Borrowing for Leverage. The Fund may borrow up to 10% of the value of
its assets from banks to buy securities. That percentage limit is a fundamental
policy. The Fund will only borrow if it can do so without putting up assets as
security for a loan. This is a speculative investment method known as
"leverage." Leveraging may subject the Fund to greater risks and costs than
funds that do not borrow. These risks may include the possible reduction of
income and increased fluctuation in the Fund's net asset value per share, since
the Fund pays interest on borrowings and interest expense affects the Fund's
share price. Borrowing is subject to regulatory limits, described in more detail
in the Statement of Additional Information. Under the Investment Company Act,
the Fund can borrow only if it maintains at least a 300% ratio of assets to
borrowings at all time.
o Warrants and Rights. Warrants basically are options to purchase stock at
set prices that are valid for a limited period of time. Rights are similar to
warrants but normally have a short duration and are distributed directly by the
issuer to its shareholders. The Fund may invest up to 5% of its total assets in
warrants and rights. That 5% does not apply to warrants and rights the Fund has
acquired as part of units with other securities or that are attached to other
securities. No more than 2% of the Fund's net assets may be invested in warrants
and rights that are not listed on the New York or American Stock Exchanges. For
further details about these investments, please refer to "Warrants and Rights"
in the Statement of Additional Information.
o U.S. Government Securities. The Fund may invest in debt obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
which are referred to as "U.S. Government Securities." Because U.S. Government
Securities are considered among the most creditworthy investments, their yields
are generally lower than the yields available from corporate debt securities.
Additionally, the values of U.S. Government Securities are subject to changes in
prevailing domestic interest rates, which is known as interest rate risk.
U.S. Government Securities are debt obligations issued by or guaranteed by
the United States government or any of its agencies or instrumentalities. Some
of these obligations, including U.S. Treasury notes and bonds, and
mortgage-backed securities guaranteed by the Government National Mortgage
Association (referred to as "Ginnie Maes"), are supported by the full faith and
credit of the United States, which means that the government pledges to use its
taxing power to repay the debt. Other U.S. Government Securities issued or
guaranteed by Federal agencies or government- sponsored enterprises are not
supported by the full faith and credit of the United States. They may include
obligations supported by the ability of the issuer to borrow from the U.S.
Treasury. However, the Treasury is not under a legal obligation to make a loan.
Examples of these are obligations are those of the Federal Home Loan Mortgage
Corporation (these securities are often called "Freddie Macs"). Other
obligations are supported by the credit of the instrumentality, such as Federal
National Mortgage Association bonds (these securities are often called "Fannie
Maes"). Some of the other U.S. Government Securities in which the Fund may
invest are zero coupon U.S. Treasury securities.
o Domestic Debt Securities. The Fund may invest in debt securities issued
by U.S. companies in any type of industry. Domestic debt securities may be
denominated in U.S. dollars or in non-U.S. currencies.
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These investments may include debt obligations such as bonds (including sinking
fund and callable bonds), debentures (unsecured bonds) and notes (including
variable and floating rate instruments .
o Foreign Securities. The Fund may purchase equity (and debt) securities
issued or guaranteed by foreign companies or foreign governments, including
foreign government agencies. The Fund may buy securities of companies or
governments in any country, developed or underdeveloped. The Fund does not have
any limit on the amount of assets that may be invested in foreign securities.
However, the Fund normally does not expect to have more than 35% of its total
assets invested in foreign securities. Foreign currency will be held by the Fund
only in connection with the purchase or sale of foreign securities.
o Small Unseasoned Companies. The Fund may invest in securities of small,
unseasoned companies. These are companies that have been in operation for less
than three years, even after including the operations of any predecessors.
Securities of these companies may have limited liquidity (which means that the
Fund may have difficulty selling them at an acceptable price when it wants to)
and the prices of these securities may be volatile. The Fund currently intends
to invest no more than 5% of its total assets in the next year in securities of
small, unseasoned issuers.
o Special Situations. The Fund may invest in securities of companies that
are in "special situations" that the Manager believes present opportunities for
capital growth. A "special situation" may be an event such as a proposed merger,
reorganization, or other unusual development that is expected to occur and which
may result in an increase in the value of a company's securities regardless of
general business conditions or the movement of prices in the securities market
as a whole. There is a risk that the price of the security may decline if the
anticipated development fails to occur. There is no limit on the amount of
assets that the Fund may invest in "special situations."
|X| Temporary Defensive Investments. When stock market prices are falling
or in other unusual economic or business circumstances, the Fund may invest all
or a portion of its assets in defensive securities. Securities selected for
defensive purposes may include investment grade debt securities (securities
rated at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or at least
"BBB" by Standard & Poor's Corporation ("Standard & Poor's") or a comparable
rating from another nationally recognized statistical rating organization
("NRSRO"), or, if unrated, judged by the Manager to be of comparable quality to
securities rated within such grades), and preferred stocks, cash or cash
equivalents such as U.S. Treasury Bills and other short-term obligations of the
U.S. Government, its agencies or instrumentalities, or commercial paper rated
"A-1" or better by Standard & Poor's or "P-1" or better by Moody's.
o Hedging. The Fund may purchase 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 the use of them, described below. The hedging
instruments the Fund
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<PAGE>
may use are described below and in greater detail in "Other Investment
Techniques and Strategies" in the Statement of Additional Information.
The Fund may buy and sell options, futures and forward contracts for a
number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or to
establish a position in the securities market as a temporary substitute for
purchasing individual securities. Some of these strategies, such as selling
futures, buying puts and writing covered calls, hedge the Fund's portfolio
against price fluctuations. Other hedging strategies, such as buying futures and
call options, tend to increase the Fund's exposure to the securities market.
Forward contracts are used to try to manage foreign currency risks on the
Fund's foreign investments. Foreign currency options may be used to try to
protect against declines in the dollar value of foreign securities the Fund
owns, or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the Fund for
liquidity purposes or defensive reasons.
o Futures. The Fund may buy and sell futures contracts that relate to (1)
stock indices (referred to as Stock Index Futures), (2) other securities indices
(together with Stock Index Futures, referred to as Financial Futures), (3)
interest rates (these are referred to as Interest Rate Futures), and (4) foreign
currencies (these are referred to as Forward Contracts).
These types of Futures are described in "Hedging with Options and Futures
Contracts" in the Statement of Additional Information.
o Put and Call Options. The Fund may buy and sell exchange-traded and
over-the-counter put and call options, including index options, securities
options, currency options, and options on the other types of futures described
in "Futures," above. A call or put may be purchased 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.
If the Fund sells (that is, writes) 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 other types of written calls, the Fund must segregate
liquid assets to enable it to satisfy its obligations if the call is exercised.
Up to 25% of the Fund's total assets may be subject to calls.
The Fund may buy
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<PAGE>
puts whether or not it holds the underlying investment in the portfolio. If the
Fund writes a put, the put must be covered by segregated liquid assets. The Fund
will not write puts if more than 25% of the Fund's total assets would have to be
segregated to cover put options.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund 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.
o Derivative Investments. In general, a "derivative investment" is a
specially designed investment. Its performance is linked to the performance of
another investment or security, such as an option, future, index or currency .
The Fund can invest in a number of different kinds of "derivative investments."
They are used in some cases for hedging purposes and in other cases to enhance
total return. In the broadest sense, exchange-traded options and futures
contracts (discussed in "Hedging," above) may be considered "derivative
investments."
There are special risks in investing in derivative investments. The
company issuing the instrument may fail to pay the amount due on the maturity of
the instrument. Also, the underlying investment or security on which the
derivative is based, and the derivative itself, might not perform the way the
Manager expected it to perform. The performance of derivative investments may
also be influenced by interest rate and stock market changes in the U.S. and
abroad. All of this can mean that the Fund will realize less principal or income
from the investment than expected. Certain derivative investments held by the
Fund may trade in the over-the-counter market and may be illiquid. Please see
"Illiquid and Restricted Securities", below.
o Illiquid and Restricted Securities. Under the policies established by
the Fund's Board of Trustees, the Manager determines the liquidity of certain of
the Fund's investments. Investments may be illiquid because of the absence of an
active trading market, making it difficult to value them or dispose of them
promptly at an acceptable price. A restricted security is one that has a
contractual restriction on its resale or which cannot be sold publicly until it
is registered under the Securities Act of 1933. The Fund currently intends to
invest no more than 10% of its net assets in illiquid or restricted securities
(the Board may increase that limit to 15%). The Fund's percentage limitation on
these investments does not apply to certain restricted securities that are
eligible for resale to qualified institutional purchasers. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
some holdings to maintain adequate liquidity.
o Loans of Portfolio Securities. To raise cash for liquidity purposes,
the Fund may lend
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<PAGE>
its portfolio securities to brokers, dealers and other types of financial
institutions approved by the Board of Trustees. The Fund must receive collateral
for a loan. After any loan, the value of the securities loaned must not exceed
25% of the value of the Fund's total assets and are subject to other conditions
described in the Statement of Additional Information. The Fund presently does
not intend to lend its portfolio securities, but if it does, the value of the
securities loaned will exceed 5% of the value of its total assets in the coming
year.
o Repurchase Agreements. The Fund may enter into repurchase agreements to
generate income for liquidity purposes to meet anticipated redemptions, or
pending the investment of proceeds from sales of Fund shares or settlement of
purchases of portfolio investments. Repurchase agreements must be fully
collateralized. However, if the vendor of the securities fails to pay the resale
price on the delivery date, the Fund may incur costs in disposing of the
collateral, and losses if there is any delay in its ability to do so. 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. The Fund will not enter into a
repurchase transaction that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity of more than seven days.
Other Investment Restrictions
The Fund has certain investment restrictions that are fundamental policies.
Under these restrictions, the Fund cannot do any of the following:
o The Fund cannot, as to 75% of its assets, buy securities issued or
guaranteed by a single issuer if, as a result, the Fund would have invested more
than 5% of its total assets in the securities of that issuer or would own more
than 10% of the voting securities of that issuer (purchases of securities of the
U.S. government, its agencies and instrumentalities are not restricted by this
policy).
o The Fund cannot invest more than 25% of its total assets in securities
of companies in any one industry.
o The Fund cannot invest in other open-end investment companies or invest
more than 5% of its net assets in closed-end investment companies, including
small business investment companies, nor make any such investments at commission
rates in excess of normal brokerage commissions.
Unless the prospectus states that a percentage restriction applies on an
ongoing basis, it applies only at the time the Fund makes an investment, and the
Fund need not sell securities to meet the percentage limits if the value of the
investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" in the Statement of
Additional Information.
How the Fund is Managed
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Organization and History. The Fund was organized in 1980 as a Maryland
corporation but was reorganized in 1987 as a Massachusetts business trust. The
Fund is an open-end, management investment company.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. "Trustees and Officers
of the Fund" in the Statement of Additional Information names the Trustees and
provides more information about them and the officers of the Fund. Although the
Fund will not normally hold annual meetings of its shareholders, it may hold
shareholder meetings from time to time on important matters, and shareholders
have the right to call a meeting to remove a Trustee or to take other action
described in the Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. The Board has done
so, and the Fund currently has four classes of shares, Class A, Class B, Class C
and Class Y. All classes invest in the same investment portfolio. 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 on matters submitted to the vote of shareholders. Shares
of each class may have separate voting rights on matters in which interests of
one class are different from interests of another class, and 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 handles 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 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $75 billion as of September 30,
1997, and with more than 3 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding company that is owned in part by senior
officers of the Manager and controlled by Massachusetts Mutual Life Insurance
Company.
o Portfolio Manager. The Portfolio Manager of the Fund is Jane Putnam. She
has been the person principally responsible for the day-to-day management of the
Fund's portfolio since July, 1995. Ms. Putnam is a Vice President of the
Manager. Previously she served as a portfolio manager and equity research
analyst for Chemical Bank.
o Fees and Expenses. Under the investment advisory agreement, as amended
per a resolution of the Board of Trustees dated December 14, 1995 to reduce the
fee on assets in excess
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of $1.5 billion (the "Investment Advisory Agreement"), the Fund pays the Manager
a monthly fee at the following annual rates, which may be higher than the rates
paid by some other mutual funds, and which decline on additional assets as the
Fund grows: 0.75% of the first $200 million of average annual net assets, 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 $700 million, and 0.58% of average annual net assets
in excess of $1.5 billion. The Fund's management fee for its last fiscal year
ended August 31, 1997 was 0.68% of average annual net assets for Class A, Class
B and Class C shares of the Fund.
The Fund pays expenses related to its daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal fees and auditing costs. Those
expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other expenses paid
by the Fund is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and practices
in "Brokerage Policies of the Fund" in the Statement of Additional Information.
That section discusses how brokers and dealers are selected for the Fund's
portfolio transactions. When deciding which brokers to use, the Manager is
permitted by the Investment Advisory Agreement to consider whether brokers have
sold shares of the Fund or any other funds for which the Manager serves as
investment adviser.
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" managed by the Manager and is sub-distributor for funds managed by a
subsidiary of the Manager.
o The Transfer Agent. The Fund's Transfer Agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for the other Oppenheimer funds. Shareholders should direct
inquiries about their account to the Transfer Agent at the address and toll-free
number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total return"
and "average annual total return" to illustrate its performance. The performance
of each class of shares is shown separately, because the performance of each
class of shares will usually be different as a result of the different kinds of
expenses each class bears. These returns measure the performance of a
hypothetical account in the Fund over various periods, and do not show the
performance of each shareholder's account (which will vary if dividends are
received in cash or shares are sold or purchased). The Fund's performance data
may be useful to help you see how well your investment has done over time and to
compare it to market indices, as we have done below.
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It is important to understand that the Fund's total returns represent past
performance and should not be considered to be predictions of future returns or
performance. More detailed information about how total returns are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's performance. The
Fund's investment performance will vary, depending on market conditions, the
composition of the portfolio, expenses and which class of shares you purchase.
o Total Returns. There are different types of "total returns" used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted. However
total returns may also be quoted at net asset value, without considering the
effect of the sales charge, and those returns would be less if sales charges
were deducted.
How Has the Fund Performed? Below is a discussion by the Manager of the Fund's
performance during its fiscal year ended August 31, 1997, followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Fund Performance. During the past fiscal
year, the Fund's positive performance was affected by low U.S. inflation, a
strong dollar and moderate economic growth in the stock market. The Manager
sought to identify companies that were fairly valued relative to their earnings
growth and price. The Manager found a number of small and medium-sized companies
that met its requirements, as valuations for larger, well-known companies rose
to the higher end of their historical ranges. Early in 1997, the Fund reduced or
eliminated certain positions in large-growth consumer-related and technology
companies. The Fund's holdings during the past fiscal year included stocks in:
(1) the technology sector, including personal computer manufacturers and related
stocks, (2) the financial sector, including banking, and (3) consumer cyclicals,
including apparel companies. The Fund also generally increased its cash position
during the past fiscal year as it waited for more attractive investment
opportunities. The Fund's portfolio and its portfolio manager's strategies are
subject to change.
o Comparing the Fund's Performance to the Market. The graphs below show
the performance of a hypothetical $10,000 investment in Class A, Class B and
Class C shares of the Fund at August 31, 1997: in the case of Class A shares,
over a ten-year period; in the case of Class B shares, from the inception of the
class on November 1, 1995; and in the case of Class C shares, from the inception
of the class on December 1, 1993. Since Class Y shares are new as of the date of
this Prospectus, there are no comparisons shown for that class. The Fund's
performance reflects
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<PAGE>
the deduction of the 5.75% current maximum initial sales charge on Class A
shares, the applicable contingent deferred sales charge on Class B and Class C
shares, and reinvestment of all dividends and capital gains distributions.
The Fund's performance is compared below to the performance of the
Standard & Poor's ("S&P") 500 Index, a broad-based index of equity securities
widely regarded as a general measure of the performance of the U.S. equity
securities market. Index performance reflects the reinvestment of dividends but
does not consider the effect of capital gains or transaction costs, and none of
the data in the graphs below shows the effect of taxes. Moreover, index
performance data does not reflect any assessment of the risk of the investments
included in the index. The Fund's performance reflects the effect of Fund
business and operating expenses. While index comparisons may be useful to
provide a benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the securities in the indices shown.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Capital Appreciation Fund (Class A Shares) and S&P 500 Index
{Graph}
Average Annual Total Return of Class A shares of the Fund at 8/31/97(1)
1 Year 5 Years 10 Years
32.44% 19.23% 13.03%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Capital Appreciation Fund (Class B Shares) and S&P 500 Index
{Graph}
Average Annual Total Return of Class B Shares of the Fund
at 8/31/97(2)
1 Year Life
34.30% 26.61%
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Capital Appreciation Fund (Class C Shares) and S&P 500 Index
[Graph]
Average Annual Total Return of Class C shares at 8/31/97(3)
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1 Year Life
38.35 21.75%
The total returns and the ending account values in the graphs reflect
reinvestment of all dividends and capital gains distributions. The Fund's fiscal
year has changed from 12/31 to 8/31. Past performance is not predictive of
future performance. Graphs are not drawn to same scale. 1The inception date of
the Fund (Class A shares) was 1/22/81. Class A returns are shown net of the
applicable 5.75% maximum initial sales charge. 2Class B shares of the Fund were
first publicly offered on 11/1/95. The average annual total returns are shown
net of the applicable 5% and 4% contingent deferred sales charge, respectively,
for the one year period and the life of the class. The ending account value in
the graph is shown net of the applicable 4% contingent deferred sales charge.
3Class C shares of the Fund were first publicly offered on 12/1/93. The 1-year
return is shown net of the applicable 1% contingent deferred sales charge.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors 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.
o Class A Shares. If you buy Class A shares, you may pay an initial sales
charge on investments up to $1 million (up to $500,000 for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
pages 30 and 31). If you purchase Class A shares as part of an investment of at
least $1 million (at least $500,000 for Retirement Plans) in shares of one or
more Oppenheimer funds, you will not pay an initial sales charge, but if you
sell any of those shares within 12 months of buying them (18 months if the
shares were purchased prior to May 1, 1997), you may pay a contingent deferred
sales charge. The amount of that sales charge will vary depending on the amount
you invested. Sales charge rates are described in "Buying Class A Shares" below.
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as described in "Buying
Class B Shares" below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1%, as
discussed in "Buying Class C Shares" below.
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o Class Y Shares. Class Y shares are offered only to certain institutional
investors that have special agreements with the Distributor.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial advisor. The Fund's operating costs that apply to a
class of shares and the effect of the different types of sales charges on your
investment will vary your investment results over time. The most important
factors to consider are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over time and you plan
to purchase additional shares, you should re-evaluate those factors to see if
you should consider another class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We assumed you are an
individual investor, and therefore ineligible to purchase Class Y shares. We
used the sales charge rates that apply to each class considering the effect of
the annual asset-based sales charge on Class B and Class C expenses (which, like
all expenses, will affect your investment return). For the sake of comparison,
we have assumed that there is a 10% rate of appreciation in the investment each
year. Of course, the actual performance of your investment cannot be predicted
and will vary, based on the Fund's actual investment returns and the operating
expenses borne by each class of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment advice,
guidelines or recommendations, because each investor's financial considerations
are different. The discussion below of the factors to consider in purchasing a
particular class of shares assumes that you will purchase only one class of
shares and not a combination of shares of different classes.
o How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist
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<PAGE>
you in selecting the appropriate class of shares. Because of the effect of
class-based expenses, your choice will also depend on how much you plan to
invest. For example, the reduced sales charges available for larger purchases of
Class A shares may, over time, offset the effect of paying an initial sales
charge on your investment (which reduces the amount of your investment dollars
used to buy shares for your account), compared to the effect over time of higher
class-based expenses on Class B or Class C shares for which no initial sales
charge is paid.
o Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six years), you
should probably consider purchasing Class A or Class C shares rather than Class
B shares, because of the effect of the Class B contingent deferred sales charge
if you redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in the short
term.
Class C shares might be the appropriate choice (especially for investments
of less than $100,000), because there is no initial sales charge on Class C
shares, and the contingent deferred sales charge does not apply to amounts you
sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then the more you invest and the more your investment horizon increases toward
six years, Class C shares might not be as advantageous as Class A shares. That
is because the annual asset-based sales charge on Class C shares will have a
greater impact on your account over the longer term than the reduced front-end
sales charge available for larger purchases of Class A shares. For example,
Class A shares might be more advantageous than Class C (as well as Class B)
shares for investments of more than $100,000 expected to be held for 5 or 6
years (or more). For investments over $250,000 expected to be held 4 to 6 years
(or more), Class A shares may become more advantageous than Class C (and Class
B) shares. If investing $500,000 or more, Class A shares may be more
advantageous as your investment horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most cases Class
A shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares, from a single investor.
o Investing for the Longer Term. If you are investing for the longer term,
for example, for retirement, and do not expect to need access to your money for
seven years or more, Class B shares may be an appropriate consideration, if you
plan to invest less than $100,000. If you plan to invest more than $100,000 over
the long term, Class A shares will likely be more advantageous than Class B
shares or Class C shares, as discussed above, because of the effect of the
expected lower expenses for Class A shares and the reduced initial sales charges
available for larger investments in Class A shares under the Fund's Right of
Accumulation.
Of course these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time, using
the assumed annual performance returns stated above, and therefore, you should
analyze your options carefully.
o Are There Differences in Account Features That Matter to You?
Because some
22
<PAGE>
account features may not be available to Class B or Class C shareholders, or
other features (such as Automatic Withdrawal Plans) might not be advisable
(because of the effect of contingent deferred sales charge) for Class B and
Class C shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy. Additionally,
the dividends payable to Class B and Class C shareholders will be reduced by the
additional expenses borne solely by that class, such as the Class B and Class C
asset-based sales charge described below and in the Statement of Additional
Information.
o How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the Class B and Class C contingent deferred sales charge and
asset-based sales charges is the same as the purpose of the front-end sales
charge on sales of Class A shares: to compensate the Distributor for commissions
it pays to dealers and financial institutions for selling shares. The
Distributor may pay additional periodic compensation from its own resources to
securities dealers or financial institutions based upon the value of shares of
the Fund owned by the dealer or financial institution for its own account as for
its customers.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
o With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial
plans and military allotment plans, you can make initial and subsequent
investments of as little as $25; and subsequent purchases of at least $25 can be
made by telephone through AccountLink.
o Under pension, profit-sharing and 401(k) plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250 (if
your IRA is established under an Asset Builder Plan, the $25 minimum applies),
and subsequent investments may be as little as $25.
o There is no minimum investment requirement if you are buying shares by
reinvesting dividends or distributions from the Fund or other Oppenheimer funds
(a list of them appears in the Statement of Additional Information, or you can
ask your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the Distributor.
o How Are Shares Purchased? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Distributor, directly through the Distributor or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase and redemption orders. When you buy
shares, be sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
o Buying Shares Through Your Dealer. Your dealer will place your order
with the
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<PAGE>
Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, we recommend that you discuss your investment
first with a financial advisor, to be sure that it is appropriate for you.
o Payments by Federal Funds Wire. Shares may be purchased by Federal Funds
wire. The minimum investment is $2,500. You must first call the Distributor's
Wire Department at 1-800-525- 7041 to notify the Distributor of the wire and
receive further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House (ACH) member. You can
then transmit funds electronically to purchase shares, to have the Transfer
Agent send redemption proceeds, or to transmit dividends and distributions to
your bank account.
Shares are purchased for your account through AccountLink the regular
business day the Distributor is instructed by you to initiate the ACH transfer
to buy shares. You can provide those instructions automatically, under an Asset
Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. You should request AccountLink
privileges on the application or dealer settlement instructions used to
establish your account. Please refer to "AccountLink" below for more details.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are in the Statement of Additional Information.
o At What Price Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (and any initial sales charge that applies)
that is next determined after the Distributor receives the purchase order in
Denver, Colorado. In most cases, to enable you to receive that day's offering
price, the Distributor or its designated agent must receive your order by the
time of day The New York Stock Exchange closes, which is normally 4:00 P.M., New
York time, but may be earlier on some days (all references to time in this
Prospectus mean "New York time"). The net asset value of each class of shares is
determined as of that time on each day The New York Stock Exchange is open
(which is referred to in this Prospectus as a "regular business day").
If you buy shares through a dealer, the dealer must receive your order by
the close of The New York Stock Exchange on a regular business day and transmit
it to the Distributor so that it is received before the Distributor's close of
business that day, which is normally 5:00 P.M. The Distributor may reject any
purchase order for the Fund's shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. Appendix A to this
Prospectus sets
24
<PAGE>
forth conditions for the waiver of, or exemption from, sales charges or the
special sales charge rates that apply to purchases of shares of the Fund
(including purchases by exchange) by a person who was a shareholder of one of
the Former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
Front-End Front-End Commission
Sales Charge Sales Charge as Percentage
as Percentage of as Percentage of of Offering
Amount of Purchase Offering Price Amount Invested Price
Less than $25,000 5.75% 6.10% 4.75%
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter" under
Federal securities laws.
o Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds in the following cases:
o Purchases aggregating $1 million or more;
o Purchases by a retirement plan qualified under sections 401(a) or 401(k)
of the Internal Revenue Code, by a non-qualified deferred compensation plan ,
employee benefit plan, group retirement plan (see "How to Buy Shares Retirement
Plans" in the
25
<PAGE>
Statement of Additional Information for further details), an employee's
403(b)(7) custodial plan account, SEP IRA, SARSEP, or SIMPLE plan (all of these
plans are collectively referred to as "Retirement Plans"); that: (1) buys shares
costing $500,000 or more or (2) has, at the time of purchase, 100 or more
eligible participants, or (3) certifies that it projects to have annual plan
purchases of $200,000 or more; or
o Purchases by an OppenheimerFunds Rollover IRA if the purchases are made
(1) through a broker, dealer, bank or registered investment adviser that has
made special arrangements with the Distributor for these purchases, or (2) by a
direct rollover of a distribution from a qualified retirement plan if the
administrator of that plan has made special arrangements with the Distributor
for those purchases; or
o Purchases by a retirement plan qualified under section 401(a) if the
retirement plan has total plan assets of $500,000 or more.
The Distributor pays dealers of record commissions on those purchases in
an amount equal to (i) 1.0% for non-Retirement Plan accounts, and (ii) for
Retirement Plan accounts, 1.0% of the first $2.5 million, plus 0.50% of the next
$2.5 million, plus 0.25% of purchases over $5 million, calculated on a calendar
year basis. That commission will be paid only on those purchases that were not
previously subject to a front-end sales charge and dealer commission. No sales
commission will be paid to the dealer, broker or financial institution on sales
of Class A shares purchased with the redemption proceeds of shares of a mutual
fund offered as an investment option 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 you redeem any of those shares purchased prior to May 1, 1997, within
18 months of the end of the calendar month of their purchase, a contingent
deferred sales charge (called the "Class A contingent deferred sales charge")
may be deducted from the redemption proceeds. A Class A contingent deferred
sales charge may be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997 that are redeemed within 12 months of the end
of the calendar month of their purchase. That sales charge may be equal to 1.0%
of the lesser of (1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gains
distributions) or (2) the original offering price (which is the original net
asset value) of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all Class A shares of all Oppenheimer funds
you purchased subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable, the
Fund will first redeem shares that are not subject to the sales charge,
including shares purchased by reinvestment of dividends and capital gains, and
then will redeem other shares in the order that you purchased them. The Class A
contingent deferred sales charge is waived in certain cases described in
"Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However, if the
shares acquired by exchange are
26
<PAGE>
redeemed within 12 calendar months (18 months for shares purchased prior to May
1, 1997)of the end of the calendar month of the purchase of the exchanged
shares, the contingent deferred sales charge will apply.
o Special Arrangements With Dealers. The Distributor may advance up to 13
months' commissions to dealers that have established special arrangements with
the Distributor for Asset Builder Plans for their clients.
Reduced Sales Charges for Class A Share Purchases. You may be eligible to buy
Class A shares at reduced sales charge rates in one or more of the following
ways:
o Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together Class A and Class B shares you purchase for your individual accounts,
or jointly, or for trust or custodial accounts on behalf of your children who
are minors. A fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and Class
B shares of the Fund and other Oppenheimer funds to reduce the sales charge rate
that applies to current purchases of Class A shares. You can also include Class
A and Class B shares of Oppenheimer funds you previously purchased subject to an
initial or contingent deferred sales charge to reduce the sales charge rate for
current purchases of Class A shares, provided that you still hold your
investment in one of the Oppenheimer funds. The Distributor will add the value,
at current offering price, of the shares you previously purchased and currently
own to the value of current purchases to determine the sales charge rate that
applies. The Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Distributor. The reduced sales charge will apply only to current purchases and
must be requested when you buy your shares.
o Letter of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A and Class B shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine your reduced sales charge rate
for the Class A shares purchased during that period. This can include purchases
made up to 90 days before the date of the Letter. More information is contained
in the Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
o Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information. In
order to receive a waiver of the Class A contingent deferred sales charge, you
must notify the Transfer Agent which conditions apply.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not subject
to any Class A sales charges:
27
<PAGE>
o the Manager or its affiliates;
o present or former officers, directors, trustees and employees (and their
"immediate families" as defined in "Reduced Sales Charges" in the Statement of
Additional Information) of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered into
sales arrangements with such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor children);
o dealers, brokers or registered investment advisers that have entered
into an agreement with the Distributor providing specifically for the use of
shares of the Fund in particular investment products made available to their
clients (those clients may be charged a transaction fee by their dealer, broker
or adviser for the purchase or sale of shares of the Fund;
o employee benefit plans purchasing shares through a shareholder agent
which the Distributor has appointed as its agent to accept those purchase
orders;
o (1) investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients; (2) Retirement Plans and deferred compensation
plans and trusts used to fund those Plans (including, for example, plans
qualified or created under sections 401(a), 403(b) or 457 of the Internal
Revenue Code), and "rabbi trusts" that buy shares for their own accounts, in
each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of investment advisors or financial
planners (that have entered into an agreement for this purpose with the
Distributor) who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made such
special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment adviser (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts;
o any unit investment trust that has entered into an appropriate agreement
with the Distributor;
o a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and C TRAC-2000 program on November 24, 1995; or
28
<PAGE>
o qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements are
consummated and share purchases commence by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of loan repayments by a participant
in a retirement plan for which the Manager or its affiliates acts as sponsor;
o shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment trusts for which reinvestment arrangements have
been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the prior 30 days from a mutual fund (other than a fund managed by the Manager
or any of its subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o shares purchased with the proceeds of maturing principal of units of
any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived if
shares that would otherwise be subject to the contingent deferred sales charge
are redeemed in the following cases:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time of purchase of shares (prior to May 1, 1997) the dealer
agreed in writing to accept the dealer's portion of the sales commission in
installments of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of purchase);
o if, at the time of purchase of shares (on or after May 1, 1997) the
dealer agrees in writing to accept the dealer's portion of the sales commission
in installments of 1/12th of the commission per month (and no further commission
will be payable if the shares are redeemed within 12 months of purchase);
o for distributions from a TRAC-2000 401(k) plan sponsored by the
Distributor due to the termination of the TRAC-2000 program; or
o for distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes: (1) following
the death or disability (as defined in
29
<PAGE>
the Internal Revenue Code) of the participant or beneficiary (the death or
disability must occur after the participant's account was established); (2) to
return excess contributions; (3) to return contributions made due to a mistake
of fact; (4) hardship withdrawals, as defined in the plan; (5) under a Qualified
Domestic Relations Order, as defined in the Internal Revenue Code; (6) to meet
the minimum distribution requirements of the Internal Revenue Code; (7) to
establish "substantially equal periodic payments" as described in Section 72(t)
of the Internal Revenue Code; (8) for retirement distributions or loans to
participants or beneficiaries; (9) separation from service; (10)
participant-directed redemptions to purchase shares of a mutual fund (other than
a fund managed by the Manager or its subsidiary) offered as an investment option
in a Retirement Plan in which Oppenheimer funds are also offered as investment
options under a special arrangement with the Distributor; or (11) plan
termination or "in-service distributions," if the redemption proceeds are rolled
over directly to an OppenheimerFunds IRA;
o for distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan; or
o for distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
o Service Plan for Class A Shares. The Fund has adopted a Service Plan for
Class A shares to reimburse the Distributor for a portion of its costs incurred
in connection with the personal service and maintenance of shareholder accounts
that hold Class A shares. Reimbursement is made quarterly at an annual rate that
may not exceed 0.25% of the average annual net assets of Class A shares of the
Fund. The Fund's Board of Trustees has set the annual rate for assets
representing shares of the Fund sold on or after April 1, 1991, at 0.25%, and
has set the annual rate for assets representing shares sold before April 1,
1991, at 0.15% (the Board has the authority to increase that rate to no more
than 0.25%). The Distributor uses all of those fees to compensate dealers,
brokers, banks and other financial institutions quarterly for providing personal
service and maintenance of accounts of their customers that hold Class A shares
and to reimburse itself (if the Fund's Board of Trustees authorizes such
reimbursements, which it has not yet done) for its other expenditures under the
Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. Payments are made by the
Distributor quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the service provider or
its customers. The payments under the Plan increase the annual expenses of Class
A shares. For more details, please refer to "Distribution and Service Plans" in
the Statement of Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
6 years of their purchase, a contingent deferred sales charge will be deducted
from the redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value).
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<PAGE>
The contingent deferred sales charge is not imposed on the amount of your
account value represented by an increase in net asset value over the initial
purchase price. The Class B contingent deferred sales charge is paid to the
Distributor to reimburse its expenses of providing distribution-related services
to the Fund in connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 6 years, and (3) shares held the longest during the 6-year period. The
contingent deferred sales charge is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge on
Years Since Beginning of Mongh In Redemptions in that Year (As % of
Which Purchase Order Was Accepted Amount Subject to Charge)
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are considered
to have been made on the first regular business day of the month in which the
purchase was made.
o Automatic Conversion of Class B Shares. 72 months after you purchase
Class B shares, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and Class
C Shares" in the Statement of Additional Information.
o Distribution and Service Plan for Class B Shares. The Fund has adopted a
Distribution and Service Plan for Class B shares to compensate the Distributor
for distributing Class B shares and servicing accounts. This Plan is described
below under "Buying Class C Shares - Distribution and Service Plans for Class B
and Class C shares."
o Waivers of Class B Sales Charges. The Class B contingent deferred sales
charge will not apply to shares purchased in certain types of transactions, nor
will it apply to shares redeemed
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<PAGE>
in certain circumstances, as described below under "Waivers of Class B and
Class C Sales Charges."
Buying Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed within
12 months of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). The contingent
deferred sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial purchase price.
The Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months, and (3) shares held the longest during the 12- month period.
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, in the case of Class B shares, and to reimburse the
Distributor, in the case of Class C shares, for distributing and servicing
accounts. Under the Plans, the Fund pays the Distributor an annual "asset-based
sales charge" of 0.75% per year on Class B shares that are outstanding for 6
years or less and on Class C shares. The Distributor also receives a service fee
of 0.25% per year under each plan.
Under each Plan, both fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The asset-based sales charge and service
fees increase Class B and Class C expenses by up to 1.00% of the net assets per
year of the respective class.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the 0.25% service fees to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares have
been held for a year, the Distributor pays the service fees to dealers on a
quarterly basis.
The asset-based sales charge allows investors to buy Class B or Class C
shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class B and
Class C shares. Those payments are at a fixed rate that is not related to the
Distributor's expenses. The services rendered by the Distributor include paying
and financing the payment of sales commissions, service fees and other costs of
distributing and selling Class B and Class C shares.
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The Distributor currently pays sales commissions of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sales of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge. 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 sales of Class C shares is therefore
1.00% of the purchase price. The Distributor plans to pay the asset-based sales
charge as an ongoing commission to the dealer on Class C shares that have been
outstanding for a year or more. 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's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plans for Class B and C shares. Therefore, those expenses may be carried
over and paid in future years. At August 31, 1997, the end of the Class B Plan
year, the Distributor had incurred unreimbursed expenses in connection with the
sale of Class B shares of $1,114,421 (equal to 2.13% of the Fund's net assets
represented by Class B shares on that date). At August 31, 1997, the end of the
Class C Plan year, the Distributor had incurred unreimbursed expenses under the
Plan of $312,759 (equal to 0.87% of the Fund's net assets represented by Class C
shares on that date) which have been carried over into the present plan year.
If either Plan is terminated by the Fund, the Board of Trustees may allow
the Fund to continue payments of the service fee and/or asset-based sales charge
to the Distributor for certain expenses it incurred before the plan was
terminated.
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 of Shares in Certain Cases. The Class B and Class
C contingent deferred sales charges will be waived for redemptions of shares in
the following cases :
o distributions to participants or beneficiaries from Retirement Plans, if
the distributions are made (a) under an Automatic Withdrawal Plan after the
participant reaches age 59-1/2, as long as
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the payments are no more than 10% of the account value annually (measured from
the date the Transfer Agent receives the request), or (b) following the death or
disability (as defined in the Internal Revenue Code) of the participant or
beneficiary (the death or disability must have occurred after the account was
established);
o redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder including a trustee of a
"grantor" trust or revocable living trust for which the trustee is also the sole
beneficiary (the death or disability must have occurred after the account was
established and for disability you must provide evidence of a determination of
disability by the Social Security Administration);
o returns of excess contributions to Retirement Plans;
o distributions from retirement plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the
date the Transfer Agent receives the request;
o shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies" below;
o distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans (1)
for hardship withdrawals; (2) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (3) to meet minimum distribution
requirements as defined in the Internal Revenue Code; (4) to make "substantially
equal periodic payments" as described in Section 72(t) of the Internal Revenue
Code; (5) for separation from service; or (6) for loans to participants or
beneficiaries; or
o distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
Waivers for Shares Sold or Issued in Certain Transactions. The contingent
deferred sales charge is also waived on Class B and Class C shares sold or
issued in the following cases:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose; or
o shares issued in plans of reorganization to which the Fund is a party.
Buying Class Y Shares. Class Y shares are sold at net asset value per share
without sales charge directly to certain institutional investors, such as
insurance companies, registered investment companies and employee benefit plans,
that have special agreements with the Distributor for this purpose. These
include Massachusetts Mutual Life Insurance Company, an affiliate of the
Manager, which may purchase Class Y shares of the Fund and other Oppenheimer
funds (as well as Class Y shares of funds advised by MassMutual) for asset
allocation programs, investment companies or separate investment accounts it
sponsors and offers to its customers. Individual investors are not able to
invest in Class Y shares directly.
While Class Y shares are not subject to initial or contingent deferred
sales charges or asset-based sales charges, an institutional investor buying the
shares for its customers' accounts may impose charges on those accounts. The
procedures for purchasing, redeeming, exchanging, or transferring the Funds's
other classes of shares (other than the time those orders must be received
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by the Distributor or Transfer Agent in Denver) and the special account features
available to purchasers of those other classes of shares described elsewhere in
this Prospectus do not apply to Class Y shares. Instructions for purchasing,
redeeming, exchanging or transferring Class Y shares must be submitted by the
institutional investor, not by its customers for whose benefit the shares are
held.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send money
electronically between those accounts to perform a number of types of account
transactions. These include purchases of shares by telephone (either through a
service representative or by PhoneLink, described below), automatic investments
under Asset Builder Plans, and sending dividends and distributions or Automatic
Withdrawal Plan payments directly to your bank account. Please call the Transfer
Agent for more information.
AccountLink privileges should be requested on your dealer's settlement
instructions if you buy your shares through your dealer. After your account is
established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
o Using AccountLink to Buy Shares. Purchases may be made by telephone only
after your account has been established. To purchase shares in amounts up to
$250,000 through a telephone representative, call the Distributor at
1-800-852-8457. The purchase payment will be debited from your bank account.
o PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system
that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number: 1-800-533-3310.
o Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund, to pay for these purchases.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
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o Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below, for
details.
Shareholder Transactions by Fax. Requests for certain account transactions may
be sent to the Transfer Agent by fax (telecopier). Please call 1-800-525-7048
for information about which transactions are included. Transaction requests
submitted by fax are subject to the same rules and restrictions as written and
telephone requests described in this Prospectus.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o Automatic Withdrawal Plans. If your Fund account is $5,000 or more, you
can establish an Automatic Withdrawal Plan to receive payments of at least $50
on a monthly, quarterly, semi-annual or annual basis. The checks may be sent to
you or sent automatically to your bank account on AccountLink. You may even set
up certain types of withdrawals of up to $1,500 per month by telephone. You
should consult the Statement of Additional Information for more details.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
automatically exchange an amount you establish in advance for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer fund account is $25. These exchanges are subject to the terms of the
Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies to Class A shares that you
purchased subject to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed them. This
privilege does not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your payment. Please consult the
Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your retirement
plans. If you participate in a plan sponsored by your employer, the plan trustee
or administrator must make the purchase of shares for your retirement plan
account. The Distributor offers a number of different retirement plans that can
be used by individuals and employers:
o Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
o 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
o SEP-IRAs (Simplified Employee Pension Plans) for small business owners
or people with income from self-employment, including SAR/SEP-IRAs
o Pension and Profit-Sharing Plans for self-employed persons and other
employers
o 401(k) prototype retirement plans for businesses
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Please call the Distributor for the OppenheimerFunds plan documents, which
contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling (redeeming) some or
all of your shares on any regular business day. Your shares will be sold at the
net asset value next calculated after your order is received and accepted by the
Transfer Agent. The Fund offers you a number of ways to sell your shares: in
writing or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. If you have questions
about any of these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for assistance.
o Retirement Accounts. To sell shares in an OppenheimerFunds retirement
account in your name, call the Transfer Agent for a distribution request form.
There are special income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer,
you must arrange for the distribution request to be sent by the plan
administrator or trustee. There are additional details in the Statement of
Additional Information.
o Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, certain redemption requests must be in writing and must include
a signature guarantee in the following situations (there may be other situations
also requiring a signature guarantee):
o You wish to redeem more than $50,000 worth of shares and receive a check
o The redemption check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your
account statement
o Shares are being transferred to a Fund account with a different owner
or name
o Shares are redeemed by someone other than the owners (such as an
Executor)
o Where Can I Have My Signature Guaranteed? The Transfer Agent will accept
a guarantee of your signature by a number of financial institutions, including:
a U.S. bank, trust company, credit union or savings association, or by a foreign
bank that has a U.S. correspondent bank, or by a U.S. registered dealer or
broker in securities, municipal securities or government securities, or by a
U.S. national securities exchange, a registered securities association or a
clearing agency. If you are signing as a fiduciary or on behalf of a
corporation, partnership or other business, you must also include your title in
the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
o Your name
o The Fund's name
o Your Fund account number (from your account statement)
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o The dollar amount or number of shares to be redeemed o Any special
payment instructions o Any share certificates for the shares you are
selling o The signatures of all registered owners exactly as the account
is registered and
o Any special requirements or documents requested by the Transfer Agent to
assure proper authorization of the person asking to sell shares.
Use the following address for Send courier or Express Mail
requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record may
also sell your shares by telephone. To receive the redemption price on a regular
business day, your call must be received by the Transfer Agent by the close of
The New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
o To redeem shares through a service representative, call 1-800-852-8457
o To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds wired to that bank account.
o Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of record
of the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an account.
o Telephone Redemptions Through AccountLink or Wire. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated when
you establish AccountLink. Normally the ACH transfer to your bank is initiated
on the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Shareholders may also have the Transfer Agent send redemption proceeds of
$2,500 or more by Federal Funds wire to a designated commercial bank account if
the bank is a member of the Federal Reserve wire system. There is a $10 fee for
each Federal Funds wire. To place a wire redemption request, call the Transfer
Agent at 1-800-852-8457. The wire will normally be transmitted on the next bank
business day after the shares are redeemed. There is a possibility that the wire
may be delayed up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of shares
that have been redeemed and are awaiting transmittal by wire. To establish wire
redemption privileges on an account that is
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already established, please contact the Transfer Agent for instructions.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Please call your dealer for more information about this procedure. Brokers or
dealers may charge for that service. Please refer to "Special Arrangements for
Repurchase of Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. To
exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence
o The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege
o You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days, you
can exchange shares every regular business day
o You must meet the minimum purchase requirements for the fund you
purchase by exchange
o Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At present,
Oppenheimer Money Market Fund, Inc., offers only one class of shares, which are
considered to be Class A shares for this purpose. In some cases, sales charges
may be imposed on exchange transactions. 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 all owners of the account. Send it to the Transfer Agent at the
addresses listed in "How to Sell Shares."
o Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
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You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1-800-525-7048. That list can change from time to time.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of The New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. However, either fund may delay the purchase of shares of
the fund you are exchanging into up to 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 sale of portfolio securities at a time or price
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose
these changes at any time.
o For tax purposes, exchanges of shares involve a redemption of the shares
of the Fund you own and a purchase of the shares of the other fund, which may
result in a capital gain or loss. For more information about taxes affecting
exchanges, please refer to "How to Exchange Shares" in the Statement of
Additional Information.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
The Distributor has entered into agreements with certain dealers and
investment advisers permitting them to exchange their clients' shares by
telephone. These privileges are limited under those agreements and the
Distributor has the right to reject or suspend those privileges. As a result,
those exchanges may be subject to notice requirements, delays and other
limitations that do not apply to shareholders who exchange their shares directly
by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange, which is normally 4:00 P.M. but may be
earlier on some days, on each day the Exchange is open by dividing the value of
the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset value. In
general, securities values
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are based on market value. There are special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be readily
obtained. These procedures are described more completely in the Statement of
Additional Information.
o The offering of shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be suspended
by the Board of Trustees at any time the Board believes it is in the Fund's best
interest to do so.
o Telephone Transaction Privileges for purchases, redemptions or exchanges
may be modified, suspended or terminated by the Fund at any time. If an account
has more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone exchange and redemption privileges
automatically apply to each owner of the account and the dealer representative
of record for the account unless refused on the new account Application or, if
not refused, will apply until the Transfer Agent receives cancellation
instructions from an owner of the account.
o The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent during
periods of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
o Redemption or transfer requests will not be honored until the Transfer
Agent receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.
o The redemption price for shares will vary from day to day because the
values of the securities in the Fund's portfolio fluctuate, and the redemption
price, which is the net asset value per share, will normally be different for
Class A, Class B and Class C shares. Therefore, the redemption value of your
shares may be more or less than their original cost.
o Payment for redeemed shares is made ordinarily in cash and forwarded by
check or through AccountLink (as elected by the shareholder under the redemption
procedures described above) within 7 days after the Transfer Agent receives
redemption instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
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<PAGE>
payment will be forwarded within 3 business days. The Transfer Agent may delay
forwarding a check or processing a payment via AccountLink for recently
purchased shares, but only until the purchase payment has cleared. That delay
may be as much as 10 days from the date the shares were purchased. That delay
may be avoided if you purchase shares by federal funds wire, certified check or
arrange with your bank to provide telephone or written assurance to the Transfer
Agent that your purchase payment has cleared.
o Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped, and in some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
o Under unusual circumstances, shares of the Fund may be redeemed "in
kind", which means that the redemption proceeds will be paid with securities
from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement
of Additional Information for
more details.
o "Backup Withholding" of Federal income tax may be applied at the rate of
31% from taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a certified Social Security or
Employer Identification Number when you sign your application, or if you violate
Internal Revenue Service regulations on tax reporting of income.
o The Fund does not charge a redemption fee, but if your dealer or broker
handles your redemption, they may charge a fee. That fee can be avoided by
redeeming your Fund shares directly through the Transfer Agent. Under the
circumstances described in "How to Buy Shares," you may be subject to a
contingent deferred sales charges when redeeming certain Class A, Class B and
Class C shares.
o To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800- 525-7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B, Class C
and Class Y shares from net investment income, if any, on an annual basis and
normally pays those dividends to shareholders in December, but the Board of
Trustees can change that date. The Board may also cause the Fund to declare
dividends after the close of the Fund's fiscal year (which ends August 31st).
Because the Fund does not have an objective of seeking current income, the
amounts of dividends it pays, if any, will likely be small. Also, dividends paid
on Class A and Class Y, shares will generally be higher than for Class B and
Class C shares because expenses allocable to Class B and Class C shares will
generally be higher.
Capital Gains. The Fund may make distributions annually in December out of
any net short-term
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or long-term capital gains, and the Fund may make supplemental distributions of
dividends and capital gains following the end of its fiscal year. Long-term
capital gains will be separately identified in the tax information the Fund
sends you after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund will pay any
capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your application
how you want to receive your distributions. For OppenheimerFunds retirement
accounts, all distributions are reinvested. For other accounts, you have four
options:
o Reinvest All Distributions in the Fund. You can elect to reinvest all
dividends and long-term capital gains distributions in additional shares of the
Fund.
o Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or sent
to your bank account on AccountLink.
o Receive All Distributions in Cash. You can elect to receive a check
for all dividends and
long-term capital gains distributions or have them sent to your bank on
AccountLink.
o Reinvest Your Distributions in Another Oppenheimer Fund Account. You can
reinvest all distributions in the same class of shares of another Oppenheimer
fund account you have established.
Taxes. If your account is not a tax-deferred retirement account, you should be
aware of the following tax implications of investing in the Fund. Long-term
capital gains are taxable as long-term capital gains when distributed to
shareholders. It does not matter how long you held your shares. Dividends paid
from short-term capital gains and net investment income are taxable as ordinary
income. Distributions are subject to federal income tax and may be subject to
state or local taxes. Your distributions are taxable when paid, whether you
reinvest them in additional shares or take them in cash. Every year the Fund
will send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year. So that the Fund will not have
to pay taxes on the amounts it distributes to shareholders as dividends and
capital gains, the Fund intends to manage its investments so that it will
qualify as a "regulated investment company" under the Internal Revenue Code,
although it reserves the right not to qualify in a particular year.
o "Buying a Dividend": When a fund goes ex-dividend, its share price is
reduced by the amount of the distribution. If you buy shares on or just before
the ex-dividend date, or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then receive a
portion of the price back as a taxable dividend or capital gain.
o Taxes on Transactions: Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. Generally speaking a capital gain
or loss is the difference between the price you paid for the shares and the
price you received when you sold them.
o Returns of Capital: In certain cases distributions made by the Fund may
be considered a non-taxable return of capital to shareholders. If that occurs,
it will be identified in notices to shareholders. A non-taxable return of
capital may reduce your tax basis in your Fund shares.
43
<PAGE>
This information is only a summary of certain Federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
44
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund Who
Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares of the Fund described elsewhere in this Prospectus
are modified as described below for those shareholders of (i) Quest for Value
Fund, Inc., Quest for Value Growth and Income Fund, Quest for Value Opportunity
Fund, Quest for Value Small Capitalization Fund and Quest for Value Global
Equity Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became the
investment adviser to those funds, and (ii) Quest for Value U.S. Government
Income Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for Value
National Tax-Exempt Fund and Quest for Value California Tax- Exempt Fund when
those funds merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the Oppenheimer funds
that was one of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for Value Funds
into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
o Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
o Purchases by Groups, Associations and Certain Qualified Retirement Plans. The
following table sets forth the initial sales charge rates for Class A shares
purchased by a "Qualified Retirement Plan" through a single broker, dealer or
financial institution, or by members of "Associations" formed for any purpose
other than the purchase of securities if that Qualified Retirement Plan or that
Association purchased shares of any of the Former Quest for Value Funds or
received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995. For this purpose only, a "Qualified Retirement Plan" includes
any 401(k) plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a single
employer.
Front-End Sales Front-End Sales
Number of Charge as a Charge as a Commission as
Eligible Employees Percentage of Percentage of Percentage of
or Members Offering Price Amount Invested Offering Price
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Qualified Retirement plans and Associations having 50 or
more eligible employees or members, there is no initial sales charge on
purchases of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on pages 30 to
A-1
<PAGE>
31 of this Prospectus.
Purchases made under this arrangement qualify for the lower of the sales
charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge rate
that applies under the Rights of Accumulation described above in the Prospectus.
In addition, purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they qualified to
purchase shares of any of the Former Quest For Value Funds by virtue of
projected contributions or investments of $1 million or more each year.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations, or as eligible employees in Qualified Retirement Plans
also may purchase shares for their individual or custodial accounts at these
reduced sales charge rates, upon request to the Fund's Distributor.
o Waiver of Class A Sales Charges for Certain Shareholders. Class A shares
of the Fund purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of Funds
on February 28, 1991 and who acquired shares of any of the Former Quest for
Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the following investors
who were shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is not or was
not permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the Employee Retirement
Income Security Act of 1974 and regulations adopted under that law.
A-2
<PAGE>
o Participants in Qualified Retirement Plans that purchased shares of any
of the Former Quest for Value Funds pursuant to a special "strategic alliance"
with the distributor of those funds. The Fund's Distributor will pay a
commission to the dealer for purchases of Fund shares as described above in
"Class A Contingent Deferred Sales Charge."
Class A, Class B and Class C Contingent
Deferred Sales Charge Waivers
o Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the
following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of the Fund acquired by merger
of a Former Quest for Value Fund into the Fund or by exchange from an
Oppenheimer fund that was a Former Quest for Value Fund or into which such fund
merged, if those shares were purchased prior to March 6, 1995: in connection
with (i) distributions to participants or beneficiaries of plans qualified under
Section 401(a) of the Internal Revenue Code or from custodial accounts under
Section 403(b)(7) of the Code, Individual Retirement Accounts, deferred
compensation plans under Section 457 of the Code, and other employee benefit
plans, and returns of excess contributions made to each type of plan, (ii)
withdrawals under an automatic withdrawal plan holding only either Class B or
Class C shares if the annual withdrawal does not exceed 10% of the initial value
of the account, and (iii) liquidation of a shareholder's account if the
aggregate net asset value of shares held in the account is less than the
required minimum value of such accounts.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of the Fund acquired by merger of a Former Quest for Value Fund into the
Fund or by exchange from an Oppenheimer fund that was a Former Quest For Value
Fund or into which such fund merged, if those shares were purchased on or after
March 6, 1995, but prior to November 24, 1995: (1) distributions to participants
or beneficiaries from Individual Retirement Accounts under Section 408(a) of the
Internal Revenue Code or retirement plans under Section 401(a), 401(k), 403(b)
and 457 of the Code, if those distributions are made either (a) to an individual
participant as a result of separation from service or (b) following the death or
disability (as defined in the Code) of the participant or beneficiary; (2)
returns of excess contributions to such retirement plans; (3) redemptions other
than from retirement plans following the death or disability of the
shareholder(s) (as evidenced by a determination of total disability by the U.S.
Social Security Administration); (4) withdrawals under an automatic withdrawal
plan (but only for Class B or Class C shares) where the annual withdrawals do
not exceed 10% of the initial value of the account; and (5) liquidation of a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the required minimum account value. A shareholder's account
will be credited with the amount of any contingent deferred sales charge paid on
the redemption of any Class A, Class B or Class C shares of the Fund described
in this section if within 90 days after that redemption, the proceeds are
invested in the same Class of shares in this Fund or another Oppenheimer fund.
A-3
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER CAPITAL APPRECIATION FUND
Graphic material included in Prospectus of Oppenheimer Capital
Appreciation Fund: "Comparison of Total Return of Oppenheimer Target Fund with
the S&P 500 Index - Change in Value of a $10,000 Hypothetical Investment"
Linear graphs will be included in the Prospectus of Oppenheimer Capital
Appreciation Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in each class of
shares of the Fund. For Class A shares, that graph will cover each of the Fund's
last ten fiscal years from 12/31/86 through 8/31/97; in the case of the Fund's
Class B shares, the graph will cover the period from the inception of the Class
(November 1, 1995) through 8/31/97; and in the case of the Fund's Class C
shares, the graph will cover the period from the inception of the class
(December 1, 1993) through 8/31/97. Class Y shares were not available during the
last fiscal year and, accordingly, are not set forth below.
The graphs assume that all dividends and capital gains were reinvested in
additional shares. In each graph, the respective class of shares will be
compared over the same time period with the same investment in the S&P 500
Index. Set forth below are the relevant data points that will appear on the
linear graphs. Additional information with respect to the foregoing, including a
description of the S&P 500 Index, is set forth in the Prospectus under
"Performance of the Fund - Comparing the Fund's Performance to the Market."
Oppenheimer
Fiscal Capital Appreciation
Year Ended Fund A S&P 500 Index
12/31/87 $9,425 $10,000
12/31/88 $8,021 $8,219
12/31/89 $10,359 $11,439
12/31/90 $9,357 $10,868
12/31/91 $12,839 $13,785
12/31/92 $13,314 $14,876
12/31/93 $15,271 $17,135
12/31/94 $16,373 $18,070
12/31/95 $20,476 $21,941
8/31/96 $24,227 $26,048
8/31/97 $34,042 $36,630
Oppenheimer
Fiscal Capital Appreciation
Year Ended Fund B S&P 500 Index
11/01/95(1) $10,000 $10,000
8/31/96 $11,352 $11,432
8/31/97 $15,413 $16,077
Oppenheimer
Fiscal Capital Appreciation
Year Ended Fund C S&P 500 Index
12/1/93(2) $10,000 $10,000
8/31/94 $10,325 $10,513
8/31/95 $12,794 $12,764
8/31/96 $15,010 $15,154
8/31/97 $20,917 $21,310
- ------------------
(1)Class B shares of the Fund were first publicly offered on November 1, 1995.
(2)Class C shares of the Fund were first publicly offered on December 1, 1993.
<PAGE>
Oppenheimer Capital Appreciation Fund
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information and, if given or
made, such information and representations must not be relied upon as having
been authorized by the Fund, OppenheimerFunds, Inc., OppenheimerFunds
Distributor, Inc., or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such an
offer in such state.
PR0320.001.1197 Printed on Recycled Paper
<PAGE>
Oppenheimer Capital Appreciation Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 1, 1997
This Statement of Additional Information of Oppenheimer Capital
Appreciation Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus dated
November 1, 1997. It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at
P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer Agent at the
toll-free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies...................................... 2
Investment Policies and Strategies................................ 2
Other Investment Techniques and Strategies........................ 3
Other Investment Restrictions..................................... 15
How the Fund is Managed ............................................... 16
Organization and History.......................................... 16
Trustees and Officers of the Fund................................. 17
The Manager and Its Affiliates.................................... 22
Brokerage Policies of the Fund......................................... 24
Performance of the Fund................................................ 26
Distribution and Service Plans......................................... 28
About Your Account
How to Buy Shares...................................................... 31
How to Sell Shares..................................................... 38
How to Exchange Shares................................................. 42
Dividends, Capital Gains and Taxes..................................... 44
Additional Information About the Fund.................................. 45
Financial Information About the Fund
Independent Auditors' Report........................................... 46
Financial Statements................................................... 47
Appendix A: Industry Classifications................................... A-1
-1-
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies of the
Fund are described in the Prospectus. Set forth below is supplemental
information about those policies and the types of securities in which the Fund
invests, as well as the strategies the Fund may use to try to achieve its
objective. Capitalized terms used in this Statement of Additional Information
have the same meaning as those terms have in the Prospectus.
In selecting securities for the Fund's portfolio, the Fund's investment
advisor, OppenheimerFunds, Inc. (the "Manager"), evaluates the merits of
securities primarily through the exercise of its own investment analysis. This
may include, among other things, evaluation of the history of the issuer's
operations, prospects for the industry of which the issuer is part, the issuer's
financial condition, the issuer's pending product developments and developments
by competitors, the effect of general market and economic conditions on the
issuer's business, and legislative proposals or new laws that might affect the
issuer. Current income is not a consideration in the selection of portfolio
securities for the Fund, whether for appreciation, defensive or liquidity
purposes. The fact that a security has a low yield or does not pay current
income will not be an adverse factor in selecting securities to try to achieve
the Fund's investment objective of capital appreciation unless the Manager
believes that the lack of yield might adversely affect appreciation
possibilities.
The portion of the Fund's assets allocated to securities and methods
selected for capital appreciation will depend upon the judgment of the Manager
as to the future movement of the equity securities markets. For example, when
the economy is expanding, companies in the consumer durable and technology
sectors may be in a position to benefit from changes in the business cycle and
may present long-term growth opportunities. If the Manager believes that a
market decline is likely, defensive securities and investment methods will be
emphasized (See "Temporary Defensive Investments," below).
o Growth-Type Companies. The "growth-type" companies whose securities may
be emphasized in the Fund's portfolio include, among others, companies in the
natural resources fields or those developing commercial applications for new
scientific knowledge having potential for technological innovation, such as
computer software, telecommunications equipment and services, and new consumer
products.
The Fund may invest in securities of smaller, less well-known companies
(see "Investing in Small, Unseasoned Companies" below), but the Fund may also
buy securities of large, well-known companies (which are not generally
considered to be "growth-type" companies) when the Manager believes that the
amounts of securities of smaller companies available at prices that may be
expected to appreciate are insufficient to help the Fund achieve its objective
of capital appreciation.
o Warrants and Rights. Warrants are options to purchase equity securities
at set prices valid for a specified period of time. The prices of warrants do
not necessarily move in a manner
-2-
<PAGE>
parallel to the prices of the underlying securities. The prices of warrants do
not necessarily move parallel to the prices of the underlying securities. The
price the Fund pays for a warrant will be lost unless the warrant is exercised
prior to its expiration. Rights are similar to warrants, but normally have a
short duration and are distributed directly by the issuer to its shareholders.
Rights and warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer.
Other Investment Techniques and Strategies
o Hedging with Options and Futures Contracts. As described in the
Prospectus, the Fund may employ one or more types of Hedging Instruments.
Hedging Instruments may be used to attempt to: (1) protect against possible
declines in the market value of the Fund's portfolio resulting from downward
trends in the securities markets, (2) protect unrealized gains in the value of
the Fund's securities which have appreciated, (3) facilitate selling securities
for investment reasons, (4) establish a position in the securities markets as a
temporary substitute for purchasing particular debt securities, or (5) reduce
the risk of adverse currency fluctuations.
The Fund may use hedging to attempt to protect against declines in the
market value of the Fund's portfolio, or to permit the Fund to retain unrealized
gains in the value of portfolio securities which have appreciated, or to
facilitate selling securities for investment reasons. To do, the Fund may: (1)
purchase Futures or (2) purchase calls on such Futures or securities. Normally,
the Fund would then purchase the equity securities and terminate the hedging
position.
When hedging to protect against declines in the dollar value of a foreign
currency-denominated security, the Fund may: (1) purchase puts on that foreign
currency or on foreign currency Futures, (2) write calls on that currency or on
such Futures, or (3) enter into Forward Contracts at a lower rate than the spot
("cash") rate.
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. At present,
the Fund does not intend to enter into Futures, Forward Contracts and options on
Futures if, after any such purchase, the sum of margin deposits on Futures and
premiums paid on Futures options exceeds 5% of the value of the Fund's total
assets. In the future, the Fund may employ Hedging Instruments and strategies
that are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with the Fund's investment objective,
legally permissible and adequately disclosed. Additional Information about the
Hedging Instruments the Fund may use is provided below.
o Writing Covered Call Options. The Fund may write (that is, sell) call
options ("calls"). All calls written by the Fund must be "covered" while the
call is outstanding (that means, the Fund must own the securities subject to the
call or other securities acceptable for applicable escrow requirements). Calls
on Futures (discussed below) must be covered by deliverable securities or by
liquid assets segregated to satisfy the Futures contract.
When the Fund writes a call on a security it receives a premium and agrees
to sell the callable investment to a purchaser of a corresponding call during
the call period (usually not more than 9 months) at a fixed exercise price
(which may differ from the market price of the underlying
-3-
<PAGE>
investment), regardless of market price changes during the call period. The Fund
has retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call the Fund has
written is more or less than the price of the call the Fund has subsequently
purchased. A profit may also be realized if the call lapses unexercised, because
the Fund retains the underlying investment and the premium received. Those
profits are considered short-term capital gains for Federal income tax purposes,
and when distributed by the Fund are taxable as ordinary income. If the Fund
could not effect a closing purchase transaction due to lack of a market, it
would have to hold the callable investments until the call lapsed or was
exercised.
The Fund may also write calls on Futures without owning a futures contract
or deliverable securities, provided that at the time the call is written, the
Fund covers the call by identifying to its custodian bank an equivalent dollar
amount of deliverable securities or liquid assets that are to be segregated. The
Fund will segregate additional liquid assets if the value of the escrowed assets
drops below 100% of the current value of the Future. In no circumstances would
an exercise notice require the Fund to deliver a futures contract; it would
simply put the Fund in a short futures position, which is permitted by the
Fund's hedging policies.
o Purchasing Calls and Puts. When the Fund purchases a call (other than in
a closing purchase transaction), it pays a premium and, except as to calls on
stock indices, has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price. In purchasing a call, the Fund benefits only if the call is sold
at a profit or if, during the call period, the market price of the underlying
investment is above the sum of the exercise price, the transaction costs and the
premium paid and the call is exercised. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration date
and the Fund will lose its premium payment and the right to purchase the
underlying investment.
When the Fund purchases a put, it pays a premium and, except as to puts
on stock indices, has the right to sell the underlying investment to a seller of
a corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on an investment the Fund owns (a "protective put")
enables the Fund to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price by
selling the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and as a result the put is not exercised or resold,
the put will become worthless at its expiration date, and the Fund will lose its
premium payment and the right to sell the underlying investment. However, the
put may be sold prior to expiration (whether or not at a profit).
Buying a put on an investment it does not own, either a put on an index or
a put on a Stock Index Future not held by the Fund, permits the Fund either to
resell the put or buy the underlying investment and sell it at the exercise
price. The resale price of the put will vary inversely with the
-4-
<PAGE>
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. In the event of a decline
in the stock market, the Fund could exercise or sell the put at a profit to
attempt to offset some or all of its loss on its portfolio securities. When the
Fund purchases a put on an index, or on a Future not held by it, the put
protects the Fund to the extent that the index moves in a similar pattern to the
securities held. In the case of a put on an index or Future, settlement is in
cash rather than by delivery by the Fund of the underlying investment.
o Options on Indices and Futures. Puts and calls on broadly-based stock
indices or Stock Index Futures are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in the
stock market generally) rather than on price movements in individual securities
or futures contracts. When the Fund buys a call on an index or Future, it pays a
premium. During the call period, upon exercise of a call by the Fund, a seller
of a corresponding call on the same investment will pay the Fund an amount of
cash to settle the call if the closing level of the index or Future upon which
the call is based is greater than the exercise price of the call. That cash
payment is equal to the difference between the closing price of the index and
the exercise price of the call times a specified multiple (the "multiplier")
which determines the total dollar value for each point of difference.
When the Fund buys a put on an index or Future, it pays a premium and has
the right during the put period to require a seller of a corresponding put, upon
the Fund's exercise of its put, to deliver to the Fund an amount of cash to
settle the put if the closing level of the index or Future upon which the put is
based is less than the exercise price of the put. That cash payment is
determined by the multiplier, in the same manner as described above as to calls.
o Stock Index Futures. The Fund may buy and sell Stock Index Futures. No
monetary amount is paid or received upon the purchase or sale of a Stock Index
Future or a foreign currency exchange contract ("Forward Contract"), discussed
below. This is a type of financial future for which the index used as the basis
for trading is a broadly-based stock index (including stocks that are not
limited to issuers in a particular industry or group of industries). A stock
index assigns relative values to the stocks included in the index and fluctuates
with the changes in the market value of these stocks. Stock indices cannot be
purchased or sold directly. Financial Futures are contracts based on the future
value of the basket of securities that comprise the underlying index. The
contracts obligate the seller to deliver, and the purchaser to take, cash to
settle the futures transaction, or to enter into an offsetting contract. No
physical delivery of the securities underlying the index is made on settling
futures obligations.
Upon entering into a Futures transaction, the Fund will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with the
futures commission merchant (the "futures broker"). The initial margin will be
deposited with the Funds's Custodian in an account registered in the futures
broker's name; however the futures broker can gain access to that account only
under specified conditions. As the future is marked to market (that is, as the
value on the Fund's books is changed) to reflect changes in its market value,
subsequent margin payments, called variation margin, will be made to or by the
futures broker on a daily basis.
-5-
<PAGE>
At any time prior to the expiration of the Future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any loss or gain is then realized for tax
purposes. Although Stock Index Futures by their terms call for cash settlement
or delivery of cash, in most cases the obligation is fulfilled by entering into
an offsetting position. All futures transactions are effected through a
clearinghouse associated with the exchange on which to contracts are traded.
o Forward Contracts. The Fund may enter into foreign currency exchange
contracts ("Forward Contracts"), which obligate the seller to deliver and the
purchaser to take a specific amount of foreign currency at a specific future
date for a fixed price. A Forward Contract involves bilateral obligations of one
party to purchase, and another party to sell, a specific currency at a future
date (which may be any fixed number of days from the date of the contract agreed
upon by the parties), at a price set at the time the contract is entered into.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. The Fund
may enter into a Forward Contract in order to "lock in" the U.S. dollar price of
a security denominated in a foreign currency which it has purchased or sold but
which has not yet settled, or to protect against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and a foreign
currency.
There is a risk that use of Forward Contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. To attempt to limit its exposure to loss under Forward
Contracts in a particular foreign currency, the Fund limits its use of these
contracts to the amount of its net assets denominated in that currency or
denominated in a closely-correlated foreign currency. Forward contracts include
standardized foreign currency futures contracts which are traded on exchanges
and are subject to procedures and regulations applicable to other Futures. The
Fund may also enter into a forward contract to sell a foreign currency
denominated in a currency other than that in which the underlying security is
denominated. This is done in the expectation that there is a greater correlation
between the foreign currency of the forward contract and the foreign currency of
the underlying investment than between the U.S. dollar and the foreign currency
of the underlying investment. This technique is referred to as "cross hedging."
The success of cross hedging is dependent on many factors, including the ability
of the Manager to correctly identify and monitor the correlation between foreign
currencies and the U.S. dollar. To the extent that the correlation is not
identical, the Fund may experience losses or gains on both the underlying
security and the cross currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition, although
Forward Contracts limit the risk of loss due to a decline in the value of the
hedged currencies, at the same time they limit any potential gain that might
result should the value of the currencies increase.
There is no limitation as to the percentage of the Fund's assets that may
be committed to foreign currency exchange contracts. The Fund does not enter
into such forward contracts or
-6-
<PAGE>
maintain a net exposure in such contracts to the extent that the Fund would be
obligated to deliver an amount of foreign currency in excess of the value of the
Fund's assets denominated in that currency, or enter into a "cross hedge,"
unless it is denominated in a currency or currencies that the Manager believes
will have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of Covered
Calls and Hedging Instruments" below for a discussion of the tax treatment of
foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when the Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction
("transaction hedge"). The Fund will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar value
of portfolio positions ("position hedge"). In a position hedge, for example,
when the Fund believes that foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency, or when the
Fund believes that the U.S. dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount. In this situation the Fund may, in
the alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Fund believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's Custodian will identify and segregate liquid securities of the
Fund having a value equal to the aggregate amount of the Fund's commitments
under forward contracts to cover its short positions. If the value of the
segregated securities declines, additional cash or securities will be segregated
on a daily basis so that the value of the segregated assets will equal the
amount of the Fund's commitments with respect to such contracts. Unanticipated
changes in currency prices may result in poorer overall performance for the Fund
than if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for
the Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and
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make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the
Fund to sustain losses on these contracts and transactions costs.
At or before the maturity of a Forward Contract requiring the Fund to sell
a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, the Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because Forward Contracts are usually entered
into on a principal basis, no fees or commissions are involved. Because such
contracts are not traded on an exchange, the Fund must evaluate the credit and
performance risk of each particular counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
o Additional Information About Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian, will act
as the Fund's escrow agent, through the facilities of the Options Clearing
Corporation ("OCC"), as to the investments on which the Fund has written options
traded on exchanges or as to other acceptable escrow securities, so that no
margin will be required from the Fund for such transactions. OCC will release
the securities on the expiration of the option or upon the Fund's entering into
a closing transaction. An option position may be closed out only on a market
which provides secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular option.
The Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise by the Fund of puts on securities will cause the sale
of related investments, increasing portfolio turnover. Although such exercise is
within the Fund's control, holding a put might cause
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the Fund to sell the related investments for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each time it
buys a put or call, sells a call, or buys or sells an underlying investment in
connection with the exercise of a put or call. Such commissions may be higher
than those which would apply to direct purchases or sales of such underlying
investments. Premiums paid for options are small in relation to the market value
of the related investments, and consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investments.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer, which
would establish a formula price at which the Fund would have the absolute right
to repurchase that OTC option. That formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the extent to which the option is "in-the-money"). When the Fund writes an
OTC option, it will treat as illiquid (for purposes of the limit on its assets
that may be invested in illiquid securities, stated in the Prospectus) the
mark-to-market value of any OTC option held by it unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission ("SEC") is evaluating whether OTC options should be considered liquid
securities, and the procedure described above could be affected by the outcome
of that evaluation.
o Regulatory Aspects of Hedging Instruments. The Fund is required to
operate within certain guidelines and restrictions with respect to its use of
Futures and options on Futures established by the Commodity Futures Trading
Commission ("CFTC"). In particular the Fund is exempted from registration with
the CFTC as a "commodity pool operator" if the Fund complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the
percentage of the Fund's assets that may be used for Futures margin and related
options premiums for a bona fide hedging position. However, under the Rule the
Fund must limit its aggregate initial futures margin and related option premiums
to no more than 5% of the Fund's total assets for hedging strategies that are
not considered bona fide hedging strategies under the Rule. Under the Rule, the
Fund also must use short Futures and Futures options positions solely for "bona
fide hedging purposes" within the meaning and intent of the applicable
provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by each of the option exchanges governing the maximum number of options that may
be written or held by a single investor or group of investors acting in concert,
regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more
exchanges or brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by other entities, including
other investment companies having the same advisor as the Fund, or an advisor
that is an affiliate of the Fund's advisor. Position limits also apply to
Futures. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions. Due to
requirements under the Investment Company Act of 1940 (the "Investment Company
Act"), when the Fund purchases a Future, the Fund will maintain, in a segregated
account or accounts with its Custodian in an amount equal to the market value of
the securities underlying such Future, less the margin deposit applicable to it.
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o Tax Aspects of Covered Calls and Hedging Instruments. The Fund intends
to qualify as a "regulated investment company" under the Internal Revenue Code
(although it reserves the right not to qualify). That qualification enables the
Fund to "pass through" its income and realized capital gains to shareholders
without the Fund having to pay tax on them. This avoids a "double tax" on that
income and capital gains, since shareholders normally will be taxed on the
dividends and capital gains they receive from the Fund (unless the Fund's shares
are held in a retirement account or the shareholder is otherwise exempt from
tax).
Certain foreign currency exchange contracts (Forward Contracts) in which
the Fund may invest are treated as "Section 1256 contracts." Gains or losses
relating to Section 1256 contracts generally are characterized under the
Internal Revenue Code as 60% long-term and 40% short-term capital gains or
losses. However, foreign currency gains or losses arising from certain Section
1256 contracts (including Forward Contracts) generally are treated as ordinary
income or loss. In addition, Section 1256 contracts held by the Fund at the end
of each taxable year are "marked-to market" with the result that unrealized
gains or losses are treated as though they were realized. These contracts also
may be marked-to-market for purposes of the excise tax applicable to investment
company distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt these
transactions from this mark-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may affect the
timing and character of gains (or losses) recognized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position making
up a straddle is allowed only to the extent such loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, generally gains or losses attributable to
fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of foreign currency forward contracts, gains
or losses attributable to fluctuations in the value of a foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. Currency gains and losses
are offset against market gains and losses before determining a net "Section
988" gain or loss under the Internal
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Revenue Code, which may increase or decrease the amount of the Fund's investment
company income available for distribution to its shareholders.
o Risks of Hedging With Options and Futures. In addition to the risks with
respect to options discussed in the Prospectus and above, there is a risk in
using short hedging by selling Futures to attempt to protect against decline in
value of the Fund's portfolio securities (due to an increase in interest rates)
that the prices of such Futures will correlate imperfectly with the behavior of
the cash (i.e., market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject to
distortions due to differences in the natures of those markets. First, all
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures markets depend on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures markets may
cause temporary price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of the Hedging Instruments,
the Fund may use Hedging Instruments in a greater dollar amount than the dollar
amount of securities being hedged if the historical volatility of the prices of
such securities being hedged is more than the historical volatility of the
applicable index. It is also possible that where the Fund has used Hedging
Instruments in a short hedge, the market may advance and the value of securities
held in the Fund's portfolio may decline. If this occurred, the Fund would lose
money on the Hedging Instruments and also experience a decline in value in its
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio of securities will
tend to move in the same direction as the indices upon which the Hedging
Instruments are based.
If the Fund uses Hedging Instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying Futures and/or calls on such Futures or on
securities, it is possible that the market may decline; if the Fund then
concludes not to invest in such securities at that time because of concerns as
to possible further market decline or for other reasons, the Fund will realize a
loss on the Hedging Instruments that is not offset by a reduction in the price
of the securities purchased.
o Borrowing for Leverage. From time to time, the Fund may increase its
ownership of securities by borrowing from banks on an unsecured basis and
investing the borrowed funds, subject to the restrictions stated in the
Prospectus. Any such borrowing will be made only from banks, and, pursuant to
the requirements of the Investment Company Act of 1940 (the "Investment Company
Act"), will only be made 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
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value of the Fund's assets, when computed in that manner, should fail to meet
the 300% asset coverage requirement, the Fund is required within three days to
reduce its bank debt to the extent necessary to meet that requirement. To do so,
the Fund may have to sell a portion of its investments at a time when
independent investment judgment would not dictate such sale. Interest on money
borrowed is an expense the Fund would not otherwise incur, so that during
periods of substantial borrowings, its expenses may increase more than funds
that do not borrow.
o U.S. Government Securities. U.S. Government Securities are debt
obligations issued or guaranteed by the U.S. Government or one of its agencies
or instrumentalities, and include "zero coupon" Treasury securities,
mortgage-backed securities and money market instruments.
o GNMA Certificates. Certificates of Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence an
undivided interest in a pool or pools of mortgages ("GNMA Certificates"). The
GNMA Certificates that the Fund may purchase are of the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to the "issuer"
and GNMA, regardless of whether the mortgagor actually makes the payments.
The National Housing Act authorizes GNMA to guarantee the timely payment
of principal and interest on securities backed by a pool of mortgages insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and credit
of the U.S. Government. GNMA is also empowered to borrow without limitation from
the U.S. Treasury if necessary to make any payments required under its
guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the Fund has
purchased the certificates at a premium in the secondary market.
o FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established to create a secondary market in mortgages insured by the FHA. FNMA
issues guaranteed mortgage pass-through certificates ("FNMA Certificates"). FNMA
Certificates resemble GNMA Certificates in that each FNMA Certificate represents
a pro rata share of all interest and principal payments made and owed on the
underlying pool. FNMA guarantees timely payment of interest and principal on
FNMA Certificates. The FNMA guarantee is not backed by the full faith and credit
of the U.S. Government.
o FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created to promote development of a nationwide secondary market for
conventional residential mortgages. FHLMC issues two types of mortgage
pass-through certificates ("FHLMC Certificates"): mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all
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interest and principal payments made and owed on the underlying pool. FHLMC
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal. The FHLMC guarantee is not backed by the full faith and credit of the
U.S. Government.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years. The FHLMC guarantee is not backed by the full faith and
credit of the U.S. Government.
o Mortgage-Backed Security Rolls. The Fund may enter into "forward roll"
transactions with respect to mortgage-backed securities issued by GNMA, FNMA or
FHLMC. In a forward roll transaction, which is considered to be a borrowing by
the Fund, the Fund will sell a mortgage security to a bank or other permitted
entity and simultaneously agree to repurchase a similar security from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories than those sold. Risks of mortgage-backed security rolls
include: (i) the risk of prepayment prior to maturity, (ii) the possibility that
the Fund may not be entitled to receive interest and principal payments on the
securities sold and that the proceeds of the sale may have to be invested in
money market instruments (typically repurchase agreements) maturing not later
than the expiration of the roll, and (iii) the possibility that the market value
of the securities sold by the Fund may decline below the price at which the Fund
is obligated to purchase the securities. Upon entering into a mortgage-backed
security roll, the Fund will be required to identify liquid securities to its
Custodian in an amount equal to its obligation under the roll.
o Foreign Securities. "Foreign securities" include equity and debt
securities of companies organized under the laws of countries other than the
United States and debt securities of foreign governments that are traded on
foreign securities exchanges or in the foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations, because they are not subject to many of
the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Investing in foreign securities offers the Fund potential benefits not
available from investing solely in securities of domestic issuers, such as the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. In buying foreign securities, the Fund may convert U.S. dollars into
foreign currency, but only to effect securities transactions on foreign
securities exchanges and not to hold such currency as an investment. If the
Fund's portfolio securities are held abroad, the countries in which they may be
held and the sub-custodians holding them must be approved by the Fund's Board of
Trustees where required under applicable rules of the Securities and Exchange
Commission. In buying foreign securities, the Fund may convert U.S. dollars into
foreign currency, but only to effect securities transactions on foreign
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securities exchanges and not to hold such currency as an investment.
o Risks of Foreign Investing. Investing in foreign securities involves
considerations and possible risks not typically associated with investing in
securities in the U.S. The values of foreign securities will be affected by
changes in currency rates or exchange control regulations or currency blockage,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the U.S. or
abroad) or changed circumstances in dealings between nations. There may be a
lack of public information about foreign issuers. Foreign countries may not have
financial reporting, accounting and auditing standards comparable to those that
apply to U.S. issuers. Costs will be incurred in connection with conversions
between various currencies. Foreign brokerage commissions are generally higher
than commissions in the U.S., and foreign securities markets may be less liquid,
more volatile and less subject to governmental regulation than in the U.S. They
may have increased delays in setting portfolio transactions. Investments in
foreign countries could be affected by other factors not generally thought to be
present in the U.S., including expropriation or nationalization, confiscatory
taxation and potential difficulties in enforcing contractual obligations, and
could be subject to extended settlement periods.
o Illiquid and Restricted Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the Fund
may have to cause those securities to be registered. The expenses of
registration of restricted securities may be negotiated by the Fund with the
issuer at the time such securities are purchased by the Fund, if such
registration is required before such securities may be sold publicly. When
registration must be arranged because the Fund wishes to sell the security, a
considerable period may elapse between the time the decision is made to sell the
securities and the time the Fund would be permitted to sell them. The Fund would
bear the risks of any downward price fluctuation during that period. The Fund
may also acquire, through private placements, securities having contractual
restrictions on their resale, which might limit the Fund's ability to dispose of
such securities and might lower the amount realizable upon the sale of such
securities. Illiquid securities include repurchase agreements maturing in more
than seven days, or certain participation interests other than those with puts
exercisable within seven days.
The Fund has percentage 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 pursuant to Rule 144A under the Securities Act of 1933,
provided that those securities have been determined to be liquid by the Board of
Trustees of the Fund or by the Manager under Board-approved guidelines. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
o Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Repurchase
transactions are not considered "loans" for the purpose of the Fund's limit on
the percentage of its assets that can be loaned. Under applicable regulatory
requirements (which are subject to change), the loan collateral on each business
day must at least equal the value of the loaned securities and must consist of
cash, bank letters of credit or securities of the U.S. Government (or its
agencies or instrumentalities). To be acceptable as
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collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the issuing
bank must be satisfactory to the Fund. In a portfolio securities lending
transaction, the Fund receives from the borrower an amount equal to the interest
paid or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any finders',
administrative or other fees the Fund pays in connection with the loan. 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.
o Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated redemptions, or
pending the investment of the proceeds from the sale of fund shares, or pending
settlement of purchases of portfolio securities. In a repurchase transaction,
the Fund acquires a security from, and simultaneously resells it to, an approved
vendor. An "approved vendor" is a U.S. commercial bank or the U.S. branch of a
foreign bank or a broker-dealer which has been designated a primary dealer in
government securities, which must meet the credit requirements set by the Fund's
Board of Trustees from time to time. The repurchase price exceeds the purchase
price by an amount that reflects an agreed-upon interest rate effective for the
period during which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to the resale typically
will occur within one to five days of the purchase. Repurchase agreements are
considered "loans" under the Investment Company Act, collateralized by the
underlying security. The Fund's repurchase agreements require that at all times
while the repurchase agreement is in effect, the value of the collateral must
equal or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness requirements
to confirm that the vendor is financially sound and will continuously monitor
the collateral's value.
o Temporary Defensive Investments. When the equity markets in general are
declining, the Fund may commit an increasing portion of its assets to defensive
securities. These may include the types of securities described in the
Prospectus. When investing for defensive purposes, the Fund will normally
emphasize investment in short-term debt securities (that is, securities maturing
in one year or less from the date of purchase), since those types of securities
are generally more liquid and usually may be disposed of quickly without
significant gains or losses so that the Manager may have liquid assets when it
wishes to make investments in securities for appreciation possibilities.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. The
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following are fundamental policies, and together with the Fund's fundamental
policies described in the Prospectus, cannot be changed without the vote of a
"majority" of the Fund's outstanding voting securities. Such a "majority" vote
is defined, under the Investment Company Act, as the vote of the holders of the
lesser of: 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 more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
o Invest in companies for the purpose of acquiring control or management
thereof; o Invest in commodities or commodities contracts other than the hedging
instruments permitted by any of its other fundamental policies, whether or not
any such hedging instrument is considered to be a commodity or a commodity
contract;
o Invest in real estate or in interests in real estate, but the Fund may
purchase readily marketable securities of companies holding real estate or
interests therein;
o Purchase securities on margin; however, the Fund may make margin
deposits in connection with any of the hedging instruments permitted by any of
its other fundamental policies;
o Lend money, but the Fund may invest in all or a portion of an issue of
bonds, debentures, commercial paper, or other similar corporate obligations of
the types that are usually purchased by institutions, whether or not publicly
distributed; the Fund may also make loans of portfolio securities, subject to
the percentage restrictions set forth in the Prospectus under the caption "Loans
of Portfolio Securities";
o Mortgage or pledge any of its assets; however, this does not prohibit
the escrow arrangements contemplated by the writing of covered call options or
other collateral or margin arrangements in connection with any hedging
instruments permitted by any of its other fundamental policies;
o Underwrite securities of other companies, except insofar as the Fund
might be deemed to be an underwriter for purposes of the Securities Act of 1933
in the resale of any securities held in its own portfolio;
o Invest in or hold securities of any issuer if those officers and
Trustees of the Fund or its adviser owning individually more than 5% of the
securities of such issuer together own more than 5% of the securities of such
issuer; or
o Invest in interests in oil, gas or mineral exploration leases or
development programs.
o Non-Fundamental Investment Restrictions. For purposes of the Fund's
policy not to concentrate its investments in any one industry as described in
"Other Investment Restrictions" in the Prospectus, the Fund has adopted the
industry classifications set forth in Appendix A to this Statement of Additional
Information. This is not a fundamental policy.
How the Fund Is Managed
Organization and History. 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
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right, upon the declaration in writing or vote of two-thirds of the outstanding
shares of the Fund, to remove a Trustee. The Trustees will call a meeting of
shareholders to vote on the removal of a Trustee upon the written request of the
record holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been shareholders for
at least six months) holding shares of the Fund valued at $25,000 or more or
holding at least 1% of the Fund's outstanding shares, whichever is less, stating
that they wish to communicate with other shareholders to request a meeting to
remove a Trustee, the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense, or the Trustees may take such other
action as set forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides for
indemnification and reimbursement of expenses out of its property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any shareholder
of the Trust, agrees under the Trust's Declaration of Trust to look solely to
the assets of the Trust for satisfaction of any claim or demand which may arise
out of any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five years are listed below. The address of each Trustee and officer is Two
World Trade Center, New York, New York 10048- 0203, unless another address is
listed below. Ms. Macaskill is not a director of Oppenheimer Money Market Fund,
Inc. Otherwise, all of the Trustees are also trustees of Oppenheimer Fund,
Oppenheimer Global Fund, Oppenheimer Growth Fund, Oppenheimer Discovery Fund,
Oppenheimer Enterprise Fund, Oppenheimer Global Emerging Growth Fund,
Oppenheimer Gold & Special Minerals Fund, Oppenheimer International Growth Fund,
Oppenheimer Municipal Bond Fund, Oppenheimer Money Market Fund, Inc.,
Oppenheimer Capital Appreciation Fund, Oppenheimer New York Municipal Fund,
Oppenheimer California Municipal Fund, Oppenheimer Multi-State Municipal Trust,
Oppenheimer Multiple Strategies Fund, Oppenheimer U.S. Government Trust,
Oppenheimer Developing Markets Fund, Oppenheimer Multi-Sector Income Trust and
Oppenheimer World Bond Fund (collectively the "New York-based Oppenheimer
funds"). Ms. Macaskill and Messrs. Spiro, Bishop, Bowen, Donohue, Farrar and
Zack respectively hold the same offices with the other New York-based
Oppenheimer funds as with the Fund. As of October 17, 1997, the Trustees and
officers of the Fund as a group owned of record or beneficially less than 1% of
the outstanding shares of each class of the Fund. The foregoing statement does
not reflect ownership of shares held of record by an employee benefit plan for
employees of the Manager (for which plan a Trustee and an officer listed below,
Ms. Macaskill and Mr. Donohue, respectively, are trustees), other than the
shares beneficially owned under that
-17-
<PAGE>
plan by the officers of the Fund listed below.
Leon Levy, Chairman of the Board of Trustees; Age: 72
31 West 52nd Street, New York, NY 10019
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: 64
Vice Chairman of OppenheimerFunds, Inc. (the "Manager") (since October 1995);
formerly he held the following positions: Vice President and Counsel of
Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding company;
Executive Vice President, General Counsel and a director of the Manager and
OppenheimerFunds Distributor, Inc. (the "Distributor"), Vice President and a
director of HarbourView Asset Management Corporation ("HarbourView") and
Centennial Asset Management Corporation ("Centennial"), investment adviser
subsidiaries of the Manager, a director of Shareholder Financial Services, Inc.
("SFSI") and Shareholder Services, Inc. ("SSI"), transfer agent subsidiaries of
the Manager and an officer of other Oppenheimer funds.
Benjamin Lipstein, Trustee; Age: 74
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; a director of Sussex Publishers, Inc
(Publishers of Psychology Today and Mother Earth News) and of Spy Magazine, L.P.
Bridget A. Macaskill, President and Trustee;*# Age: 49
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager and Chief Executive Officer
(since September 1995); President and director (since June 1991) of HarbourView;
Chairman and a director of SSI (since August 1994), and SFSI (September 1995);
President (since September 1995) and a director (since October 1990) of OAC;
President (since September 1995) and a director (since November 1989) of
Oppenheimer Partnership Holdings, Inc., a holding company subsidiary of 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 manager subsidiary of the Manager ("OFIL")
and Oppenheimer Millennium Funds plc (since October 1997); President and a
director of other Oppenheimer funds; a director of the NASDAQ Stock Market, Inc.
and of Hillsdown Holdings plc (a U.K. food company); formerly an Executive Vice
President of the Manager.
Elizabeth B. Moynihan, Trustee; Age: 68
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
- --------
*Trustee who is an "interested person" of the Fund.
#Not a Director of Oppenheimer Money Market Fund, Inc.
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<PAGE>
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institution), the Institute of Fine Arts (New York University),
National Building Museum; a member of the Trustees Council, Preservation League
of New York State, and of the Indo-U.S. SubCommission on Education and
Culture.
Kenneth A. Randall, Trustee; Age: 70
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), Texan
Cogeneration Company (cogeneration company), 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: 67
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute , Bard College; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health care
provider); a director of River Bank America (real estate manager); Trustee,
Financial Accounting Foundation (FASB and GASB); formerly New York State
Comptroller and trustee , New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age: 65
8 Sound Shore Drive, Greenwich, Connecticut 06830
Founder Chairman of Russell Reynolds Associates, Inc. (executive recruiting);
Chairman of Directorship Inc. (corporate governance consulting); a director of
Professional Staff Limited (U.K); a trustee of Mystic Seaport Museum,
International House and Greenwich Historical Society
Donald W. Spiro, Vice Chairman and Trustee;* Age: 71
Chairman Emeritus (since August 1991) and a director (since January 1969) of the
Manager; formerly Chairman of the Manager and the Distributor.
Pauline Trigere, Trustee; Age: 84
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and sale of
women's fashions).
Clayton K. Yeutter, Trustee; Age: 66
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*Trustee who is an "interested person" of the Fund.
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<PAGE>
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel , Hogan & Hartson (a law firm); a director of B.A.T. Industries, Ltd.
(tobacco and financial services), Caterpillar, Inc. (machinery), ConAgra, Inc.
(food and agricultural products), Farmers Insurance Company (insurance), FMC
Corp. (chemicals and machinery) and Texas Instruments, Inc. (electronics);
formerly (in descending chronological order) IMC Global Inc. (chemicals and
animal feed), Counsellor to the President (Bush) for Domestic Policy, Chairman
of the Republican National Committee, Secretary of the U.S. Department of
Agriculture, and U.S. Trade Representative.
Andrew J. Donohue, Secretary; Age 47
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President (since September 1993), and a director (since January 1992) of the
Distributor; Executive Vice President, General Counsel and a director of
HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc. since
(September 1995) and MultiSource Services, Inc. (a broker-dealer) (since
December 1995); President and a director of Centennial (since September 1995);
President and a director of Oppenheimer Real Asset Management, Inc. (since July
1996); General Counsel (since May 1996) and Secretary (since April 1997) of OAC;
Vice President of OFIL and Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds.
Jane Putnam, Vice President and Portfolio Manager; Age 36 Vice President of the
Manager (since October 1995); previously a portfolio manager and equity research
analyst for Chemical Bank.
George C. Bowen, Treasurer; Age: 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985) of
the Manager; Vice President (since June 1983) and Treasurer (since March 1985)
of the Distributor ; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView; Senior Vice President (since February 1992),
Treasurer (since July 1991)and a director (since December 1991) of Centennial;
President, Treasurer and a director of Centennial Capital Corporation (since
June 1989); Vice President and Treasurer (since August 1978) and Secretary
(since April 1981) of SSI; Vice President, Treasurer and Secretary of SFSI
(since November 1989); Treasurer of OAC (since June 1990); Treasurer of
Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice President and
Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996); Chief
Executive Officer, Treasurer and a director of MultiSource Services, Inc., a
broker-dealer (since December 1995); an officer of other Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age 49
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of SSI (since May 1985), and SFSI
(since November 1989); Assistant Secretary of Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
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<PAGE>
Robert J. Bishop, Assistant Treasurer; Age: 39
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: 32
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.
o Remuneration of Trustees. The officers of the Fund and certain Trustees
are affiliated with the Manager. They and the Trustees of the Fund (Ms.
Macaskill and Messrs. Galli and Spiro are also officers) who are affiliated with
the Manager receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below from the Fund. The compensation
from the Fund was paid during the fiscal year ended August 31, 1997. The
compensation from all of the New York-based Oppenheimer funds includes the Fund
and is compensation received as a director, trustee, managing general partner or
member of a committee of the Board of those funds during the calendar year 1996.
Retirement
Benefits Total Compensation
Aggregate Accrued as From All
Compensation Part of New York-based
Name and Position From the Fund Fund Expenses OppenheimerFunds(1)
Leon Levy, $10,363 ($14,093) $152,750
Chairman and Trustee
Benjamin Lipstein $6,197 ($8,428) $91,350
Study Committee Chairman,
Audit Committee Member
and Trustee(2)
Elizabeth B. Moynihan $6,197 ($8,428) $91,350
Study Committee Member
and Trustee
Kenneth A. Randall $5,661 ($7,699) $83,450
Audit Committee Chairman
and Trustee
Edward V. Regan $5,302 ($7,210) $78,150
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<PAGE>
Proxy Committee Chairman,
Audit Committee Member
and Trustee
Russell S. Reynolds, Jr. $3,989 ($5,425) $58,800
Proxy Committee Member
and Trustee
Pauline Trigere, Trustee $3,752 ($5,102) $55,300
Clayton K. Yeutter $3,989 ($5,425) $58,800
Proxy Committee Member
and Trustee
- ----------------------
(1)For the fiscal year ended August 31, 1997. (2)Committee position held during
a portion of the period shown.
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.
The Fund has adopted a retirement plan that provides for payment to a
retired Trustee of up to 80% of the average compensation paid during that
Trustee's five years of service in which the highest compensation was received.
A Trustee must serve in that capacity for any of the New York-based Oppenheimer
funds for at least 15 years to be eligible for the maximum payment. Because each
Trustee's retirement benefits will depend on the amount of the Trustee's future
compensation and length of service, the amount of those benefits cannot be
determined at this time, nor can the Fund estimate the number of years of
credited service that will be used to determine those benefits. During the
fiscal year ended August 31, 1997, a reduction of $75,351 was made from the
Fund's projected retirement benefit obligations).
o Major Shareholders. As of October 17, 1997, no person owned of record or
was known by the Fund to own beneficially 5% or more of any class of the Fund's
outstanding shares except Merrill Lynch Pierce Fenner & Smith Inc., 4800 Deer
Lake Drive East, 3rd Floor,
-22-
<PAGE>
Jacksonville, FL 32246-6484, which was the record owner of 72,447.806 Class C
shares (equal to 9.33% of the Class C shares then outstanding).
The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual
Life Insurance Company. OAC is also owned in part by certain of the Manager's
directors and officers, some of whom also serve as officers of the Fund, and two
of whom (Messrs. Galli and Spiro) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to detect
and prevent improper personal trading by certain employees, including portfolio
managers, that would compete with or take advantage of the Fund's portfolio
transactions. Compliance with the Code of Ethics is carefully monitored and
strictly enforced by the Manager.
|X| Portfolio Management. The Portfolio Manager of the Fund is Jane
Putnam, who is principally responsible for the day-to-day management of the
Fund's portfolio. Ms. Putnam's background is described in the Prospectus under
"Portfolio Manager." Other members of the Manager's Equity Portfolio Department,
particularly Robert Doll, provide the Portfolio Manager with counsel and support
in managing the Fund's portfolio.
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 General Distributor's
Agreement are paid by the Fund. The Investment Advisory Agreement lists examples
of expenses paid by the Fund. The major categories relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain printing
and registration costs and non-recurring expenses, including litigation costs.
For the Fund's fiscal year ended December 31, 1995, for the fiscal period ended
August 31, 1996 and the fiscal year ended August 31, 1997, the management fees
paid by the Fund to the Manager were $3,882,505, $3,767,997 and $7,000,537,
respectively.
The Investment Advisory Agreement contains no provision limiting the
Fund's expenses. However, independently of the Investment Advisory Agreement,
the Manager has voluntarily undertaken that the total expenses of the Fund in
any fiscal year (including the management fee but excluding taxes, interest,
brokerage commissions, distribution assistance payments and extraordinary
expenses such as litigation costs) shall not exceed the most stringent expense
limitation imposed under state law applicable to the Fund. Pursuant to the
undertaking, the Manager's fee would be reduced at the end of a month so that
there will not be any accrued but unpaid liability under this
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<PAGE>
undertaking. No expense assumption was made by the Manager during the fiscal
year ended August 31, 1997 under this voluntary expense assumption. Any
assumption of the Fund's expenses under this limitation would have lowered the
Fund's overall expense ratio and increase its total return during any period in
which expenses are limited. Due to changes in federal securities laws, such
state regulatory limitations no longer apply, and the Manager hereby withdraws
this voluntary undertaking.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the Investment Advisory
Agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties thereunder. The
Investment Advisory Agreement permits the Manager to act as investment adviser
for any other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the right of the Fund to use the name "Oppenheimer" as part
of its name may be withdrawn.
o The Distributor. Under its General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A, Class B and Class C shares but is not
obligated to sell a specific number of shares. Expenses normally
attributable to sales, including advertising and the cost of printing and
mailing prospectuses, other than those furnished to existing shareholders, are
borne by the Distributor. During the Fund's fiscal year ended December 31, 1995,
for the fiscal period ended August 31, 1996 and for the fiscal year ended August
31, 1997, the aggregate sales charges on sales of the Fund's Class A shares were
$594,161, $609,225 and $1,798,377, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $190,816, $193,794 and
$539,543 in those respective years. During the Fund's fiscal year ended August
31, 1997, the contingent deferred sales charges collected on the Fund's Class B
shares totaled $29,817 all of which the Distributor retained. During the Fund's
fiscal year ended August 31, 1997, contingent deferred sales charges collected
on the Fund's Class C shares totaled $5,023, all of which the Distributor
retained. 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.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the Investment Advisory Agreement is to arrange the portfolio
transactions for the Fund. The Investment Advisory Agreement contains provisions
relating to the employment of broker-dealers ("brokers") to effect the Fund's
portfolio transactions. In doing so, the Manager is authorized by the advisory
agreement to employ broker-dealers, including "affiliated" brokers, as that term
is defined
-24-
<PAGE>
in the Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at reasonable
expense, the "best execution" (prompt and reliable execution at the most
favorable price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions paid
to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the Investment Advisory Agreement, the Manager is authorized to
select brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would have charged if a good faith determination is
made by the Manager and the commission is fair and reasonable in relation to the
services provided. Subject to the foregoing considerations, the Manager may also
consider sales of shares of the Fund and other investment companies managed by
the Manager or its affiliates as a factor in the selection of brokers for the
Fund's portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Subject to the
provisions of the Investment Advisory Agreement, the procedures and rules
described above, allocations of brokerage are generally made by the Manager's
portfolio traders based upon recommendations from the Manager's portfolio
managers. In certain instances portfolio managers may directly place trades and
allocate brokerage, also subject to the provisions of the advisory agreement and
the procedures and rules described above. In either case, brokerage is allocated
under the supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market are
generally done with principals or market makers. Brokerage commissions are paid
primarily for effecting transactions in listed securities or for certain
fixed-income agency transactions in the secondary market, and are otherwise paid
only if it appears likely that a better price or execution can be obtained. When
the Fund engages in an option transaction, ordinarily the same broker will be
used for the purchase or sale of the option and any transaction in the
securities to which the option relates. When possible, concurrent orders to
purchase or sell the same security by more than one of the accounts managed by
the Manager or its affiliates are combined. The transactions effected pursuant
to such combined orders are averaged as to price and allocated in accordance
with the purchase or sale orders actually placed for each account.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or purchasing
principal or market maker unless it determines that a better price or execution
can be obtained by using a broker. Purchases of these securities from
underwriters include a commission or concession paid by the issuer to the
underwriter. Purchases from dealers include a spread between the bid and asked
prices. The Fund seeks to obtain prompt execution of these orders at the most
favorable net price.
The research services provided by a particular broker may be useful only
to one or more of the advisory accounts of the Manager and its affiliates, and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. Such research,
which may be supplied by a third party at the instance of a broker, includes
information and analyses on particular companies and industries as well as
market or economic
-25-
<PAGE>
trends and portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products and
services. If a research service also assists the Manager in a non-research
capacity (such as bookkeeping or other administrative functions), then only the
percentage or component that provides assistance to the Manager in the
investment decision-making process may be paid for in commission dollars. The
Board of Trustees has permitted the Manager to use concessions on fixed price
offerings to obtain research, in the same manner as is permitted for agency
transactions. The Board has also permitted the Manager to use stated commissions
on secondary fixed-income agency trades to obtain research where the broker has
represented to the Manager that (i) the trade is not from or for the broker's
own inventory, (ii) the trade was executed by the broker on an agency basis at
the stated commissions and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager, by making available additional views for
consideration and comparisons, and by enabling the Manager to obtain market
information for the valuation of securities held in the Fund's portfolio or
being considered for purchase. The Board of Trustees, including the
"independent" Trustees of the Fund (those Trustees of the Fund who are not
"interested persons" as defined in the Investment Company Act, and who have no
direct or indirect financial interest in the operation of the Investment
Advisory Agreement or the Distribution and Service Plans described below)
annually reviews information furnished by the Manager as to the commissions paid
to brokers furnishing such services so that the Board may ascertain whether the
amount of such commissions was reasonably related to the value or benefit of
such services.
During the Fund's fiscal year ended December 31, 1995, for the fiscal
period ended August 31, 1996 and for the fiscal year ended August 31, 1997,
total brokerage commissions paid by the Fund (not including spreads or
concessions on principal transactions on a net trade basis) were $923,800,
$622,523 and $1,106,486, respectively. During the fiscal year ended August 31,
1997, $800,825 was paid to brokers as commissions in return for research
services (including special research, statistical information and execution);
the aggregate dollar amount of those transactions was $529,759,128. The
transactions giving rise to those commissions were allocated in accordance with
the Manager's internal allocation procedures.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to time the
"average annual total return," "cumulative total return," "average annual total
return at net asset value" and "cumulative total return at net asset value" of
an investment in a class of shares of the Fund may be advertised. An explanation
of how these total returns are calculated for each class and the components of
those calculations is set forth below. No performance information is presented
below for Class Y shares because no Class Y shares were publicly offered during
the fiscal year ended August 31, 1997.
The Fund's advertisements of its performance data must, under applicable
rules of the Securities and Exchange Commission, include the average annual
total returns for each advertised class of shares of the Fund for the 1, 5, and
10-year periods (or the life of the class, if less) ending
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<PAGE>
as of the most recently-ended calendar quarter prior to the publication of the
advertisement. This enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number of factors
should be considered before using such information as a basis for comparison
with other investments. An investment in the Fund is not insured; its returns
and share prices are not guaranteed and normally will fluctuate on a daily
basis. When redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of each class of
shares of the Fund are affected by portfolio quality, the type of investments
the Fund holds and its operating expenses allocated to the particular class.
o Average Annual Total Returns. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of
that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
o Cumulative Total Returns. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
described below). For Class B shares, payment of a contingent deferred sales
charge of 5.0% for the first year, 4.0% for the second year, 3.0% for the third
and fourth year, 2.0% for the fifth year and 1.0% for the sixth year, and none
thereafter, is applied as described in the Prospectus. For Class C shares, the
payment of the 1.0% contingent deferred sales charge for the first 12 months is
applied, as described in the prospectus. Class Y shares are not subject to a
sales charge. Total returns also assume that all dividends and capital gains
distributions during the period are reinvested to buy additional shares at net
asset value per share, and that the investment is redeemed at the end of the
period.
The "average annual total returns" on an investment in Class A shares of
the Fund for the one, five and ten year periods ended August 31, 1997, were
32.44%, 19.23% and 13.03%, respectively. The "cumulative total return" on Class
A shares for the ten year period ended August 31, 1997, was 240.42%. During a
portion of the periods for which total returns are shown for Class A shares, the
Fund's maximum initial sales charge rate was higher;
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<PAGE>
as a result, performance returns on actual investments during those periods may
be lower than the results shown. The cumulative total return on Class B shares
of the Fund for the period from November 1, 1995 (the commencement of the
offering of Class B shares) through August 31, 1997 was 54.13%. The average
annual total returns on Class C shares for the period from December 1, 1993,
(the commencement of the offering of Class C shares) through August 31, 1997 and
for the one-year period ended August 31, 1997 were 21.75% and 38.35%,
respectively.
o Total Returns at Net Asset Value. From time to time the Fund may also
quote an average annual total return at net asset value or a cumulative total
return at net asset value for Class A, Class B or Class C shares. Each is based
on the difference in net asset value per share at the beginning and the end of
the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions. The
cumulative total return at net asset value of the Fund's Class A shares for the
ten-year period ended August 31, 1997 was 261.19%. The average annual total
returns at net asset value for the one, five and ten-year periods ended August
31, 1997, for Class A shares were 40.52%, 20.65% and 13.70%, respectively.
The cumulative total return at net asset value for Class B shares for the
period from November 1, 1995 through August 31, 1997 was 58.13%. The average
annual total return at net asset value for Class C shares for the period from
December 1, 1993, through August 31, 1997 and for the one-year period ended
August 31, 1997 were and 39.35% respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B, Class C or Class Y shares. However,
when comparing total return of an investment in Class A, Class B or Class C
shares of the Fund with that of other alternatives, investors should understand
that as the Fund is an aggressive equity fund seeking capital appreciation, its
shares are subject to greater market risks and volatility than shares of funds
having other investment objectives and that the Fund is designed for investors
who are willing to accept greater risk of loss in the hopes of realizing greater
gains.
Other Performance Comparisons. From time to time the Fund may 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 Analytical Services, Inc. ("Lipper") or
Morningstar, Inc. and Lipper is a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated investment
companies, including the Fund, and ranks their performance for various periods
based on categories relating to investment objectives. The performance of the
Fund's classes of shares is ranked against (I) all other funds and (ii) all
other gold-oriented funds. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and income
dividends but do not take sales charges or taxes into consideration.
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,
including the Fund, monthly in broad investment
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categories (domestic stock, international stock, taxable bond, municipal bond
and hybrid) based on risk-adjusted investment return. Investment return measures
a fund's three, five and ten-year average annual total returns (when available)
in excess of 90-day U.S. Treasury bill returns after considering sales charges
and expenses. Risk measures fund performance below 90-day U.S. Treasury bill
monthly returns. Risk and investment return are combined to produce star
rankings reflecting performance relative to the average fund in a fund's
category. Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks
the Fund's Class A, Class B and Class C shares in relation to other equity
funds. Rankings are subject to change.
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 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.
From time to time, the Fund's Manager may publish rankings or ratings of
the Manager (or Transfer Agent) or the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of shareholder/investor
services by third parties may compare the Oppenheimer funds services to those of
other mutual fund families selected by the rating or ranking services, and may
be based upon the opinions of the rating or ranking service itself, using its
own research or judgment, or based upon surveys of investors, brokers,
shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for Class B and Class C shares of the Fund under Rule 12b-1 of
the Investment Company Act pursuant to which the Fund makes payments to the
Distributor quarterly in connection with the distribution and/or servicing of
the shares of that class, as described in the Prospectus. No such Plan has been
adopted for Class Y shares. Each Plan has been approved by a vote of (I) the
Board of Trustees of the Fund, including a majority of the Independent Trustees,
cast in person at a meeting called for the purpose of voting on that Plan, and
(ii) the holders of a "majority" (as defined in the Investment Company Act) of
the shares of each class. For the Distribution and Service Plans for Class B
shares and Class C shares, such votes were cast by the Manager as the sole
initial holder of 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 at no cost to the Fund. The Distributor and
the Manager may,
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in their sole discretion, increase or decrease the amount of payments they make
from their own resources to Recipients.
Unless terminated as described below, each Plan continues in effect from
year to year but only as long as its continuance is specifically approved at
least annually by the Fund's Board of Trustees and its Independent Trustees by a
vote cast in person at a meeting called for the purpose of voting on such
continuance. Each Plan may be terminated at any time by the vote of a majority
of the Independent Trustees or by the vote of the holders of a "majority" (as
defined in the Investment Company Act) of the outstanding shares of that class.
None of the Plans may be amended to increase materially the amount of payments
to be made unless such amendment is approved by shareholders of the Class
affected by the amendment. In addition, because Class B shares 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 the amount to be paid by Class A shareholders
under the Class A Plan. Such approval must be by a "majority" of the Class A and
Class B shares (as defined in the Investment Company Act), voting separately by
class. All material amendments must be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports to the Fund's Board of Trustees at least quarterly on
the amount of all payments made pursuant to each Plan, the purpose for which
each payment was made and the identity of each Recipient that received any
payment. The reports for the Class B and Class C Plans shall also include the
distribution costs for that quarter, and such costs for previous fiscal periods
that have been carried forward, as explained in the Prospectus and below. Those
reports, including the allocations on which they are based, will be subject to
the review and approval of the Independent Trustees in the exercise of their
fiduciary duty. Each Plan further provides that while it is in effect, the
selection and nomination of those Trustees of the Fund who are not "interested
persons" of the Fund is committed to the discretion of the Independent Trustees.
This does not prevent the involvement of others in such selection and nomination
if the final decision on selection or nomination is approved by a majority of
the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any quarter
if the aggregate net asset value of all Fund shares held by the Recipient for
itself and its customers, did not exceed a minimum amount, if any, that may be
determined from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fee at the maximum rate and set no
minimum amount.
The Fund's shareholders approved a new Service Plan for Class A shares,
effective July 1, 1994. Under the old plan, payments were made to a Recipient
only as to Class A shares acquired on or after April 1, 1991. Under the current
Plan, payments are based on the value of all Class A shares, whenever acquired.
The Fund's Board of Trustees has set the annual rate for assets representing
Class A shares of the Fund sold on or after April 1, 1991, at 0.25%, and has set
the annual rate for assets representing Class A shares sold before April 1,
1991, at 0.15% (the Board has authority to increase that rate to no more than
0.25%).
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<PAGE>
For the fiscal year ended August 31, 1997, payments under the Class A Plan
totaled $1,636,360, all of which was paid by the Distributor to Recipients,
including $74,402 paid to MML Investor Services, Inc., an affiliate of the
Distributor. Payments made under the Class B Plan during the fiscal year ended
August 31, 1997 totaled $235,392, of which $152,304 was retained by the
Distributor. Payments made under the Class C Plan during that fiscal period
totaled $194,401, including $2,597 paid to MML Investor Services, Inc. and
$98,687 which was retained by the Distributor.
Any unreimbursed expenses incurred by the Distributor with respect to
Class A shares for any fiscal year may not be recovered in subsequent years.
Payments received by the Distributor under the Plan for Class A shares will not
be used to pay any interest expense, carrying charge, or other financial costs,
or allocation of overhead by the Distributor. The Class B and Class C Plans
allow the service fee payment to be paid by the Distributor to Recipients in
advance for the first year such shares are outstanding, and thereafter on a
quarterly basis, as described in the Prospectus. The advance payment is based on
the net asset value of the shares sold. An exchange of shares does not entitle
the Recipient to an advance service fee payment. In the event Class B or Class C
shares are redeemed during the first year that the shares are outstanding, the
Recipient will be obligated to repay a pro rata portion of the advance payment
for those shares to the Distributor.
Although the Class B and Class C Plans permit the Distributor to retain
both the asset-based sales charges and the service fees on Class B and Class C
shares, or to pay Recipients the service fee on a quarterly basis without
payment in advance, the Distributor presently intends to pay the service fee to
Recipients in the manner described above. A minimum holding period may be
established from time to time under the Class B and Class C Plans by the Board.
Initially, the Board has set no minimum holding period. All payments under the
Class B and Class C Plans are subject to the limitations imposed by the Conduct
Rules of the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees.
The Class C Plan allows for the carry-forward of distribution expenses, to
be recovered from asset-based sales charges in subsequent fiscal periods, as
described in the Prospectus. The asset-based sales charge paid to the
Distributor by the Fund under the Class C Plan is intended to allow the
Distributor to recoup the cost of sales commissions paid to authorized brokers
and dealers at the time of sale, plus financing costs, as described in the
Prospectus. Such payments may also be used to pay for the following expenses in
connection with the distribution of Class C shares: (I) financing the advance of
the service fee payment to Recipients under the Class C Plan, (ii) compensation
and expenses of personnel employed by the Distributor to support distribution of
Class C shares, and (iii) costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders) and state
"blue sky" registration fees.
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ABOUT YOUR 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 an investor to choose the
method of purchasing shares that is more beneficial to the investor depending on
the amount of the purchase, the length of time the investor expects to hold
shares and other relevant circumstances. Investors should understand that the
purpose and function of the deferred sales charge and asset-based sales charge
with respect to Class B and Class C shares are the same as those of the initial
sales charge with respect to Class A shares. Any salesperson or other person
entitled to receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other. The Distributor
normally will not accept any order for $500,000 or more of Class B shares or $1
million or more of Class C shares on behalf of a single investor (not including
dealer "street name" or omnibus accounts) because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund instead.
The fourth class of shares may be purchased only be certain institutional
investors at net asset value per share (the "Class Y shares").
The four classes of shares each represent an interest in the same portfolio
investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B and Class C
shares and the dividends payable on Class B and Class C shares will be reduced
by incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B and Class C shares are subject.
The conversion of Class B shares to Class A shares after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event for
the holder under Federal income tax law. If such a revenue ruling or opinion is
no longer available, the automatic conversion feature may be suspended, in which
event no further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the holder, and absent such exchange, Class B shares might continue to
be subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C 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 assets, and then
equally to each outstanding share within a given class. Such general expenses
include (I) management fees, (ii) legal, bookkeeping and audit fees, (iii)
printing and mailing costs of shareholder reports, Prospectuses, Statements of
Additional Information and other materials for current shareholders, (iv) fees
to Independent Trustees, (v) custodian expenses, (vi) share issuance costs,
(vii) organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to
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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 that the Exchange is open, by dividing the value of the Fund's net assets
attributable to that Class by the number of shares of that class that are
outstanding. The Exchange normally closes at 4:00 P.M. New York time, but may
close earlier on some days (for example, in case of weather emergencies or days
falling before a holiday). The Exchange's most recent annual holiday schedule
(which is subject to change) states that it will close on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days. The Fund
may invest a portion of its assets in foreign securities primarily listed on
foreign exchanges which may trade on Saturdays or customary U.S. business
holidays on which the Exchange is closed. Because the Fund's price and net asset
value will not be calculated on those days, the Fund's net asset values per
share of Class A, Class B and Class C shares of the Fund may be significantly
affected of days when shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the valuation
of the Fund's securities, generally as follows: (I) equity securities traded on
a securities exchange or on the Automated Quotation System ("NASDAQ") of the
Nasdaq Stock Market, Inc. for which last sale information is regularly reported
are valued at the last reported sale price on their primary exchange or NASDAQ
that day (or, in the absence of sales that day, at values based on the last sale
price of the preceding trading day, or closing bid and asked prices that day);
(ii) securities traded on a foreign securities exchange are valued generally at
the last sales price available to the pricing service approved by the Fund's
Board of Trustees or to the Manager as reported by the principal exchange on
which the security is traded at its last trading session on or immediately
preceding the valuation date, or at the mean between "bid" and "asked" prices
obtained from the principal exchange or two active market makers in the security
on the basis of reasonable inquiry; (iii) long-term debt securities having a
remaining maturity in excess of 60 days are valued based on the mean between the
"bid" and "asked" prices determined by a portfolio pricing service approved by
the Fund's Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry; (iv) debt instruments
having a maturity of more than 397 days when issued, and non-money market type
instruments having a maturity of 397 days or less when issued, which have a
remaining maturity of 60 days or less are valued at the mean between "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry; (v) money market-type debt
securities held by a non-money market fund that had a maturity of less than 397
days when issued that have a remaining maturity of 60 days or less , and debt
instruments held by a money market fund that have a remaining maturity of 397
days or less, shall be valued at cost, adjusted for amortization of premiums and
accretion of discounts; and (vi) securities (including restricted securities)
not having readily-available market quotations are valued at fair value
determined under the Board's procedures. If the Manager is unable to locate two
market makers
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<PAGE>
willing to give quotes (see (ii), (iii) and (iv) above), the security may be
priced at the mean between the "bid" and "asked" prices provided by a single
active market maker (which in certain cases may be the "bid" price if no "asked"
price is available).
In the case of U.S. Government Securities and mortgage-backed securities,
where last sale information is not generally available, such pricing procedures
may include "matrix" comparisons to the prices for comparable instruments on the
basis of quality, yield, maturity and other special factors involved. The
Manager may use pricing services approved by the Board of Trustees to price any
of the types of securities described above to price U.S. Government Securities,
mortgage-backed securities, foreign government securities and corporate bonds.
The Manager will monitor the accuracy of such pricing services, which may
include comparing prices used for portfolio evaluation to actual sales prices of
selected securities.
Trading in securities on European and Asian exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange.
Events affecting the values of foreign securities traded in securities markets
that occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the Fund's calculation of net asset
value unless the Board of Trustees or the Manager, under procedures established
by the Board of Trustees, determines that the particular event is likely to
effect a material change in the value of such security. Foreign currency,
including forward contracts, will be valued at the closing price in the London
foreign exchange market that day as provided by a reliable bank, dealer or
pricing service. The values of securities denominated in foreign currency will
be converted to U.S. dollars at the closing price in the London foreign exchange
market that day as provided by a reliable bank, dealer or pricing service.
Puts, calls and Futures are valued at the last sales price on the
principal exchange on which they are traded, or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing bid and
asked prices on the principal exchange or on NASDAQ on the valuation date, or,
if not, value shall be the closing bid price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between bid and asked
prices obtained by the Manager from two active market makers (which in certain
cases may be the bid price if no asked price is available).
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25.00. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House transfer to
buy the shares. Dividends will begin to accrue on shares purchased by the
proceeds of ACH transfers on the business day the Fund receives Federal Funds
for such purchase through the ACH system before the close of The New York Stock
Exchange. The Exchange normally closes at 4:00 P.M.; but may close earlier on
certain days.
If Federal Funds are received on a business day after the close of the
Exchange, the shares will be purchased and dividends will begin to accrue on the
next regular business day. The proceeds of ACH transfers are normally received
by the Fund 3 days after the ACH transfer is initiated. The Distributor and the
Fund are not responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.
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<PAGE>
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in the Prospectus
because the Distributor or dealer or broker incurs little or no selling
expenses. The term "immediate family" refers to one's spouse, children,
grandchildren, grandparents, parents, parents-in- law, brothers and sisters,
sons- and daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews.
o The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-distributor and include
the following:
Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California
Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer Discovery Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Multiple Strategies Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth
Fund
Oppenheimer International Growth Fund
Oppenheimer Enterprise Fund
Oppenheimer Bond Fund for Growth
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Growth Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government
Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Developing Markets Fund
Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund
Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Growth & Income Value
Fund
Oppenheimer Real Asset Fund
Rochester Fund Municipals
Limited Term New York Municipal Fund
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
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<PAGE>
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation 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 contingent deferred sales charge).
o Letters of Intent. A Letter of Intent (referred to as a "Letter") is an
investor's statement in writing to the Distributor of the intention to purchase
Class A shares of the Fund (and Class A and Class B shares of 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 (including the sales charge) that
applies to a single lump-sum purchase of shares in the amount intended to be
purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of Intent
period, when added to the value (at offering price) of the investor's holdings
of shares on the last day of that period, do not equal or exceed the intended
purchase amount, the investor agrees to pay the additional amount of sales
charge applicable to such purchases, as set forth in "Terms of Escrow," below
(as those terms may be amended from time to time). The investor agrees that
shares equal in value to 5% of the intended 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.
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If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
purchases. If total eligible purchases during the Letter of Intent period exceed
the intended purchase amount and exceed the amount needed to qualify for the
next sales charge rate reduction set forth in the applicable prospectus, the
sales charges paid will be adjusted to the lower rate, but only if and when the
dealer returns to the Distributor the excess of the amount of commissions
allowed or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the Distributor
will be used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the public offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. Such sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If such
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer
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Agent as attorney-in-fact to surrender for redemption any or all escrowed
shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include (a) Class A shares
sold with a front-end sales charge or subject to a Class A contingent deferred
sales charge, (b) Class B shares acquired subject to a contingent deferred sales
charge, and (c) Class A or B shares acquired in exchange for either (I) Class A
shares of one of the other Oppenheimer funds that were acquired subject to a
Class A initial or contingent deferred sales charge or (ii) Class B shares of
one of the other Oppenheimer funds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares," and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank account, a
check (minimum $25) for the initial purchase must accompany the application.
Shares purchased by Asset Builder Plan payments from bank accounts are subject
to the redemption restrictions for recent purchases described in "How To Sell
Shares," in the Prospectus. Asset Builder Plans also enable shareholders of
Oppenheimer Cash Reserves to use those accounts for monthly automatic purchases
of shares of up to four other Oppenheimer funds. If you make payments from your
bank account to purchase shares of the Fund, your bank account will be
automatically debited normally four to five business days prior to the
investment dates selected in the Account Application. Neither the Distributor
the Transfer Agent nor the Fund shall be responsible for any delays in
purchasing shares resulting from delays in ACH transmission.
There is a front-end sales charge on the purchase of certain Oppenheimer
funds, or a contingent deferred sales charge may apply to shares purchased by
Asset Builder payments. An application should be obtained from the Distributor,
completed and returned, and a prospectus of the selected fund(s) should be
obtained from the Distributor or your financial advisor before initiating Asset
Builder payments. The amount of the Asset Builder investment may be changed or
the automatic investments may be terminated at any time by writing to the
Transfer Agent. A reasonable period (approximately 15 days) is required after
the Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans at any
time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Retirement Plans. In describing certain types of employee benefit
plans that may purchase
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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.
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 Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Trustees of the Fund may determine that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment of a
redemption order wholly or partly in cash. In that case the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of
securities from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. The Fund has elected
to be governed by Rule 18f-1 under the Investment Company Act, pursuant to which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any
one shareholder. If shares are redeemed in kind, the redeeming shareholder might
incur brokerage or other costs in selling the securities for cash. The method of
valuing securities used to make redemptions in kind will be the same as the
method the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be made as
of the time the redemption price is determined.
o Involuntary Redemptions. The Fund's Board of Trustees has the right to
cause the involuntary redemption of the shares held in any account if the
aggregate net asset value of those shares is less than $200 or such lesser
amount as the Board may fix. The Board of Trustees will not cause the
involuntary redemption of shares in an account if the aggregate net asset value
of the shares has fallen below the stated minimum solely as a result of market
fluctuations. Should the Board elect to exercise this right, it may also fix, in
accordance with the Investment Company Act, the requirements for any notice to
be given to the shareholders in question (not less than 30 days), or the Board
may set requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would not be
involuntarily redeemed.
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<PAGE>
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (I) Class A shares that you
purchase subject to an initial sales charge or Class A contingent deferred sales
charge, which was paid or (ii) Class B shares subject to the Class B contingent
deferred sales charge when you redeemed them. This privilege does not apply to
Class C shares or Class Y shares. The reinvestment may be made without sales
charge only in Class A shares of the Fund or any of the other Oppenheimer funds
into which shares of the Fund are exchangeable as described in "How to Exchange
Shares" below, at the net asset value next computed after the Transfer Agent
receives the reinvestment order. The shareholder must ask the Distributor for
such privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter any
capital gains tax payable on that gain. If there has been a capital loss on the
redemption, some or all of the loss may not be tax deductible, depending on the
timing and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer funds within 90
days of payment of the sales charge, the shareholder's basis in the shares of
the Fund that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the redemption.
However, in that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds. The Fund may amend,
suspend or cease offering this reinvestment privilege at any time as to shares
redeemed after the date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of any class at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute assignment,
gift or bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the contingent deferred sales charge,
calculated as if the transferee shareholder had acquired the transferred shares
in the same manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not all shares
in the account would be subject to a contingent deferred sales charge if
redeemed at the time of transfer, the priorities described in the Prospectus
under "How to Buy Shares" for the imposition of the Class B or Class C
contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds- sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans, or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (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 an account in their own name) in OppenheimerFunds-sponsored
prototype pension, 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
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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 if the Distributor receives a
repurchase order from a dealer or broker after the close of the Exchange on a
regular business day, it will be processed at that day's net asset value if the
order was received by the dealer or broker from its customers prior to the time
the Exchange closes (normally 4:00 P.M., but it 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 signature(s)
of the registered owners guaranteed on the redemption document as described in
the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(minimum $50) automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Withdrawal Plan. Shares will be redeemed three business days
prior to the date requested by the shareholder for receipt of the payment.
Automatic withdrawals of up to $1,500 per month may be requested by telephone if
payments are to be made by check payable to all shareholders of record and sent
to the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How to Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the OppenheimerFunds
New Account Application or signature-guaranteed instructions. Shares are
normally redeemed pursuant to an Automatic Withdrawal Plan three business days
before the date you select in the Account Application. If a contingent deferred
sales charge applies to the redemption, the amount of the check or payment will
be reduced accordingly. The Fund cannot guarantee receipt of a payment on the
date requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred sales
charge on such withdrawals (except where the Class B or Class C contingent
deferred sales charge is waived as described in the Prospectus under "Waivers of
Class B and Class C Sales Charges").
-41-
<PAGE>
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated below as
well as the Prospectus. These provisions may be amended from time to time by the
Fund and/or the Distributor. When adopted, such amendments will automatically
apply to existing Plans.
o Automatic Exchange Plans. Shareholders can authorize the Transfer Agent
(on the OppenheimerFunds Application or signature-guaranteed instructions) to
exchange a pre-determined amount of shares of the Fund for shares (of the same
class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Exchanges made under
these plans are subject to the restrictions that apply to exchanges as set forth
in "How to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
o Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment. It may not be desirable to purchase additional Class A shares while
making automatic withdrawals because of the sales charges that apply to
purchases when made. Accordingly, a shareholder normally may not maintain an
Automatic Withdrawal Plan while simultaneously making regular purchases of Class
A shares.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent. Neither the
Fund nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or omitted by the Transfer Agent in good faith to administer the
Plan. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Transfer Agent will credit all such shares to the
account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made at
the net asset value per share determined on the redemption date. Checks or
AccountLink payments of the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment (receipt of payment on the date selected cannot be guaranteed),
according to the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the address to
which checks are
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<PAGE>
to be mailed or AccountLink payments are to be sent may be changed at any time
by the Planholder by writing to the Transfer Agent. The Planholder should allow
at least two weeks' time in mailing such notification for the requested change
to be put in effect. The Planholder may, at any time, instruct the Transfer
Agent by written notice (in proper form in accordance with the requirements of
the then-current Prospectus of the Fund) to redeem all, or any part of, the
shares held under the Plan. In that case, the Transfer Agent will redeem the
number of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a check for
the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to the
Transfer Agent. A Plan may also be terminated at any time by the Transfer Agent
upon receiving directions to that effect from the Fund. The Transfer Agent will
also terminate a Plan upon receipt of evidence satisfactory to it of the death
or legal incapacity of the Planholder. Upon termination of a Plan by the
Transfer Agent or the Fund, shares that have not been redeemed from the account
will be held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend- reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the Class A shares in certificated form.
Share certificates are not issued for Class B or Class C shares. Upon written
request from the Planholder, the Transfer Agent will determine the number of
Class A shares for which a certificate may be issued without causing the
withdrawal checks to stop because of exhaustion of uncertificated shares needed
to continue payments. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of the Oppenheimer funds that
have a single class without a class designation are deemed "Class A" shares for
this purpose. Shares of Oppenheimer funds that have a single Class without a
Class designation are deemed "Class A" shares for this purpose. All of the
Oppenheimer funds offer Class A, Class B and Class C shares except Oppenheimer
Money Market Fund, Inc., Centennial Money Market Trust, Centennial Tax Exempt
Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Centennial America Fund, L.P., and Daily
Cash Accumulation Fund, Inc., which only offer Class A shares and Oppenheimer
Main Street California Tax-Exempt Fund which only offers Class A and Class B
shares, (Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds sponsored 401(k) plans). A current list
showing which funds offer which class can be obtained by calling the Distributor
at 1-800-525-7048.
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<PAGE>
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Bond Fund for Growth, Class M shares can be exchanged only for
Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Bond Fund for Growth are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange from Class M shares. Otherwise no exchanges of any class of
any Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge (or, if applicable, may be
used to purchase shares of Oppenheimer funds subject to a contingent deferred
sales charge).
Shares of this Fund acquired by reinvestment of dividends or distributions
from any other of the Oppenheimer funds (except Oppenheimer Cash Reserves) or
from any unit investment trust for which reinvestment arrangements have been
made with the Distributor may be exchanged at net asset value for shares of any
of the Oppenheimer funds.
No contingent deferred sales charge is imposed on exchanges of shares of
either class purchased subject to a contingent deferred sales charge. However,
shares of Oppenheimer Money Market Fund, Inc. purchased with the redemption
proceeds of shares of other mutual funds (other than funds managed by the
Manager or its subsidiaries) redeemed within the 12 months prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for that privilege, the investor or the
investor's dealer must notify the Distributor of eligibility for this privilege
at the time the shares of Oppenheimer Money Market Fund, Inc. are purchased,
and, if requested, must supply proof of entitlement to this privilege. 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 of shares 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
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shares available for exchange without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans, Automatic Withdrawal Plans and retirement plan contributions will be
switched to the new account unless the Transfer Agent is instructed otherwise.
If all telephone lines are busy (which might occur, for example, during periods
of substantial market fluctuations), shareholders might not be able to request
exchanges by telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate
transfer of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it (for
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is explained in the
Prospectus under the caption "Dividends, Capital Gains and Taxes." Special
provisions of the Internal Revenue Code govern the eligibility of the Fund's
dividends for the dividends-received deduction for corporate shareholders.
Long-term capital gains distributions are not eligible for the deduction. In
addition, the amount of dividends paid by the Fund which may qualify for the
deduction is limited to the aggregate amount of qualifying dividends (generally
dividends from domestic corporations) which the Fund derives from its portfolio
investments that the Fund has held for a minimum period, usually 46 days. A
corporate shareholder will not be eligible for the deduction on dividends paid
on shares held by the shareholder for 45 days or less. To the extent that the
Fund derives a substantial portion of its gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by
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<PAGE>
checks returned to the Transfer Agent by the Postal Service as undeliverable
will be invested in shares of Oppenheimer Money Market Fund, Inc., as promptly
as possible after the return of such checks to the Transfer Agent, in order to
enable the investor to earn a return on otherwise idle funds.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year, or
else the Fund must pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Fund will meet those requirements, the Fund's
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interest of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed in "Reduced Sales Charges,"
above, at net asset value without sales charge. To elect this option, a
shareholder must notify the Transfer Agent in writing and either have an
existing account in the fund selected for reinvestment or must obtain a
prospectus for that fund and an application from the Transfer Agent to establish
an account. The investment will be made at the net asset value per share in
effect at the close of business on the payable date of the dividend or
distribution. Dividends and/or distributions from certain of the Oppenheimer
funds may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, collecting income on the portfolio securities and handling
the delivery of such securities to and from the Fund. The Manager has
represented to the Fund that the banking relationships between the Manager and
the Custodian have been and will continue to be unrelated to and unaffected by
the relationship between the Fund and the Custodian. It will be the practice of
the Fund to deal with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its affiliates. The
Fund's cash balances with the Custodian in excess of $100,000 are not protected
by Federal deposit insurance. 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.
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INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer Capital Appreciation Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Capital Appreciation Fund (formerly Oppenheimer
Target Fund) as of August 31, 1997, and the related statement of operations for
the year then ended, the statements of changes in net assets for the year then
ended, the eight-month period ended August 31, 1996 and the year ended December
31, 1995, and the financial highlights for the year ended August 31, 1997, the
eight-month period ended August 31, 1996 and for each of the years in the
four-year period ended December 31, 1995. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 1997 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material respects, the
financial position of Oppenheimer Capital Appreciation Fund as of August 31,
1997, the results of its operations for the year then ended, the changes in its
net assets for the year then ended, the eight-month period ended August 31, 1996
and the year ended December 31, 1995, and the financial highlights for the year
ended August 31, 1997, the eight-month period ended August 31, 1996 and for each
of the years in the four-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
September 22, 1997
<PAGE>
STATEMENT OF INVESTMENTS August 31, 1997
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
===============================================================================
<S> <C> <C>
COMMON STOCKS--83.4%
- -------------------------------------------------------------------------------
BASIC MATERIALS--2.8%
- -------------------------------------------------------------------------------
CHEMICALS--2.4%
Dexter Corp. 90,000 $ 3,420,000
- -------------------------------------------------------------------------------
Du Pont (E.I.) De Nemours & Co. 150,000 9,346,875
- -------------------------------------------------------------------------------
Goodrich (B.F.) Co. 84,000 3,538,500
- -------------------------------------------------------------------------------
IMC Global, Inc. 90,000 3,166,875
- -------------------------------------------------------------------------------
Morton International, Inc. 80,000 2,660,000
- -------------------------------------------------------------------------------
Praxair, Inc. 145,400 7,769,812
----------
29,902,062
- -------------------------------------------------------------------------------
METALS--0.4%
Oregon Steel Mills, Inc. 135,200 3,641,950
- -------------------------------------------------------------------------------
USX-U.S. Steel Group, Inc. 50,000 1,756,250
----------
5,398,200
- -------------------------------------------------------------------------------
CONSUMER CYCLICALS--13.4%
- -------------------------------------------------------------------------------
AUTOS & HOUSING--2.9%
Arvin Industries, Inc. 144,900 5,044,331
- -------------------------------------------------------------------------------
Autoliv, Inc. 147,280 5,753,125
- -------------------------------------------------------------------------------
Centex Corp. 160,000 8,700,000
- -------------------------------------------------------------------------------
Furniture Brands International, Inc.(1) 283,400 4,994,925
- -------------------------------------------------------------------------------
Pulte Corp. 150,000 5,493,750
- -------------------------------------------------------------------------------
Toll Brothers, Inc.(1) 290,000 6,235,000
----------
36,221,131
- -------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--2.5%
AMR Corp.(1) 38,000 3,828,500
- -------------------------------------------------------------------------------
Applebee's International, Inc. 97,500 2,486,250
- -------------------------------------------------------------------------------
Callaway Golf Co. 235,800 7,943,512
- -------------------------------------------------------------------------------
Carnival Corp., Cl. A 150,000 6,571,875
- -------------------------------------------------------------------------------
CKE Restaurants, Inc. 98,050 3,162,112
- -------------------------------------------------------------------------------
Delta Air Lines, Inc. 35,000 3,027,500
- -------------------------------------------------------------------------------
Disney (Walt) Co. 64,000 4,916,000
----------
31,935,749
- -------------------------------------------------------------------------------
MEDIA--0.2%
Evergreen Media Corp., Cl. A(1) 65,000 3,111,875
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
<S> <C> <C>
RETAIL: GENERAL--2.4%
Federated Department Stores, Inc.(1) 160,000 $ 6,720,000
- -------------------------------------------------------------------------------
Fruit of the Loom, Inc., Cl. A(1) 70,000 1,872,500
- -------------------------------------------------------------------------------
Jones Apparel Group, Inc.(1) 139,200 6,986,100
- -------------------------------------------------------------------------------
Nautica Enterprises, Inc.(1) 127,000 3,024,187
- -------------------------------------------------------------------------------
Tommy Hilfiger Corp.(1) 280,000 12,215,000
----------
30,817,787
- -------------------------------------------------------------------------------
RETAIL: SPECIALTY--5.4%
American Pad & Paper Co.(1) 44,900 1,032,700
- -------------------------------------------------------------------------------
Ann Taylor Stores Corp..(1) 167,000 2,859,875
- -------------------------------------------------------------------------------
Bed Bath & Beyond, Inc.(1) 200,000 6,200,000
- -------------------------------------------------------------------------------
CVS Corp. 242,000 13,642,750
- -------------------------------------------------------------------------------
Ethan Allen Interiors, Inc. 130,000 9,555,000
- -------------------------------------------------------------------------------
Gap, Inc. (The) 90,000 3,999,375
- -------------------------------------------------------------------------------
Nine West Group, Inc.(1) 245,800 10,385,050
- -------------------------------------------------------------------------------
Ross Stores, Inc. 137,000 4,024,375
- -------------------------------------------------------------------------------
Samsonite Corp.(1) 99,500 3,830,750
- -------------------------------------------------------------------------------
Tiffany & Co. 135,100 6,113,275
- -------------------------------------------------------------------------------
TJX Cos., Inc. 100,000 2,750,000
- -------------------------------------------------------------------------------
Williams-Sonoma, Inc.(1) 83,600 3,741,100
----------
68,134,250
- -------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--11.2%
- -------------------------------------------------------------------------------
FOOD--1.9%
JP Foodservice, Inc.(1) 125,900 3,832,081
- -------------------------------------------------------------------------------
Kroger Co.(1) 200,000 6,025,000
- -------------------------------------------------------------------------------
Richfood Holdings, Inc. 187,500 4,218,750
- -------------------------------------------------------------------------------
Safeway, Inc.(1) 190,000 9,678,125
----------
23,753,956
- -------------------------------------------------------------------------------
HEALTHCARE/DRUGS--2.0%
Amgen, Inc.(1) 40,000 1,982,500
- -------------------------------------------------------------------------------
Biogen, Inc.(1) 70,000 2,756,250
- -------------------------------------------------------------------------------
Lilly (Eli) & Co. 55,000 5,754,375
- -------------------------------------------------------------------------------
Pfizer, Inc. 280,000 15,505,000
----------
25,998,125
</TABLE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE/SUPPLIES & SERVICES--6.3%
Guidant Corp. 95,000 $ 8,342,187
- -------------------------------------------------------------------------------
Gulf South Medical Supply, Inc.(1) 130,000 3,282,500
- -------------------------------------------------------------------------------
HealthCare COMPARE Corp.(1) 188,600 10,514,450
- -------------------------------------------------------------------------------
HEALTHSOUTH Corp.(1) 245,000 6,109,687
- -------------------------------------------------------------------------------
Lincare Holdings, Inc.(1) 214,800 10,243,275
- -------------------------------------------------------------------------------
Medtronic, Inc. 45,000 4,066,875
- -------------------------------------------------------------------------------
Minimed, Inc.(1) 135,000 4,741,875
- -------------------------------------------------------------------------------
Oxford Health Plans, Inc.(1) 100,000 7,312,500
- -------------------------------------------------------------------------------
Renal Treatment Centers, Inc.(1) 241,900 8,194,362
- -------------------------------------------------------------------------------
Sofamor Danek Group, Inc.(1) 70,000 3,355,625
- -------------------------------------------------------------------------------
VISX, Inc.(1) 125,200 2,339,675
- -------------------------------------------------------------------------------
WellPoint Health Networks, Inc.(1) 217,000 11,799,375
----------
80,302,386
- -------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.5%
Blyth Industries, Inc.(1) 162,300 5,994,956
- -------------------------------------------------------------------------------
TOBACCO--0.5%
Philip Morris Cos., Inc. 160,000 6,980,000
- -------------------------------------------------------------------------------
ENERGY--5.9%
- -------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS--3.8%
BJ Services Co.(1) 85,000 6,141,250
- -------------------------------------------------------------------------------
ENSCO International, Inc. 115,000 7,302,500
- -------------------------------------------------------------------------------
Global Marine, Inc.(1) 232,000 6,597,500
- -------------------------------------------------------------------------------
Halliburton Co. 188,200 8,986,550
- -------------------------------------------------------------------------------
Smith International, Inc.(1) 75,000 5,456,250
- -------------------------------------------------------------------------------
Tidewater, Inc. 70,000 3,675,000
- -------------------------------------------------------------------------------
Transocean Offshore, Inc. 30,000 2,851,875
- -------------------------------------------------------------------------------
Varco International, Inc.(1) 165,900 6,594,525
----------
47,605,450
- -------------------------------------------------------------------------------
OIL-INTEGRATED--2.1%
Mobil Corp. 80,000 5,820,000
- -------------------------------------------------------------------------------
Phillips Petroleum Co. 130,000 6,183,125
- -------------------------------------------------------------------------------
Unocal Corp. 135,000 5,273,437
- -------------------------------------------------------------------------------
USX-Marathon Group 270,000 8,791,875
----------
26,068,437
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL--17.0%
- -------------------------------------------------------------------------------
BANKS--5.0%
Banc One Corp. 438,065 $23,491,236
- -------------------------------------------------------------------------------
BankAmerica Corp. 60,000 3,948,750
- -------------------------------------------------------------------------------
BankBoston Corp. 125,000 10,390,625
- -------------------------------------------------------------------------------
First Chicago NBD Corp. 90,000 6,457,500
- -------------------------------------------------------------------------------
Societe Generale 36,000 4,465,943
- -------------------------------------------------------------------------------
SouthTrust Corp. 40,000 1,790,000
- -------------------------------------------------------------------------------
Star Banc Corp. 114,500 5,173,969
- -------------------------------------------------------------------------------
State Street Corp. 160,800 8,019,900
----------
63,737,923
- -------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--8.6%
Associates First Capital Corp., Cl. A 124,000 7,199,750
- -------------------------------------------------------------------------------
Fannie Mae 112,000 4,928,000
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. 220,000 7,163,750
- -------------------------------------------------------------------------------
Finova Group, Inc. 92,600 7,830,487
- -------------------------------------------------------------------------------
Franklin Resources, Inc. 102,000 7,892,250
- -------------------------------------------------------------------------------
Green Tree Financial Corp. 405,000 17,794,687
- -------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 85,000 5,227,500
- -------------------------------------------------------------------------------
MGIC Investment Corp. 171,800 8,643,688
- -------------------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 170,250 8,193,281
- -------------------------------------------------------------------------------
Price (T. Rowe) Associates, Inc. 125,200 6,886,000
- -------------------------------------------------------------------------------
Schwab (Charles) Corp. 100,000 4,243,750
- -------------------------------------------------------------------------------
Travelers Group, Inc. 365,000 23,177,500
-----------
109,180,643
- -------------------------------------------------------------------------------
INSURANCE--3.4%
Allstate Corp. 70,000 5,114,375
- -------------------------------------------------------------------------------
Conseco, Inc. 272,000 11,696,000
- -------------------------------------------------------------------------------
Equitable Cos., Inc. 265,000 11,527,500
- -------------------------------------------------------------------------------
SunAmerica, Inc. 270,000 14,546,250
----------
42,884,125
</TABLE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
<S> <C> <C>
INDUSTRIAL--6.8%
- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.6%
Emerson Electric Co. 140,000 $ 7,656,250
- -------------------------------------------------------------------------------
INDUSTRIAL MATERIALS--0.6%
Rayonier, Inc. 157,700 7,697,731
- -------------------------------------------------------------------------------
INDUSTRIAL SERVICES--1.8%
Corrections Corp. of America(1) 140,000 5,180,000
- -------------------------------------------------------------------------------
Culligan Water Technologies, Inc.(1) 80,500 3,713,063
- -------------------------------------------------------------------------------
Kent Electronics Corp.(1) 291,000 10,894,313
- -------------------------------------------------------------------------------
Manpower, Inc. 85,000 3,628,438
----------
23,415,814
- -------------------------------------------------------------------------------
MANUFACTURING--1.8%
AGCO Corp. 135,300 4,397,250
- -------------------------------------------------------------------------------
American Standard Cos., Inc.(1) 110,000 5,170,000
- -------------------------------------------------------------------------------
Illinois Tool Works, Inc. 102,000 4,934,250
- -------------------------------------------------------------------------------
MascoTech, Inc. 210,000 4,396,875
- -------------------------------------------------------------------------------
Sealed Air Corp.(1) 67,000 3,475,625
----------
22,374,000
- -------------------------------------------------------------------------------
TRANSPORTATION--2.0%
- -------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 42,000 3,850,875
- -------------------------------------------------------------------------------
Canadian Pacific Ltd. (New) 400,000 11,675,000
- -------------------------------------------------------------------------------
Kansas City Southern Industries, Inc. 135,000 10,108,125
----------
25,634,000
- -------------------------------------------------------------------------------
TECHNOLOGY--24.8%
- -------------------------------------------------------------------------------
COMPUTER HARDWARE--7.9%
Adaptec, Inc.(1) 301,900 14,491,200
- -------------------------------------------------------------------------------
Cabletron Systems, Inc.(1) 217,000 6,564,250
- -------------------------------------------------------------------------------
Compaq Computer Corp.(1) 202,500 13,263,750
- -------------------------------------------------------------------------------
Dell Computer Corp.(1) 34,000 2,790,125
- -------------------------------------------------------------------------------
EMC Corp.(1) 255,000 13,084,688
- -------------------------------------------------------------------------------
Gateway 2000, Inc.(1) 331,600 12,973,850
- -------------------------------------------------------------------------------
International Business Machines Corp. 50,000 5,043,750
- -------------------------------------------------------------------------------
Quantum Corp.(1) 70,000 2,454,375
- -------------------------------------------------------------------------------
Seagate Technology, Inc.(1) 372,000 14,205,750
- -------------------------------------------------------------------------------
Sun Microsystems, Inc.(1) 202,000 9,696,000
- -------------------------------------------------------------------------------
Western Digital Corp.(1) 115,000 5,534,375
-----------
100,102,113
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE--7.2%
BMC Software, Inc.(1) 170,600 $10,683,825
- -------------------------------------------------------------------------------
Cap Gemini SA 84,000 5,113,524
- -------------------------------------------------------------------------------
Computer Associates International, Inc. 75,000 5,015,625
- -------------------------------------------------------------------------------
First Data Corp. 245,040 10,061,955
- -------------------------------------------------------------------------------
Gartner Group, Inc., Cl. A(1) 60,000 1,586,250
- -------------------------------------------------------------------------------
HBO & Co. 140,000 10,027,500
- -------------------------------------------------------------------------------
McAfee Associates, Inc.(1) 152,100 8,612,663
- -------------------------------------------------------------------------------
Microsoft Corp.(1) 175,000 23,132,813
- -------------------------------------------------------------------------------
Peoplesoft, Inc.(1) 134,200 7,548,750
- -------------------------------------------------------------------------------
SAP AG, Preference 15,500 3,502,486
- -------------------------------------------------------------------------------
Structural Dynamics Research Corp.(1) 220,000 5,843,750
----------
91,129,141
- -------------------------------------------------------------------------------
ELECTRONICS--3.4%
Analog Devices, Inc.(1) 153,333 5,079,156
- -------------------------------------------------------------------------------
Intel Corp. 117,000 10,778,625
- -------------------------------------------------------------------------------
LSI Logic Corp.(1) 150,000 4,828,125
- -------------------------------------------------------------------------------
Novellus Systems, Inc.(1) 60,800 6,969,200
- -------------------------------------------------------------------------------
SCI Systems, Inc.(1) 221,000 8,688,063
- -------------------------------------------------------------------------------
Vitesse Semiconductor Corp.(1) 132,800 6,258,200
----------
42,601,369
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS-TECHNOLOGY--6.3%
Andrew Corp.(1) 70,500 1,753,688
- -------------------------------------------------------------------------------
Ascend Communications, Inc.(1) 214,100 9,085,869
- -------------------------------------------------------------------------------
Cisco Systems, Inc.(1) 340,000 25,627,500
- -------------------------------------------------------------------------------
Lucent Technologies, Inc. 105,000 8,176,875
- -------------------------------------------------------------------------------
Newbridge Networks Corp.(1) 144,000 6,552,000
- -------------------------------------------------------------------------------
Pairgain Technologies, Inc.(1) 145,000 3,733,750
- -------------------------------------------------------------------------------
Tellabs, Inc.(1) 270,000 16,115,625
- -------------------------------------------------------------------------------
WorldCom, Inc. 305,000 9,130,938
----------
80,176,245
- -------------------------------------------------------------------------------
UTILITIES--1.5%
- -------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.2%
AES Corp. (The)(1) 100,000 3,700,000
- -------------------------------------------------------------------------------
CalEnergy, Inc.(1) 155,000 5,134,375
- -------------------------------------------------------------------------------
Empresa Nacional de Electricidad SA, Sponsored ADR 80,000 1,580,000
- -------------------------------------------------------------------------------
Pinnacle West Capital Corp. 155,000 5,008,438
----------
15,422,813
</TABLE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------
<S> <C> <C>
TELEPHONE UTILITIES--0.3%
Cincinnati Bell, Inc. 120,000 $ 3,232,500
Total Common Stocks (Cost $684,953,425) --------------
1,057,469,031
FACE
AMOUNT
=================================================================================
REPURCHASE AGREEMENTS--16.8%
- ---------------------------------------------------------------------------------
Repurchase agreement with Zion First National Bank, 5.55%, dated 8/29/97, to be
repurchased at $213,031,288 on 9/2/97, collateralized by U.S. Treasury Bonds,
8.125%-12.375%, 5/15/03-8/15/19, with a value of $193,021,710 and U.S. Treasury
Nts., 5.625%, 2/28/01, with a value of $24,380,726 (Cost $212,900,000)
$212,900,000 212,900,000
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $897,853,425) 100.2% 1,270,369,031
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2) (2,639,627)
------------ --------------
NET ASSETS 100.0% $1,267,729,404
============ ==============
</TABLE>
1. Non-income producing security.
See accompanying Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES August 31, 1997
<TABLE>
<S> <C>
================================================================================
ASSETS
Investments, at value (including
repurchase agreements of $212,900,000)
(cost $897,853,425)--see accompanying statement $1,270,369,031
- --------------------------------------------------------------------------------
Receivables:
Shares of beneficial interest sold 2,909,830
Interest and dividends 741,182
- --------------------------------------------------------------------------------
Other 11,589
Total assets --------------
1,274,031,632
================================================================================
LIABILITIES
Bank overdraft 692,502
- --------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 4,796,171
Distribution and service plan fees 357,218
Trustees' fees--Note 1 155,435
Other 300,902
---------
Total liabilities 6,302,228
================================================================================
NET ASSETS $1,267,729,404
==============
================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $ 757,257,794
- --------------------------------------------------------------------------------
Undistributed net investment income 3,088,925
- --------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 134,867,079
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies--Note 3 372,515,606
--------------
Net assets $1,267,729,404
==============
================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$1,179,361,818 and 30,530,051 shares of beneficial interest outstanding) $38.63
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $40.99
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $52,219,689 and
1,371,795 shares of beneficial interest outstanding) $38.07
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $36,147,897 and
957,385 shares of beneficial interest outstanding) $37.76 </TABLE>
See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS For the Year Ended August 31, 1997
<TABLE>
<S> <C>
===============================================================================
INVESTMENT INCOME
Interest $ 9,888,153
- -------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $531) 5,941,853
----------
Total income 15,830,006
===============================================================================
EXPENSES
Management fees--Note 4 7,000,537
- -------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,636,360
Class B 235,392
Class C 194,401
- -------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 1,105,160
- -------------------------------------------------------------------------------
Shareholder reports 377,467
- -------------------------------------------------------------------------------
Custodian fees and expenses 84,034
- -------------------------------------------------------------------------------
Legal and auditing fees 63,618
- -------------------------------------------------------------------------------
Registration and filing fees:
Class A 38,374
Class B 6,203
Class C 2,464
- -------------------------------------------------------------------------------
Other 25,386
----------
Total expenses 10,769,396
===============================================================================
NET INVESTMENT INCOME 5,060,610
===============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments 152,001,499
Foreign currency transactions (199,224)
------------
Net realized gain 151,802,275
- -------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 185,046,905
Translation of assets and liabilities denominated
in foreign currencies (454,785)
------------
Net change 184,592,120
------------
Net realized and unrealized gain 336,394,395
===============================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$341,455,005
============
</TABLE>
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
1997 1996(1) 1995
============================================================================================
<S> <C> <C> <C>
OPERATIONS
Net investment income $ 5,060,610 $ 2,862,338 $ 5,803,306
- --------------------------------------------------------------------------------------------
Net realized gain 151,802,275 75,873,404 71,199,990
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation
or depreciation 184,592,120 11,279,147 58,150,018
-------------- ------------ ------------
Net increase in net assets resulting
from operations 341,455,005 90,014,889 135,153,314
============================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends from net
investment
income:
Class A (4,636,803) -- (5,896,377)
Class B (28,642) -- (8,658)
Class C -- -- (24,850)
- --------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (94,222,488) -- (69,237,207)
Class B (1,584,506) -- (100,605)
Class C (1,485,205) -- (663,926)
============================================================================================
BENEFICIAL INTEREST TRANSACTIONS Net increase (decrease) in net assets resulting
from beneficial interest transactions--Note 2:
Class A 162,027,172 (58,800,845) 397,611,091
Class B 41,048,636 2,415,163 2,840,388
Class C 20,849,794 2,250,436 5,989,404
============================================================================================
NET ASSETS
Total increase 463,422,963 35,879,643 465,662,574
- --------------------------------------------------------------------------------------------
Beginning of period 804,306,441 768,426,798 302,764,224
-------------- ------------ ------------
End of period [including undistributed
(overdistributed) net investment income
of $3,088,925, $2,693,760 and $(168,578),
respectively] $1,267,729,404 $804,306,441 $768,426,798
============== ============ ============
</TABLE>
1. For the eight months ended August 31, 1996. The Fund changed its fiscal year
end from December 31 to August 31.
See accompanying Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
YEAR ENDED AUGUST 31, YEAR ENDED DECEMBER 31,
1997 1996(3) 1995 1994 1993
======================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $30.81 $27.44 $22.63 $25.72 $25.25
- ------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .18 .11 .24 .20 .13
Net realized and unrealized gain (loss) 11.36 3.26 7.61 (.11) .86
------ ------ ------ ------ ------
Total income (loss) from investment
operations 11.54 3.37 7.85 .09 .99
- ------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.17) -- (.24) (.20) (.12)
Distributions from net realized gain (3.55) -- (2.80) (2.98) (.40)
------ ------ ------ ------ ------
Total dividends and distributions to
shareholders (3.72) -- (3.04) (3.18) (.52)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $38.63 $30.81 $27.44 $22.63 $25.72
====== ====== ====== ====== ======
======================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(6) 40.52% 12.28% 34.85%
0.46% 3.93%
======================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $1,179,362 $788,504 $758,439 $301,698 $368,806
- ------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 985,813 $789,903 $538,210 $325,003
$383,875
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) 0.53% 0.55%(7) 1.08% 0.72% 0.47%
Expenses 1.01% 1.09%(7) 1.03% 1.16% 1.07%
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 66.0% 45.2% 71.9% 34.7% 22.9%
Average brokerage commission rate(9) $0.0625 $0.0595 0.0578 -- --
</TABLE>
1. For the period from December 1, 1993 (inception of offering) to December 31,
1993.
2. Per share amounts calculated based on the weighted average number of shares
outstanding during the period.
3. For the eight months ended August 31, 1996. The Fund changed its fiscal year
end from December 31 to August 31.
4. For the period from November 1, 1995 (inception of offering) to December 31,
1995.
5. Less than $0.005 per share.
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
<TABLE>
<CAPTION>
CLASS B CLASS C
- -------- ------------------------------------ --------------------------------------------------
PERIOD
ENDED
YEAR ENDED AUGUST 31 DEC. 31, YEAR ENDED AUGUST 31, YEAR
ENDED DECEMBER 31,
1992 1997 1996(3) 1995(4) 1997 1996(3) 1995 1994(2) 1993(1)
====================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$23.76 $30.56 $27.37 $29.77 $30.27 $27.11 $22.50 $25.72 $25.92
- ----------------------------------------------------------------------------------------------------
.16 .07 --(5) (.14) .01 (.03) .09 -- (.01)
2.28 11.05 3.19 .78 11.03 3.19 7.43 (.15) .31
------ ------ ------ ------ ------ ------ ------ ------ ------
2.44 11.12 3.19 .64 11.04 3.16 7.52 (.15) .30
- ----------------------------------------------------------------------------------------------------
(.17) (.06) -- (.24) -- -- (.11) (.09) (.10)
(.78) (3.55) -- (2.80) (3.55) -- (2.80) (2.98) (.40)
------ ------ ------ ------ ------ ------ ------ ------ ------
(.95) (3.61) -- (3.04) (3.55) -- (2.91) (3.07) (.50)
- ----------------------------------------------------------------------------------------------------
$25.25 $38.07 $30.56 $27.37 $37.76 $30.27 $27.11 $22.50 $25.72
====== ====== ====== ====== ====== ====== ====== ======
======
====================================================================================================
10.27% 39.30% 11.65% 1.67% 39.35% 11.66% 33.56% (0.50)% 2.11%
====================================================================================================
$401,256 $52,220 $5,448 $2,751 $36,148 $10,355 $7,237 $1,066 $8
- ----------------------------------------------------------------------------------------------------
$362,295 $23,678 $4,285 $ 661 $19,508 $ 9,053 $3,792 $ 467 $6
- ----------------------------------------------------------------------------------------------------
0.69% (0.33)% (0.25)%(7) (0.54)%(7) (0.32)% (0.30)%(7) 0.19% (0.02)%
(0.07)%(7)
1.09% 1.86% 1.94%(7) 2.62%(7) 1.85% 1.93%(7) 1.90% 2.18%
2.18%(7)
- ----------------------------------------------------------------------------------------------------
42.3% 66.0% 45.2% 71.9% 66.0% 45.2% 71.9% 34.7% 22.9%
-- $0.0625 $0.0595 $0.0578 $0.0625 $0.0595 $0.0578 -- --
</TABLE>
7. Annualized.
8. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1997 were $575,587,380 and $558,414,051, respectively.
9. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of related
shares purchased and sold. Generally, non-U.S. commissions are lower than U.S.
commissions when expressed as cents per share but higher when expressed as a
percentage of transactions because of the lower per-share prices of many
non-U.S. securities.
See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Appreciation Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to seek
capital appreciation, primarily through investment in equity securities. The
Fund's investment adviser is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All classes of shares have identical rights to
earnings, assets and voting privileges, except that each class has its own
distribution and/or service plan, expenses directly attributable to that class
and exclusive voting rights with respect to matters affecting that class. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount. Forward foreign currency exchange contracts are valued
based on the closing prices of the forward currency contract rates in the London
foreign exchange markets on a daily basis as provided by a reliable bank or
dealer.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on
investments is separately identified from fluctuations arising from changes in
market values of securities held and reported with all other foreign currency
gains and losses in the Fund's Statement of Operations.
================================================================================
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, AND GAINS AND LOSSES. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
August 31, 1997, a credit of $75,351 was made for the Fund's projected benefit
obligations, and payments of $9,051 were made to retired trustees, resulting in
an accumulated liability of $154,735 at August 31, 1997.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of the distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded by
the Fund.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis, which
is the same basis used for federal income tax purposes.
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996(2) DECEMBER 31,
1995(1)
-------------------------- -------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES
AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A:
Sold 8,550,231 $ 291,467,633 2,809,568 $ 83,949,691 3,305,271 $
90,988,885
Dividends and
distributions reinvested 3,066,971 94,554,716 -- -- 2,635,092
71,461,980
Issued in connection
with the acquisition of
Oppenheimer Time
Fund--Note 6 -- -- -- -- 11,277,345 315,314,574
Redeemed (6,683,422) (223,995,177) (4,852,702) (142,750,536) (2,909,180)
(80,154,348)
--------- ------------- ----------- ------------- ----------- ------------
Net increase (decrease) 4,933,780 $ 162,027,172 (2,043,134) $ (58,800,845) 14,308,528
$397,611,091
========= ============= =========== =============
=========== ============
- -----------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,757,393 $ 59,666,544 358,325 $ 10,711,635 107,562 $
3,071,314
Dividends and
distributions reinvested 51,555 1,576,025 -- -- 3,988 107,888
Redeemed (615,428) (20,193,933) (280,568) (8,296,472) (11,032)
(338,814)
--------- ------------- ----------- ------------- ----------- ------------
Net increase 1,193,520 $ 41,048,636 77,757 $ 2,415,163 100,518 $
2,840,388
========= ============= =========== =============
=========== ============
- -----------------------------------------------------------------------------------------------------------------
Class C:
Sold 776,983 $ 26,196,322 152,465 $ 4,501,923 257,084 $
7,022,376
Dividends and
distributions reinvested 45,592 1,381,908 -- -- 22,545 604,205
Redeemed (207,324) (6,728,436) (77,259) (2,251,487) (60,076)
(1,637,177)
--------- ------------- ----------- ------------- ----------- ------------
Net increase 615,251 $ 20,849,794 75,206 $ 2,250,436 219,553 $
5,989,404
========= ============= =========== =============
=========== ============
</TABLE>
1. For the year ended December 31, 1995 for Class A and Class C shares and for
the period from November 1, 1995 (inception of offering) to December 31, 1995
for Class B shares.
2. The Fund changed its fiscal year end from December 31 to August 31.
================================================================================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At August 31, 1997, net unrealized appreciation on investments of $372,515,606
was composed of gross appreciation of $387,767,534, and gross depreciation of
$15,251,928.
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.75% on the first
$200 million of average annual net assets, 0.72% on the next $200 million, 0.69%
on the next $200 million, 0.66% on the next $200 million and 0.60% on average
annual net assets in excess of $800 million. The Manager has voluntarily
undertaken to waive a portion of its management fee, whereby the Fund shall pay
an annual management fee of 0.58% of its average annual net assets in excess of
$1.5 billion.
For the year ended August 31, 1997, commissions (sales
charges paid by investors) on sales of Class A shares totaled $1,798,377, of
which $539,543 was retained by OppenheimerFunds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and by an affiliated
broker/dealer. Sales charges advanced to broker/dealers by OFDI on sales of the
Fund's Class B and Class C shares totaled $1,149,607 and $180,563, respectively,
of which $97,246 and $1,942, respectively, was paid to an affiliated
broker/dealer for Class B and Class C. During the year ended August 31, 1997,
OFDI received contingent deferred sales charges of $29,817 and $5,023,
respectively, upon redemption of Class B and Class C shares as reimbursement for
sales commissions advanced by OFDI at the time of sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund and for other
registered investment companies. OFS's total costs of providing such services
are allocated ratably to these companies.
The Fund has adopted a Service Plan for Class A shares to
reimburse OFDI for a portion of its costs incurred in connection with the
personal service and maintenance of shareholder accounts that hold Class A
shares. Reimbursement is made quarterly at an annual rate that may not exceed
0.25% of the average annual net assets of Class A shares of the Fund. OFDI uses
the service fee to reimburse brokers, dealers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares. During the year ended
August 31, 1997, OFDI paid $74,402 to an affiliated broker/dealer as
reimbursement for Class A personal service and maintenance expenses.
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
(CONTINUED)
The Fund has adopted a Distribution and Service Plan for Class B shares to
compensate OFDI for its services and costs in distributing Class B shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class B shares. OFDI also receives a service
fee of 0.25% per year to compensate dealers for providing personal services for
accounts that hold Class B shares. Both fees are computed on the average annual
net assets of Class B shares, determined as of the close of each regular
business day. During the year ended August 31, 1997, OFDI retained $152,304 as
compensation for Class B sales commissions and service fee advances, as well as
financing costs. If the Plan is terminated by the Fund, the Board of Trustees
may allow the Fund to continue payments of the asset-based sales charge to OFDI
for distributing shares before the Plan was terminated. As of August 31, 1997,
OFDI had incurred unreimbursed expenses of $1,114,421 for Class B.
The Fund has adopted a Distribution and Service Plan for
Class C shares to reimburse OFDI for its services and costs in distributing
Class C shares and servicing accounts. Under the Plan, the Fund pays OFDI an
annual asset-based sales charge of 0.75% per year on Class C shares. OFDI also
receives a service fee of 0.25% per year to reimburse dealers for providing
personal services for accounts that hold Class C shares. Both fees are computed
on the average annual net assets of Class C shares, determined as of the close
of each regular business day. During the year ended August 31, 1997, OFDI paid
$2,597 to an affiliated broker/dealer as reimbursement for Class C personal
service and maintenance expenses and retained $98,687 as reimbursement for Class
C sales commissions and service fee advances, as well as financing costs. If the
Plan is terminated by the Fund, the Board of Trustees may allow the Fund to
continue payments of the asset-based sales charge to OFDI for distributing
shares before the Plan was terminated. As of August 31, 1997, OFDI had incurred
unreimbursed expenses of $312,759 for Class C.
================================================================================
5. FORWARD CONTRACTS
A forward foreign currency exchange contract (forward contract) is a commitment
to purchase or sell a foreign currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency risks. They
may also be used to tactically shift portfolio currency risk.
The Fund generally enters into forward contracts as a hedge
upon the purchase or sale of a security denominated in a foreign currency. In
addition, the Fund may enter into such contracts as a hedge against changes in
foreign currency exchange rates on portfolio positions.
================================================================================
Forward contracts are valued based on the closing prices of the forward currency
contract rates in the London foreign exchange markets on a daily basis as
provided by a reliable bank or dealer. The Fund will realize a gain or loss upon
the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure
on outstanding forward contracts are noted in the Statement of Investments where
applicable. Gains and losses on outstanding contracts (unrealized appreciation
or depreciation on forward contracts) are reported in the Statement of Assets
and Liabilities. Realized gains and losses are reported with all other foreign
currency gains and losses in the Fund's Statement of Operations.
Risks include the potential inability of the counterparty to
meet the terms of the contract and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
================================================================================
6. ACQUISITION OF OPPENHEIMER TIME FUND
On June 23, 1995, the Fund acquired all of the net assets of Oppenheimer Time
Fund, pursuant to an Agreement and Plan of Reorganization approved by the
Oppenheimer Time Fund shareholders on June 20, 1995. The Fund issued 11,277,345
shares of beneficial interest (Class A), valued at $315,314,574 in exchange for
the net assets, resulting in combined Class A net assets of $686,360,280 on June
23, 1995. The net assets acquired included net unrealized appreciation of
$67,068,398. The exchange qualified as a tax-free reorganization for federal
income tax purposes.
================================================================================
7. SUBSEQUENT EVENT
At a meeting held on August 7, 1997, the Board of Trustees approved the addition
of Class Y shares for Oppenheimer Capital Appreciation Fund, to be offered at a
future date.
Appendix A
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Information Technology
Insurance Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
Wireless Services
A-1
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
SAI320
