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Oppenheimer Disciplined Allocation Fund
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Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated March 1, 1999,
Revised May 1, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated March 1, 1999. It should be read together
with the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or
by calling the Transfer Agent at the toll-free number shown above, or by
downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies......................... 12
Investment Restrictions............................................ 28
How the Fund is Managed ............................................... 31
Organization and History........................................... 31
Directors and Officers............................................. 33
The Manager........................................................ 38
Brokerage Policies of the Fund......................................... 39
Distribution and Service Plans......................................... 41
Performance of the Fund................................................ 45
About Your Account
How To Buy Shares...................................................... 49
How To Sell Shares..................................................... 58
How To Exchange Shares................................................. 62
Dividends, Capital Gains and Taxes..................................... 64
Additional Information About the Fund.................................. 66
Financial Information About the Fund
Independent Auditors' Report........................................... 67
Financial Statements................................................... 68
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Corporate Industry Classifications......................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
<PAGE>
124
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A B O U T T H E F U N D
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Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manger may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goal. It may use some of the special investment techniques and strategies at
some times or not at all.
|X| Value Investing. In selecting equity investments for the Fund's
portfolio, the portfolio managers currently use a value investing style coupled
with fundamental analysis of issuers. In using a value approach, the managers
look for stocks and other equity securities that appear to be temporarily
undervalued, by various measures, such as price/earnings ratios. Value investing
seeks stocks having prices that are low in relation to their real worth or
future prospects, with the expectation that the Fund will realize appreciation
in the value of its holdings when other investors realize the intrinsic value of
the stock.
Using value investing requires research as to the issuer's underlying
financial condition and prospects. Some of the measures used to identify these
securities include, among others:
o Price/Earnings ratio, which is the stock's price divided by its earnings
per share. A stock having a price/earnings ratio lower than its historical
range, or lower than the market as a whole or that of similar companies may
offer attractive investment opportunities.
o Price/book value ratio, which is the stock price divided by the book
value of the company per share. It measures the company's stock price in
relation to its asset value.
o Dividend Yield, which is measured by dividing the annual dividend by the
stock price per share.
o Valuation of Assets which compares the stock price to the value of the
company's underlying assets, including their projected value in the marketplace
and liquidation value.
n Portfolio Turnover. "Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. The Fund's portfolio turnover rate will fluctuate
from year to year. Increased portfolio turnover creates higher brokerage and
transaction costs for the Fund, which may reduce its overall performance.
Additionally, the realization of capital gains from selling portfolio securities
may result in distributions of taxable long-term capital gains to shareholders,
since the Fund will normally distribute all of its capital gains realized each
year, to avoid excise taxes under the Internal Revenue Code.
<PAGE>
Investments in Stocks and Other Equity Securities. The Fund does not limit its
investments in equity securities to issuers having a market capitalization of a
specified size or range, and therefore may invest in securities of small-, mid-
and large-capitalization issuers. At times, the Fund may have substantial
amounts of its assets invested in securities of issuers in one or more
capitalization ranges, based upon the Manager's use of its investment strategies
and its judgment of where the best market opportunities are to seek the Fund's
objective.
At times, the market may favor or disfavor securities of issuers of a
particular capitalization range. Securities of small capitalization issuers may
be subject to greater price volatility in general than securities of larger
companies. Therefore, if the Fund has substantial investments in smaller
capitalization companies at times of market volatility, the Fund's share price
may fluctuate more than that of funds focusing on larger capitalization issuers.
At times, the Fund may increase the emphasis of its investments in a
particular industry. Therefore, it may be subject to the risks that economic,
political or other events can have a negative effect on the values of issuers in
that particular industry (this is referred to as "industry risk"). Stocks of
issuers in a particular industry may be affected by changes in economic
conditions that affect that industry more than others, or changes in government
regulations, availability of basic resources or supplies, or other events. To
the extent that the Fund is emphasizing investments in a particular industry,
its share values may fluctuate in response to events affecting that industry.
o Rights and Warrants. The Fund can invest up to 5% of its total assets in
warrants or rights. That limit does not apply to warrants and rights that the
Fund has acquired as part of units of securities or that are attached to other
securities. Warrants basically are options to purchase equity securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights are
similar to warrants, but normally have a short duration and are distributed
directly by the issuer to its shareholders. Rights and warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
o Convertible Securities. While some convertible securities are a form of
debt security, in some cases their conversion feature (allowing conversion into
equity securities) causes the Manager to regard them more as "equity
equivalents." In those cases, the rating assigned to the security has less
impact on the Manager's investment decision than in the case of non-convertible
fixed income securities. To determine whether convertible securities should be
regarded as "equity equivalents," the Manager examines the following factors:
(1) whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the
issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible
securities), and
(3) the extent to which the convertible security may be a defensive
"equity substitute," providing the ability to participate in any
appreciation in the price of the issuer's common stock.
o Preferred Stocks. Preferred stocks are equity securities but have
certain attributes of debt securities. Preferred stock, unlike common stock, has
a stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid before the issuer can pay dividends on common shares.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as provisions for their call
or redemption prior to maturity which can have a negative effect on their prices
when interest prior to maturity rates decline. Preferred stock may be
"participating" stock, which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases.
Preferred stocks are equity securities because they do not constitute a
liability of the issuer and therefore do not offer the same degree of protection
of capital as debt securities and may not offer the same degree of assurance of
continued income as debt securities. The rights of preferred stock on
distribution of a corporation's assets in the event of its liquidation are
generally subordinate to the rights associated with a corporation's debt
securities. Preferred stock generally has a preference over common stock on the
distribution of a corporation's assets in the event of its liquidation.
Investments in Bonds and Other Debt Securities. The Fund can invest in a variety
of bonds, debentures and other debt securities to seek its objective. It will
invest at least 25% of its assets in fixed-income senior securities and could
have a larger portion of its assets in debt investments.
The Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., or at least "BBB" by Standard & Poor's Rating Service or Duff &
Phelps, Inc., or that have comparable ratings by another nationally-recognized
rating organization. In making investments in debt securities, the Manager may
rely to some extent on the ratings of ratings organizations or it may use its
own research to evaluate a security's credit-worthiness. If the securities that
the Fund buys are unrated, to be considered part of the Fund's holdings of
investment-grade securities, they must be judged by the Manager to be of
comparable quality to bonds rated as investment grade by a rating organization.
o Special Risks of Lower-Grade Securities. It is not anticipated that the
Fund will normally invest a substantial portion of its assets in lower-grade
debt securities. Because lower-grade securities tend to offer higher yields than
investment-grade securities, the Fund may invest in lower grade securities if
the Manager is trying to achieve greater income (and, in some cases, the
appreciation possibilities of lower-grade securities might be a reason they are
selected for the Fund's portfolio). High-yield convertible debt securities might
be selected as "equity substitutes," as described above.
"Lower-grade" debt securities are those rated below "investment grade,"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
included in the limitation on the percentage of the Fund's assets that can be
invested in lower-grade securities. The Fund can invest in securities rated as
low as "B" at the time the Fund buys them.
Some of the special credit risks of lower-grade securities are discussed
in the Prospectus. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of investment
grade securities. The issuer's low creditworthiness may increase the potential
for its insolvency. An overall decline in values in the high yield bond market
is also more likely during a period of a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. In the case of
foreign high yield bonds, these risks are in addition to the special risks of
foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
However, the Fund's limitations on buying these investments may reduce the
risks to the Fund, as will the Fund's policy of diversifying its investments.
Additionally, to the extent they can be converted into stock, convertible
securities may be less subject to some of these risks than non-convertible high
yield bonds, since stock may be more liquid and less affected by some of these
risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to greater risks than other investment-grade
securities, and have some speculative characteristics. Definitions of the debt
security ratings categories of Moody's, S&P, Fitch IBCA and Duff & Phelps are
included in Appendix A to this Statement of Additional Information.
o Interest Rate Risk. Interest rate risk refers to the fluctuations in
value of fixed-income securities resulting from the inverse relationship between
price and yield. For example, an increase in general interest rates will tend to
reduce the market value of already-issued fixed-income investments, and a
decline in general interest rates will tend to increase their value. In
addition, debt securities with longer maturities, which tend to have higher
yields, are subject to potentially greater fluctuations in value from changes in
interest rates than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities after the Fund
buys them will not affect the interest income payable on those securities
(unless the security pays interest at a variable rate pegged to interest rate
changes). However, those price fluctuations will be reflected in the valuations
of the securities, and therefore the Fund's net asset values will be affected by
those fluctuations.
n Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real
estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related securities
tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of "locking in" attractive long-term interest
rates, and they may have less potential for appreciation during periods of
declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in response to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the effective
duration of the Fund's portfolio of debt securities, and therefore its
sensitivity to interest rate changes, would increase.
As with other debt securities, the values of mortgage-related securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.
o Collateralized Mortgage Obligations. CMOs are multi-class
bonds that are backed by pools of mortgage loans or mortgage pass-through
certificates. They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Government National
Mortgage Association, Federal National Mortgage Association
or Federal Home Loan Mortgage Corporation,
(2) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans'
Affairs,
(3) unsecuritized conventional mortgages, (4) other mortgage-related securities,
or (5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the reverse direction to an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
n U.S. Government Securities. These are securities issued or guaranteed by
the U.S. Treasury or other U.S. government agencies or federally-chartered
corporate entities referred to as "instrumentalities" of the U.S. government.
The obligations of U.S. government agencies or instrumentalities in which the
Fund may invest may or may not be guaranteed or supported by the "full faith and
credit" of the United States. "Full faith and credit" means generally that the
taxing power of the U.S. government is pledged to the payment of interest and
repayment of principal on a security. If a security is not backed by the full
faith and credit of the United States, the owner of the security must look
principally to the agency issuing the obligation for repayment. The owner might
not be able to assert a claim against the United States if the issuing agency or
instrumentality does not meet its commitment. The Fund will invest in securities
of U.S. government agencies and instrumentalities only if the Manager is
satisfied that the credit risk with respect to such instrumentality is minimal.
o U.S. Treasury Obligations. These include Treasury bills (which are
maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years when issued), and Treasury bonds (which have
maturities of more than ten years when issued). Treasury securities are backed
by the full faith and credit of the United States as to timely payments of
interest and repayments of principal. They also can include U. S. Treasury
securities that have been "stripped" by a Federal Reserve Bank, zero-coupon U.S.
Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS").
o Treasury Inflation-Protection Securities. The Fund can buy these
U.S. Treasury securities, called "TIPS," that are designed to provide an
investment vehicle that is not vulnerable to inflation. The interest rate paid
by TIPS is fixed. The principal value rises or falls semi-annually based on
changes in the published Consumer Price Index. If inflation occurs, the
principal and interest payments on TIPS are adjusted to protect investors from
inflationary loss. If deflation occurs, the principal and interest payments will
be adjusted downward, although the principal will not fall below its face amount
at maturity.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
|_| U.S. Government Mortgage-Related Securities. The Fund can
invest in a variety of mortgage-related securities that are issued by U.S.
Government agencies or instrumentalities, some of which are described below.
o GNMA Certificates. The Government National Mortgage
Association ("GNMA") is a wholly-owned corporate instrumentality of the United
States within the U.S. Department of Housing and Urban Development. GNMA's
principal programs involve its guarantees of privately-issued securities backed
by pools of mortgages. GNMA Certificates are debt securities representing an
interest in one or a pool of mortgages that are insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the Veterans
Administration.
The GNMA Certificates in which the Fund invests are of the "fully modified
pass-through" type. They provide that the registered holders of the Certificates
will receive timely monthly payments of the pro-rata share of the scheduled
principal payments on the underlying mortgages, whether or not those amounts are
collected by the issuers. Amounts paid include, on a pro rata basis, any
prepayment of principal of such mortgages and interest (net of servicing and
other charges) on the aggregate unpaid principal balance of the GNMA
Certificates, whether or not the interest on the underlying mortgages has been
collected by the issuers.
The GNMA Certificates purchased by the Fund are guaranteed as to timely
payment of principal and interest by GNMA. In giving that guarantee, GNMA
expects that payments received by the issuers of GNMA Certificates on account of
the mortgages backing the Certificates will be sufficient to make the required
payments of principal of and interest on those GNMA Certificates. However, if
those payments are insufficient, the guaranty agreements between the issuers of
the Certificates and GNMA require the issuers to make advances sufficient for
the payments. If the issuers fail to make those payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under any
guaranty issued by GNMA as to such mortgage pools. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that such
guaranties "constitute general obligations of the United States backed by its
full faith and credit." GNMA is empowered to borrow from the United States
Treasury to the extent necessary to make any payments of principal and interest
required under those guaranties.
GNMA Certificates are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to the
extent of payments received by the issuers on account of such mortgages, GNMA
Certificates do not constitute a liability of those issuers, nor do they
evidence any recourse against those issuers. Recourse is solely against GNMA.
Holders of GNMA Certificates (such as the Fund) have no security interest in or
lien on the underlying mortgages.
Monthly payments of principal will be made, and additional prepayments of
principal may be made, to the Fund with respect to the mortgages underlying the
GNMA Certificates held by the Fund. All of the mortgages in the pools relating
to the GNMA Certificates owned by the Fund are subject to prepayment without any
significant premium or penalty, at the option of the mortgagors. While the
mortgages on 1-to-4-family dwellings underlying certain GNMA Certificates have a
stated maturity of up to 30 years, it has been the experience of the mortgage
industry that the average life of comparable mortgages, as a result of
prepayments, refinancing and payments from foreclosures, is considerably less.
o Federal Home Loan Mortgage Corporation Certificates. FHLMC,
a corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each registered
holder of a FHLMC Certificate timely payment of the amounts representing a
holder's proportionate share in: (i) interest payments less servicing and
guarantee fees, (ii) principal prepayments and (iii) the ultimate collection of
amounts representing the holder's
proportionate interest in principal payments on the
mortgage loans in the pool represented by the FHLMC
Certificate, in each case whether or not such amounts are
actually received.
The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.
o Federal National Mortgage Association (Fannie Mae)
Certificates. Fannie Mae, a federally-chartered and privately-owned corporation,
issues Fannie Mae Certificates which are backed by a pool of mortgage loans.
Fannie Mae guarantees to each registered holder of a Fannie Mae Certificate that
the holder will receive amounts representing the holder's proportionate interest
in scheduled principal and interest payments, and any principal prepayments, on
the mortgage loans in the pool represented by such Certificate, less servicing
and guarantee fees, and the holder's proportionate interest in the full
principal amount of any foreclosed or other liquidated mortgage loan. In each
case the guarantee applies whether or not those amounts are actually received.
The obligations of Fannie Mae under its guarantees are obligations solely of
Fannie Mae and are not backed by the full faith and credit of the United States
or any of its agencies or instrumentalities other than Fannie Mae.
o Zero-Coupon U.S. Government Securities. The Fund can buy
zero-coupon U.S. government securities. These will typically be U.S. Treasury
Notes and Bonds that have been stripped of their unmatured interest coupons, the
coupons themselves, or certificates representing interests in those stripped
debt obligations and coupons.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. The discount
typically decreases as the maturity date approaches.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities that pay interest. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon securities
tend to rise more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
n Commercial (Privately-Issued) Mortgage Related Securities. The Fund can
invest in commercial mortgage related securities issued by private entities.
Generally these are multi-class debt or pass through certificates secured by
mortgage loans on commercial properties. They are subject to the credit risk of
the issuer. These securities typically are structured to provide protection to
investors in senior classes from possible losses on the underlying loans. They
do so by having holders of subordinated classes take the first loss if there are
defaults on the underlying loans. They may also be protected to some extent by
guarantees, reserve funds or additional collateralization mechanisms.
|_| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer loans.
They are issued by trusts or special-purpose corporations. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interest in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due.
The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness of
the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected if
any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to payment of consumer loans by
the individual borrowers. As a purchaser of an asset-backed security, the Fund
would generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to prepayments,
which may shorten the weighted average life of asset-backed securities and may
lower their return, in the same manner as in the case of mortgage-backed
securities and CMOs, described above.
|X| Municipal Securities. The Fund can buy municipal bonds and notes,
tax-exempt commercial paper, certificates of participation in municipal leases
and other debt obligations. These debt obligations are issued by the governments
of states, as well as their political subdivisions (such as cities, towns and
counties), or by the District of Columbia and their agencies and authorities.
The Fund can also buy securities issued by any commonwealths, territories or
possessions of the United States, or their respective agencies,
instrumentalities or authorities. The Fund would invest in municipal securities
because of the income and portfolio diversification they offer rather than for
the tax-exempt nature of the income they pay.
The Fund can buy both long-term and short-term municipal securities.
Long-term securities have a maturity of more than one year. In selecting
municipal securities the Fund would normally focus on longer-term securities, to
seek higher income. In general, the values of longer-term bonds are more
affected by changes in interest rates than are short-term bonds.
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, financing
specific projects or public facilities. The Fund can invest in municipal
securities that are "general obligations," secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
The Fund can also buy "revenue obligations," payable only from the
revenues derived from a particular facility or class of facilities, or a
specific excise tax or other revenue source. Some of these revenue obligations
are private activity bonds that pay interest that may be a tax preference for
investors subject to alternative minimum tax.
o Municipal Lease Obligations. Municipal leases are used by state
and local government authorities to obtain funds to acquire land, equipment or
facilities. The Fund may invest in certificates of participation that represent
a proportionate interest in payments made under municipal lease obligations. If
the government stops making payments or transfers its payment obligations to a
private entity, the obligation could lose value or become taxable.
Money Market Instruments and Short-Term Debt Obligations. The Fund can invest in
a variety of high quality money market instruments and short-term debt
obligations, both under normal market conditions and for defensive purposes. The
following is a brief description of the types of money market securities and
short-term debt obligations the Fund can invest in. Those money market
securities are high-quality, short-term debt instruments that are issued by the
U.S. government, corporations, banks or other entities. They may have fixed,
variable or floating interest rates. The Fund's investments in foreign money
market instruments and short-term debt obligations are subject to its limits on
investing in foreign securities and the risks of foreign investing, described
above.
o U.S. Government Securities. These include obligations issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
|_| Bank Obligations. The Fund can buy time deposits,
certificates of deposit and bankers' acceptances. They must be :
obligations issued or guaranteed by a domestic or foreign bank
(including a foreign branch of a domestic bank) having total
assets of at least $1 billion,
banker's acceptances (which may or may not be supported by
letters of credit) only if guaranteed by a U.S. commercial
bank with total assets of at least U.S. $1 billion.
The Fund can make time deposits. These are non-negotiable deposits in a
bank for a specified period of time. They may be subject to early withdrawal
penalties. Time deposits that are subject to early withdrawal penalties are
subject to the Fund's limits on illiquid investments, unless the time deposit
matures in seven days or less. "Banks" include commercial banks, savings banks
and savings and loan associations.
|_| Commercial Paper. The Fund can invest in commercial paper if it
is rated within the top two rating categories of Standard & Poor's and Moody's.
If the paper is not rated, it may be purchased if issued by a company having a
credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
oVariable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by the
Fund at varying rates of interest under direct arrangements between the Fund, as
lender, and the borrower. They permit daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may prepay up to the full amount of the note without penalty. These
notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and
borrower, it is not expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. Accordingly, the Fund's right to redeem such notes is
dependent upon the ability of the borrower to pay principal and interest on
demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an ongoing
basis, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation
on investments by the Fund in illiquid securities, described in the Prospectus.
Currently, the Fund does not intend that its investments in variable amount
master demand notes will exceed 5% of its total assets.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times
and at times may not use them.
n Foreign Securities. The Fund can purchase equity and debt securities
issued or guaranteed by foreign companies or debt securities of foreign
governments or their agencies. "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 and their agencies and
instrumentalities. Those securities may be traded on foreign securities
exchanges or in the foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations. That is because they are not subject to
many of the special considerations and risks, discussed below, that apply to
foreign securities traded and held abroad.
Because the Fund can purchase securities denominated in foreign
currencies, a change in the value of a foreign currency against the U.S. dollar
could result in a change in the amount of income the Fund has available for
distribution. Because a portion of the Fund's investment income may be received
in foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income, which
could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
G Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or
adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
o Risks of Conversion to Euro. On January 1, 1999, eleven countries in
the European Union adopted the euro as their official currency. However, their
current currencies (for example, the franc, the mark, and the lira) will also
continue in use until January 1, 2002. After that date, it is expected that only
the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o issuers in which the Fund invests, because of changes in the
competitive environment from a consolidated currency market and
greater operational costs from converting to the new currency.
This might depress securities values.
o vendors the Fund depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Fund buys),
the Manager (which must price the Fund's investments to deal with
the conversion to the euro) and brokers, foreign markets and
securities depositories. If they are not prepared, there could be
delays in settlements and additional costs to the Fund.
o exchange contracts and derivatives that are outstanding during
the transition to the euro.
The lack of currency rate calculations between the affected currencies and
the need to update the Fund's contracts could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's custodian bank has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
o Special Risks of Emerging Markets. Emerging and developing markets
abroad may also offer special opportunities for growth investing but have
greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject
to the risk of greater political and economic instability, which can greatly
affect the volatility of prices of securities in those countries. The Manager
will consider these factors when evaluating securities in these markets.
o Foreign Debt Obligations. The debt obligations of foreign
governments and entities may or may not be supported by the full faith and
credit of the foreign government. The Fund may buy securities issued by certain
"supra-national" entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international
banking organizations and related government agencies. Examples are the
International Bank for Reconstruction and Development (commonly called the
"World Bank"), the Asian Development bank and the Inter-American Development
Bank.
The governmental members of these supranational entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
n Floating Rate and Variable Rate Obligations. Variable rate obligations
may have a demand feature that allows the Fund to tender the obligation to the
issuer or a third party prior to its maturity. The tender may be at par value
plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate note is adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate note is also based on a stated prevailing market rate but is
adjusted automatically at specified intervals of not less than one year.
Generally, the changes in the interest rate on such securities reduce the
fluctuation in their market value. As interest rates decrease or increase, the
potential for capital appreciation or depreciation is less than that for
fixed-rate obligations of the same maturity. The Manager may determine that an
unrated floating rate or variable rate obligation meets the Fund's quality
standards if it is backed by a letter of credit or guarantee issued by a bank
that meets those quality standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have demand features that permit the holder to recover
the principal amount of the underlying security at specified intervals and upon
notice. The issuer of that type of note normally has a corresponding right in
its discretion, after a given period, to prepay the outstanding principal amount
of the note plus accrued interest. Generally the issuer must provide a specified
number of days' notice to the holder.
n "Stripped" Mortgage Related Securities. The Fund may invest in stripped
mortgage-related securities that are created by segregating the cash flows from
underlying mortgage loans or mortgage securities to create two or more new
securities. Each has a specified percentage of the underlying security's
principal or interest payments. These are a form of derivative investment.
Mortgage securities may be partially stripped so that each class receives
some interest and some principal. However, they may be completely stripped. In
that case all of the interest is distributed to holders of one type of security,
known as an "interest-only" security, or "I/O," and all of the principal is
distributed to holders of another type of security, known as a "principal-only"
security or "P/O." Strips can be created for pass-through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
n Participation Interests. The Fund may invest in participation interests,
subject to the Fund's limitation on investments in illiquid investments. A
participation interest is an undivided interest in a loan made by the issuing
financial institution in the proportion that the buyers participation interest
bears to the total principal amount of the loan. No more than 5% of the Fund's
net assets can be invested in participation interests of the same borrower. The
issuing financial institution may have no obligation to the Fund other than to
pay the Fund the proportionate amount of the principal and interest payments it
receives.
Participation interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of principal
and interest on the loan. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
n Forward Rolls. The Fund can enter into "forward roll" transactions with
respect to mortgage related securities. These are limited to 10% of the Fund's
total assets. In this type of transaction, the Fund sells a mortgage related
security to a buyer and simultaneously agrees to repurchase a similar security
(the same type of security, and having the same coupon and maturity) at a later
date at a set price. The securities that are repurchased will have the same
interest rate as the securities that are sold, but typically will be
collateralized by different pools of mortgages (with different prepayment
histories) than the securities that have been sold. Proceeds from the sale are
invested in short-term instruments, such as repurchase agreements. The income
from those investments, plus the fees from the forward roll transaction, are
expected to generate income to the Fund in excess of the yield on the securities
that have been sold.
The Fund will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Fund will identify on its books cash, U.S.
government securities or other high-grade debt securities in an amount equal to
the payment obligation under the roll.
These transactions have risks. During the period between the sale and the
repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities that have been sold. It is possible that the market
value of the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities.
n When-Issued and Delayed-Delivery Transactions. The Fund may invest in
securities on a "when-issued" basis and can purchase or sell securities on a
"delayed-delivery" (or "forward commitment") basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of entering
into the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
n Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for defensive purposes.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Directors from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's fundamental policy limits on holding illiquid investments. The Fund
cannot enter into a repurchase agreement that causes more than 10% of its net
assets to be subject to repurchase agreements having a maturity beyond seven
days. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Manager will monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
n Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Directors, 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.
As a fundamental policy, the Fund will not invest more than 10% of its
total assets in illiquid or restricted securities, including repurchase
agreements having a maturity beyond seven days, portfolio securities for which
market quotations are not readily available and time deposits that mature in
more than 2 days. Certain restricted securities that are eligible for resale to
qualified institutional purchasers, as described below, may not be subject to
that limit. The Fund currently applies that limitation to 10% of its net assets,
as a non-fundamental policy. The Manager monitors holdings of illiquid
securities on an ongoing basis to determine whether to sell any holdings to
maintain adequate liquidity.
To enable the Fund to sell its holdings of a restricted security not
registered under the Securities Act of 1933, the Fund may have to cause those
securities to be registered. The expenses of registering restricted securities
may be negotiated by the Fund with the issuer at the time the Fund buys the
securities. When the Fund must arrange registration because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the security and the time the security is registered so
that the Fund could sell it. The Fund would bear the risks of any downward price
fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated above. Those percentage restrictions do not limit purchases of
restricted securities that are eligible for sale to qualified institutional
purchasers under Rule 144A of the Securities Act of 1933, if those securities
have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
n Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Directors. It may do so to try to provide income or to raise cash for liquidity
purposes. As a fundamental policy, these loans are limited to not more than 33
1/3% of the value of the Fund's total assets. There are some risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans of securities
but may do so in the future.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder's, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
n Derivatives. The Fund may invest in a variety of derivative investments
to seek income for liquidity needs or for hedging purposes. Some derivative
investments the Fund may use are the hedging instruments described below in this
Statement of Additional Information.
Some of the derivative investments the Fund can use include debt
exchangeable for common stock of an issuer or "equity-linked debt securities" of
an issuer. At maturity, the debt security is exchanged for common stock of the
issuer or it is payable in an amount based on the price of the issuer's common
stock at the time of maturity. Both alternatives present a risk that the amount
payable at maturity will be less than the principal amount of the debt because
the price of the issuer's common stock may not be as high as the Manager
expected.
Other derivative investments the Fund may invest in include "index-linked"
notes. Principal and/or interest payments on these notes depend on the
performance of an underlying index. Currency-indexed securities are another
derivative the Fund may use. Typically these are short-term or intermediate-term
debt securities. Their value at maturity or the rates at which they pay income
are determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay an
amount at maturity based on a multiple of the amount of the relative currency
movements. This type of index security offers the potential for increased income
or principal payments but at a greater risk of loss than a typical debt security
of the same maturity and credit quality.
o "Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed derivative debt investments with principal payments or
interest payments that are linked to the value of an index (such as a currency
or securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.
The principal and/or interest payments depend on the performance of one or
more other securities or indices, and the values of these notes will therefore
fall or rise in response to the changes in the values of the underlying security
or index. They are subject to both credit and interest rate risks and therefore
the Fund could receive more or less than it originally invested when the notes
mature, or it might receive less interest than the stated coupon payment if the
underlying investment or index does not perform as anticipated. There values may
be very volatile and they may have a limited trading market, making it difficult
for the Fund to sell its investment at an acceptable price.
o "Inverse Floaters." Certain types of variable rate bonds known as
"inverse floaters" pay interest at rates that vary as the yields generally
available on short-term tax-exempt bonds change. However, the yields on inverse
floaters move in the opposite direction of yields on short-term bonds in
response to market changes. As interest rates rise, inverse floaters produce
less current income, and their market value can become volatile. Inverse
floaters are a type of "derivative security." Some have a "cap," so that if
interest rates rise above the "cap," the security pays additional interest
income. If rates do not rise above the "cap," the Fund will have paid an
additional amount for a feature that proves worthless. The Fund will not invest
more than 5% of its total assets in inverse floaters.
n Hedging. The Fund can use hedging to attempt to protect against declines
in the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate selling securities for investment reasons. To do so, the Fund
could:
o sell futures contracts, or
o write covered calls on securities or futures. Covered calls may also
be used to increase the Fund's income, but the Manager does not
expect to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so, the Fund could buy futures.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund and its
fundamental policies.
o Futures. The Fund can buy and sell exchange-traded futures
contracts that relate to (1) broadly-based stock indices ("stock index futures")
(2) debt securities (these are referred to as "interest rate futures"), (3)
other broadly-based securities indices (these are referred to as "financial
futures"), (4) foreign currencies (these are referred to as "forward
contracts"), or (5) securities.
A broadly-based stock index is used as the basis for trading stock index
futures. An index may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index cannot
be purchased or sold directly. Financial futures are similar contracts based on
the future value of the basket of securities that comprise the index. These
contracts obligate the seller to deliver, and the purchaser to take, cash to
settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions, except forward contracts,
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
o Writing Covered Call Options. Under its fundamental policies, the
Fund is permitted to write (that is, sell) covered calls on securities, indices,
futures and forward contracts. If the Fund sells a call option, it must be
covered. That means the Fund must own the security subject to the call while the
call is outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable the Fund to satisfy its obligations if the
call is exercised. Up to 20% of the Fund's total assets may be subject to calls
the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's custodian bank, or a securities depository acting for the
Custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
If the Fund writes an over-the-counter ("OTC") option, it will enter into
an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
The Fund may realize a profit if a call it has written expires
unexercised, because the Fund will retain the underlying security and the
premium it received when it wrote the call. Any such profits are considered
short-term capital gains for Federal income tax purposes, as are the premiums on
lapsed calls. When distributed by the Fund they are taxable as ordinary income.
Because of the Fund's fundamental policies prohibiting the purchase of call
options, the Fund cannot effect closing purchase transactions to terminate calls
it has written.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying on its
books an equivalent dollar amount of liquid assets. The Fund will segregate
additional liquid assets if the value of the segregated assets drops below 100%
of the current value of the future. Because of this segregation requirement, in
no circumstances would the Fund's receipt of an exercise notice as to that
future require the Fund to deliver a futures contract. It would simply put the
Fund in a short futures position, which is permitted by the Fund's hedging
policies.
o Selling Call Options on Foreign Currencies. The Fund can sell
calls on foreign currencies. They include calls that trade on a securities or
commodities exchange or in the over-the-counter markets or are quoted by major
recognized dealers in such options. The Fund could use these calls to try to
protect against declines in the dollar value of foreign securities and increases
in the dollar cost of foreign securities the Fund wants to acquire.
If the Manager anticipates a decline in the dollar value of a foreign
currency, the decline in the dollar value of portfolio securities denominated in
that currency might be partially offset by writing calls on that foreign
currency. However, the currency rates could fluctuate in a direction adverse to
the Fund's position.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by identifying on its books liquid
assets in an amount equal to the exercise price of the option, in a segregated
account with the Fund's Custodian bank.
o Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The Fund could pay a brokerage commission each time it sells a call, or
sells an underlying investment in connection with the exercise of a call. Those
commissions could be higher on a relative basis than the commissions for direct
purchases or sales of the underlying investments. Premiums paid for options are
small in relation to the market value of the underlying investments.
Consequently, options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling futures to attempt to
protect against declines in the value of the Fund's portfolio securities. The
risk is that the prices of the futures will correlate imperfectly with the
behavior of the cash prices of the Fund's securities. For example, it is
possible that while the Fund has used hedging instruments in a short hedge, the
market might advance and the value of the securities held in the Fund's
portfolio might decline. If that occurred, the Fund would lose money on the
hedging instruments and also experience a decline in the value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio of securities will
tend to move in the same direction as the indices upon which the hedging
instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures. It is possible that when the Fund
does so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund might enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar may suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge." Normally, the Fund will not use
cross-hedging.
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Interest Rate Swap Transactions. The Fund can enter into interest
rate swap agreements. In an interest rate swap, the Fund and another party
exchange their right to receive or their obligation to pay interest on a
security. For example, they might swap the right to receive floating rate
payments for fixed rate payments. The Fund can enter into swaps only on
securities that it owns. The Fund will not enter into swaps with respect to more
than 25% of its total assets. Also, the Fund will segregate liquid assets (such
as cash or U.S. government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party.
Under these agreements, if a default results in a loss to one party, the
measure of that party's damages is calculated by reference to the average cost
of a replacement swap for each swap. It is measured by the mark-to-market value
at the time of the termination of each swap. The gains and losses on all swaps
are then netted, and the result is the counterparty's gain or loss on
termination. The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
o Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write may be affected by options written
or held by other entities, including other investment companies having the same
adviser as the Fund (or an adviser that is an affiliate of the Fund's adviser).
The exchanges also impose position limits on futures transactions. An exchange
may order the liquidation of positions found to be in violation of those limits
and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must identify on its books liquid assets in an amount equal to the market value
of the securities underlying the future, less the margin deposit applicable to
it.
o Tax Aspects of Certain Hedging Instruments. Certain foreign
currency exchange contracts in which the Fund may invest are treated as "Section
1256 contracts" under the Internal Revenue Code. In general, gains or losses
relating to Section 1256 contracts are characterized as 60% long-term and 40%
short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are forward contracts
generally are treated as ordinary income or loss. In addition, Section 1256
contracts held by the Fund at the end of each taxable year are
"marked-to-market," and unrealized gains or losses are treated as though they
were realized. These contracts also may be marked-to-market for purposes of
determining the excise tax applicable to investment company distributions and
for other purposes under rules prescribed pursuant to the Internal Revenue Code.
An election can be made by the Fund to exempt those transactions from this
marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for Federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that
occur between the time the Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or
pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the
date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
Investment Restrictions
n What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
Policies described in the Prospectus or this Statement of Additional
Information are "fundamental" only if they are identified as such. The Fund's
Board of Directors can change non-fundamental policies without shareholder
approval. However, significant changes to investment policies will be described
in supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Fund's principal investment policies are
described in the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
|_| The Fund cannot issue senior securities. However, it can make payments
or deposits of margin in connection with options or futures transactions, lend
its portfolio securities, enter into repurchase agreements, borrow money and
pledge its assets as permitted by its other fundamental policies. For purposes
of this restriction, the issuance of shares of common stock in multiple classes
or series, the purchase or sale of options, futures contracts and options on
futures contracts, forward commitments, and repurchase agreements entered into
in accordance with the Fund's investment policies, and the pledge, mortgage or
hypothecation of the Fund's assets are not deemed to be senior securities.
|_| The Fund cannot invest more than 5% of its total assets (taken at
market value at the time of each investment) in the securities (other than
securities of the U.S. government or its agencies) of any one issuer or invest
more than 15% of its total assets in the obligations of any one bank. This
restriction applies to repurchase agreements with any one bank or dealer.
Additionally, the Fund cannot purchase more than either 10% of the principal
amount of the outstanding debt securities of an issuer, or 10% of the
outstanding voting securities of an issuer. This restriction shall not apply to
securities issued or guaranteed by the U.S. government or its agencies, bank
money market instruments or bank repurchase agreements.
|_| The Fund cannot invest more than 25% of the value of its total assets
in the securities of issuers in any single industry. However, this limitation
shall not apply to the purchase of obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities. For the purpose of this
restriction, each utility that provides a separate service (for example, gas,
gas transmission, electric or telephone) shall be considered to be a separate
industry. This test shall be applied on a pro forma basis using the market value
of all assets immediately prior to making any investment. The Fund has
undertaken as a matter of non-fundamental policy to apply this restriction to
25% or more of its total assets.
|_| The Fund cannot, by itself or together with any other fund, portfolio
or portfolios, make investments for the purpose of exercising control over, or
management of, any issuer.
|_| The Fund cannot purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization. It can also purchase in the open market securities of closed-end
investment companies if no underwriter or dealer's commission or profit, other
than the customary broker's commission is involved and only if immediately
thereafter not more than 10% of the Fund's total assets, taken at market value,
would be invested in such securities.
|_| The Fund cannot purchase or sell interests in oil, gas or other
mineral exploration or development programs, commodities, commodity contracts or
real estate. However, the Fund can purchase securities of issuers that invest or
deal an any of the above interests and can invest for hedging purposes in
futures contracts on securities, financial instruments and indices, and foreign
currency, as are approved for trading on a registered exchange.
|_| The Fund cannot purchase any securities on margin or make short sales
of securities or maintain a short position. However, the Fund can obtain such
short- term credits as may be necessary for the clearance of purchases and sales
of portfolio securities. The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered to be the purchase of a security on margin.
|_| The Fund cannot make loans. However, the Fund may lend portfolio
securities in accordance with the Fund's investment policies up to 33 1/3% of
the Fund's total assets taken at market value. The Fund can also enter into
repurchase agreements, and purchase all or a portion of an issue of publicly
distributed debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities.
|_| The Fund cannot borrow amounts in excess of 10% of its total assets,
taken at market value at the time of the borrowing. It can borrow only from
banks as a temporary measure for extraordinary or emergency purposes. It cannot
make investments in portfolio securities while such outstanding borrowings
exceed 5% of its total assets.
o The Fund cannot allow its current obligations under reverse repurchase
agreements, together with borrowings, to exceed 1/3 of the value of its total
assets (less all its liabilities other than the obligations under borrowings and
such agreements).
o The Fund cannot mortgage, pledge, hypothecate or in any manner transfer,
as security for indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with borrowings as mentioned in its restriction
on borrowing, above. In that case such mortgaging, pledging or hypothecating may
not exceed 10% of the Fund's total assets, taken at market value at the time of
the borrowing. The deposit of cash, cash equivalents and liquid debt securities
in a segregated account with the Fund's custodian bank and/or with a broker in
connection with futures contracts or related options transactions and the
purchase of securities on a "when-issued" basis are not deemed to be pledges.
o The Fund cannot underwrite securities of other issuers. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 in reselling its portfolio securities.
o The Fund cannot write, purchase or sell puts, calls or combinations
thereof, except that it can write covered call options.
o The Fund cannot invest in securities of foreign issuers if at the time
of acquisition more than 10% of its total assets, taken at market value at the
time of the investment, would be invested in such securities. However, up to 25%
of the total assets of the Fund may be invested in the aggregate in such
securities that are (i) issued, assumed or guaranteed by foreign governments, or
political subdivisions or instrumentalities thereof, (ii) assumed or guaranteed
by domestic issuers (including Eurodollar securities), or (iii) issued, assumed
or guaranteed by foreign issuers having a class of securities listed for trading
on The New York Stock Exchange.
o The Fund cannot invest more than 10% in the aggregate of the value of
its total assets in repurchase agreements maturing in more than seven days, time
deposits maturing in more than two days, portfolio securities that do not have
readily available market quotations and all other illiquid assets.
For purposes of the fundamental investment restrictions, the term "borrow"
does not include mortgage dollar rolls, reverse repurchase agreements or lending
portfolio securities. The terms "illiquid securities" and "portfolio securities
that do not have readily available market quotations" include restricted
securities. However, reverse repurchase agreements are treated as borrowings,
master demand notes may be deemed to be illiquid securities and mortgage dollar
rolls are sales transactions and not financings.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
For purposes of the Fund's policy not to concentrate its investments as
described above, the Fund has adopted the industry classifications set forth in
Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Fund is Managed
Organization and History. The Fund is one of two investment portfolios, or
"series," of Oppenheimer Series Fund, Inc. That corporation is an open-end,
management investment company organized as a Maryland corporation in 1981, and
was called Connecticut Mutual Investment Accounts, Inc. until March 18, 1996,
when the Manager became the Fund's investment adviser. The Fund is a diversified
mutual fund, and until March 18, 1996 was called Connecticut Mutual Total Return
Account.
The Fund's parent corporation is governed by a Board of Directors, which
is responsible for protecting the interests of shareholders under Maryland law.
The Directors meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
n Classes of Shares. The Board of Directors has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares: Class A, Class B, and Class C. All classes invest in the same investment
portfolio. Each class of shares: o has its own dividends and distributions, o
pays certain expenses which may be different for the different classes, o may
have a different net asset value, o may have separate voting rights on matters
in which interests of one
class are different from interests of another class, and o votes as
a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Directors are authorized to create new series and classes of shares.
The Directors may reclassify unissued shares of the Fund's parent corporation or
its series or classes into additional series or classes of shares. The Directors
also may divide or combine the shares of a class into a greater or lesser number
of shares without changing the proportionate beneficial interest of a
shareholder in the Fund. Shares do not have cumulative voting rights or
preemptive or subscription rights. Shares may be voted in person or by proxy at
shareholder meetings.
n Meetings of Shareholders. Although the Fund is not required by Maryland
law to hold annual meetings, it may hold shareholder meetings from time to time
on important matters. The shareholders of the Fund's parent corporation have the
right to call a meeting to remove a Director or to take certain other action
described in the Articles of Incorporation or under Maryland law.
The Fund will hold meetings when required to do so by the Investment
Company Act or other applicable law. The Fund will hold a meeting when the
Directors call a meeting or upon proper request of shareholders. If the Fund's
parent corporation receives a written request of the record holders of at least
25% of the outstanding shares eligible to be voted at a meeting to call a
meeting for a specified purpose (which might include the removal of a Director),
the Directors will call a meeting of shareholders for that specified purpose.
The Fund's parent corporation has undertaken that it will then either give the
applicants access to the Fund's shareholder list or mail the applicants'
communication to all other shareholders at the applicants' expense.
Shareholders of the Fund and of its parent corporation's other series vote
together in the aggregate on certain matters at shareholders' meetings. Those
matters include the election of Directors and ratification of appointment of the
independent auditors. Shareholders of a particular series or class vote
separately on proposals that affect that series or class. Shareholders of a
series or class that is not affected by a proposal are not entitled to vote on
the proposal. For example, only shareholders of a particular series vote on any
material amendment to the investment advisory agreement for that series. Only
shareholders of a particular class of a series vote on certain amendments to the
Distribution and/or Service Plans if the amendments affect only that class.
Directors and Officers of the Fund. The Directors of the Fund's parent
corporation and the Fund's officers and their principal occupations and business
affiliations during the past five years are listed below. Directors denoted with
an asterisk (*) below are deemed to be "interested persons" of the Fund's parent
corporation and the Fund under the Investment Company Act. All of the Directors
are also trustees, directors or managing general partners of the following New
York-based Oppenheimer funds1:
<PAGE>
Oppenheimer California Municipal Fund Oppenheimer International Small Company
Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Developing Markets Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Discovery Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Enterprise Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Europe Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Global Fund Oppenheimer Municipal Bond Fund
Oppenheimer Global Growth & Income Fund Oppenheimer New York Municipal Fund
Oppenheimer Gold & Special Minerals Oppenheimer Series Fund, Inc.
Fund
Oppenheimer Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Wixted, Zack, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of February 1, 1999, the Directors and officers of
the Fund as a group owned of record or beneficially less than 1% of each class
of shares of the Fund. The foregoing statement does not reflect ownership of
shares of the Fund held of record by an employee benefit plan for employees of
the Manager, other than the shares beneficially owned under the plan by the
officers of the Fund listed above. Ms. Macaskill and Mr. Donohue are trustees of
that plan.
1 Ms. Macaskill is not a Director of Oppenheimer Money Market Fund, Inc.
Leon Levy, Chairman of the Board of
Directors, Age 73
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners,
L.P. (investment partnership) (since
1982) and Chairman of Avatar Holdings,
Inc. (real estate development).
Robert G. Galli, Director, Age 65
19750 Beach Road, Jupiter Island, FL 33469 A Trustee or Director of other
Oppenheimer funds. Formerly he held the following positions: Vice Chairman of
the Manager, OppenheimerFunds, Inc. (October 1995 to December 1997); Vice
President (June 1990 to March 1994) and General Counsel of Oppenheimer
Acquisition Corp., the Manager's parent holding company; Executive Vice
President (December 1977 to October 1995), General Counsel and a director
(December 1975 to October 1993) of the Manager; Executive Vice President and a
director (July 1978 to October 1993) and General Counsel of the Distributor,
OppenheimerFunds Distributor, Inc.; Executive Vice President and a director
(April 1986 to October 1995) of HarbourView Asset Management Corporation; Vice
President and a director (October 1988 to October 1993) of Centennial Asset
Management Corporation, (HarbourView and Centennial are investment adviser
subsidiaries of the Manager); and an officer of other Oppenheimer funds.
Benjamin Lipstein, Director, Age 75
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Director *, Age 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corp.; Chairman and a director of
Shareholder Services, Inc. (since August 1994), and Shareholder Financial
Services, Inc. (since September 1995) (both are transfer agent subsidiaries of
the Manager); President (since September 1995) and a director (since October
1990) of Oppenheimer Acquisition Corp.; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director (since July 1996) of
Oppenheimer Real Asset Management, Inc., an investment advisory subsidiary of
the Manager; President and a director (since October 1997) of OppenheimerFunds
International Ltd., an offshore fund management subsidiary of the Manager and
Oppenheimer Millennium Funds plc; President (since October, 1997); President and
a director or trustee of other Oppenheimer funds; a director of Hillsdown
Holdings plc (a U.K. food company).
Elizabeth B. Moynihan, Director, Age 69
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute), and a member of the Executive Committee of the Board of
Trustees of the National Building Museum; a member of the Trustees Council,
Preservation League of New York State.
Kenneth A. Randall, Director, Age 71
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil and gas producer), and Prime
Retail, Inc. (real estate investment trust); formerly President and Chief
Executive Officer of The Conference Board, Inc. (international economic and
business research) and a director of Lumbermens Mutual Casualty Company,
American Motorists Insurance Company and American Manufacturers Mutual Insurance
Company.
Edward V. Regan, Director, Age 68
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of RB Asset
(real estate manager) and OffitBank; a Trustee of Financial Accounting
Foundation (FASB and GASB); formerly New York State Comptroller and trustee, New
York State and Local Retirement Fund. Russell S. Reynolds, Jr., Director, Age 68
8 Sound Shore Drive, Greenwich, Connecticut 06830 Retired 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 Director *, Age 73
Two World Trade Center, 34th Floor, New York, NY 10048-0203 Chairman Emeritus
(since August 1991) and a director (since January 1969) of the Manager; formerly
Chairman of the Manager and the Distributor.
Pauline Trigere, Director, Age 86
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of P.T. Concept (design and sale of women's
fashions).
Clayton K. Yeutter, Director, Age 68
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a law firm); a director of Zurich Financial
Services (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) Counselor to the President (Bush)
for Domestic Policy, Chairman of the Republican National Committee, Secretary of
the U.S. Department of Agriculture, and U.S. Trade Representative; and formerly
a director of B.A.T. Industries, Ltd. (tobacco and financial services), IMC
Global (fertilizer producer) and Lindsay Mfg. Co. (maker of irrigation
equipment).
Peter M. Antos, Vice President and Portfolio Manager, Age: 53.
One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103
Chartered Financial Analyst; Senior Vice President of the Manager and
HarbourView Asset Management Corp. (since March 1996); an officer and portfolio
manager of other Oppenheimer funds; previously Vice President and Senior
Portfolio Manager, Equities of Connecticut Mutual Life Insurance Company and its
subsidiary, G.R. Phelps & Co. (1989-1996).
Stephen F. Libera, Vice President and Portfolio Manager, Age: 48.
One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103
Chartered Financial Analyst; Vice President of the Manager and HarbourView Asset
Management Corp. (since March 1996); an officer of other Oppenheimer funds;
previously a Vice President and Senior Portfolio Manager, Fixed Income for
Connecticut Mutual Life Insurance Company and G.R. Phelps & Co. (1985-1996).
Michael C. Strathearn, Vice President and Portfolio Manager, Age: 46.
One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103
Chartered Financial Analyst; Vice President of the Manager and HarbourView Asset
Management Corp (since March 1996); an officer of other Oppenheimer funds;
previously a Portfolio Manager, Equities, of Connecticut Mutual Life Insurance
Company (1988-1996).
Kenneth B. White, Vice President and Portfolio Manager, Age: 47.
One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103
Chartered Financial Analyst; Vice President of the Manager and HarbourView Asset
Management Corp. (since March 1996); an officer of other Oppenheimer funds;
previously a Portfolio Manager, Equities, of Connecticut Mutual Life Insurance
Company (1992-1996).
Arthur J. Zimmer, Vice President and Portfolio Manager, Age: 52
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President of the Manager (since June 1997); Vice President of
Centennial Asset Management Corporation, an investment advisory subsidiary of
the Manager (since September 1991),; an officer of other Oppenheimer funds;
formerly Vice President of the Manager (October 1990 - June 1997).
Andrew J. Donohue, Secretary, Age 48
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corp., Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since September 1995); President and a director of Centennial Asset Management
Corp. (since September 1995); President, General Counsel and a director of
Oppenheimer Real Asset Management, Inc. (since July 1996); General Counsel
(since May 1996) and Secretary (since April 1997) of Oppenheimer Acquisition
Corp.; Vice President of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Brian W. Wixted, Treasurer; Age: 39.
6803 South Tucson Way, Englewood,
Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; formerly
Principal and Chief Operating Officer, Bankers Trust Company - Mutual Fund
Services Division (1995-1999); Vice President and Chief Financial Officer of CS
First Boston Investment Management Corp. (1991-1995); and Vice President and
Accounting Manager, Merrill Lynch Asset Management (1987-1991).
Robert G. Zack, Assistant Secretary, Age 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager; Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer, Age 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager. Scott T. Farrar, Assistant Treasurer, Age 33 6803 South Tucson Way,
Englewood, Colorado 80112 Vice President of the Manager/Mutual Fund Accounting
(since May 1996); Assistant Treasurer of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds; formerly an Assistant Vice President of the Manager/Mutual
Fund Accounting (April 1994-May 1996), and a Fund Controller for the Manager.
|X| Remuneration of Directors. The officers of the Fund and certain
Directors of the Fund's parent corporation (Ms. Macaskill and Mr. Spiro) who are
affiliated with the Manager receive no salary or fee from the Fund. The
remaining Directors received the compensation shown below. The compensation from
the Fund was paid during its fiscal period ended October 31, 1998. The
compensation from all of the New York-based Oppenheimer funds (including the
Fund) was received as a director, trustee or member of a committee of the boards
of those funds during the calendar year 1998.
<PAGE>
- -------------------------------------------------------------------------------
Total
Compensation
Retirement From all
Benefits New York based
Aggregate Accrued as Part Oppenheimer
Director's Name Compensation of Fund Funds (21
and Other Positions from Fund1 Expenses Funds)2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Leon Levy $6,044 $810 $162,600
Chairman
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Robert G. Galli $1,976 None $113,383
Study Committee Member3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Benjamin Lipstein
Study Committee Chairman, $ 5,661 $1,137 $140,550
Audit Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Elizabeth B. Moynihan $3,187 None $99,000
Study Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Kenneth A. Randall $3,458 $535 $90,800
Audit Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Edward V. Regan
Proxy Committee Chairman, $2,890 None $89,800
Audit Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Russell S. Reynolds, Jr. $2,310 $147 $67,200
Proxy Committee Member
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Pauline Trigere $2,310 $379 $60,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Clayton K. Yeutter $2,1634 None $67,200
Proxy Committee Member
- -------------------------------------------------------------------------------
Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Director.
For the 1998 calendar year.
Aggregate compensation from the Fund reflects fees from 1/1/98 to 10/31/98.
Total compensation for the 1998 calendar year includes compensation received
for serving as Trustee or Director of 11 other Oppenheimer funds.
Committee position held during a portion of the period shown. Includes $465
deferred under Deferred Compensation Plan described below.
<PAGE>
|X| Retirement Plan for Directors. The Fund and its parent corporation
have adopted a retirement plan that provides for payments to retired Directors.
Payments are up to 80% of the average compensation paid during a Director's five
years of service in which the highest compensation was received. A Director must
serve as director or trustee for any of the New York-based Oppenheimer funds for
at least 15 years to be eligible for the maximum payment. Each Director's
retirement benefits will depend on the amount of the Director's future
compensation and length of service. Therefore the amount of those benefits
cannot be determined at this time, nor can we estimate the number of years of
credited service that will be used to determine those benefits.
n Deferred Compensation Plan. The Board of Directors has adopted a Deferred
Compensation Plan for disinterested directors 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 Director
is periodically adjusted as though an equivalent amount had been invested in
shares of one or more Oppenheimer funds selected by the Director. The amount
paid to the Director under the plan will be determined based upon the
performance of the selected funds.
Deferral of Directors' 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 Director or to pay any particular level
of compensation to any Director. Pursuant to an Order issued by the Securities
and Exchange Commission, the Fund may invest in the funds selected by the
Director under the plan without shareholder approval for the limited purpose of
determining the value of the Director's deferred fee account.
n Major Shareholders. As of February 1, 1999, the only persons who owned of
record or were known by the Fund to own beneficially 5% or more of any class of
the Fund's outstanding shares were:
Massachusetts Mutual Life Insurance Co., 1295 State Street, Springfield, MA
01111-0001, which owned 3,348,849.565 Class A shares (approximately 17.40%
of the outstanding Class A shares) for the benefit of its clients.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive East,
Jacksonville, FL 32246, which owned 34,281.139 Class C shares (approximately
9.02% of the outstanding Class C shares) for the benefit of its clients.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. The
Manager and the Fund have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers,
that would compete with or take advantage of the Fund's portfolio transactions.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
n The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio managers
of the Fund are employed by the Manager and are the persons who are principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Equity Portfolio Department provide the portfolio managers with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage commissions,
fees to certain Directors, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration costs
and non-recurring expenses, including litigation costs. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class.
------------------------------------------------------------------------------
Fiscal Year ended 10/31: Management Fees Paid to OppenheimerFunds, Inc.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
19961 $ 909,829
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 $1,535,343
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $1,774,240
------------------------------------------------------------------------------
1.Fiscal period from 1/1/96 to 10/31/96. For the period from 1/1/96 to
3/18/96, fees paid to the Fund's prior investment adviser were $287,424.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager may withdraw the right of the Fund's parent
corporation to use the name "Oppenheimer" as part of its name and the name of
the Fund.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
The Manager is authorized by the advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the Investment
Company Act. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Directors.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for the
Fund and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those considerations, as a factor in selecting
brokers for the Fund's portfolio transactions, the Manager may also consider
sales of shares of the Fund and other investment companies for which the Manager
or an affiliate serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. Instead of using a broker for those transactions, the Fund normally
deals directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The investment research services provided by a
particular broker may be useful only to one or more of the advisory accounts of
the Manager and its affiliates. The investment research received for the
commissions of those other accounts may be useful both to the Fund and one or
more of the Manager's other accounts. Investment research may be supplied to the
Manager by a third party at the instance of a broker through which trades are
placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of Directors permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Directors permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
- -------------------------------------------------------------------------------
Fiscal Year Ended 10/31: Total Brokerage Commissions Paid by the Fund1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1996 2 $118,259
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $385,963
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $457,2633
- -------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. For the fiscal period from 1/1/96 to 10/31/96.
3. In the fiscal year ended 10/31/98, the amount of transactions directed to
brokers for research services was $220,375,253 and the amount of the
commissions paid to broker-dealers for those services was $332,848.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund's
parent corporation, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The Distributor is not obligated to sell a specific number of shares. Expenses
normally attributable to sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
<PAGE>
- -------------------------------------------------------------------------------
Aggregate Class A
Front-End Front-End Commissions Commissions Commissions
Fiscal Sales Sales on Class A on Class B on Class C
Year Charges on Charges Shares Shares Shares
Ended Class A Retained by Advanced by Advanced by Advanced by
10/31: Shares Distributor Distributor1 Distributor1 Distributor1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
19962 $703,460 $501,951 $84,457 $ 93,675 $ 1,236
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $468,073 $456,768 $10,843 $175,997 $10,881
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $481,886 $397,054 $27,571 $316,680 $21,560
- -------------------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. Fiscal period from 1/1/86 to 10/31/96. Excludes amounts paid to and/or
retained by the Fund's prior general distributor for the period from 1/1/96
to 3/18/96.
- -------------------------------------------------------------------------------
Fiscal Class A Contingent Class B Contingent
Year Deferred Sales Deferred Sales Class C Contingent
Ended Charges Retained by Charges Retained by Deferred Sales Charges
10/31 Distributor Distributor Retained by Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 None $30,404 $2,562
- -------------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays the
Distributor for all or a portion of its costs incurred in connection with the
distribution and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Directors, including
a majority of the Independent Directors2, cast in person at a meeting called for
the purpose of voting on that plan. Each plan has also been approved by the
holders of a "majority" (as defined in the Investment Company Act) of the shares
of the applicable class. The shareholder vote for the Distribution and Service
Plan for Class C shares was cast by the Manager as the sole initial holder of
Class C shares of the Fund.
2. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Directors" in this Statement of Additional Information refers to
those Directors who are not "interested persons" of the Fund (or its parent
corporation) and who do not have any direct or indirect financial interest in
the operation of the distribution plan or any agreement under the plan.
Under the plans, the Manager and the Distributor, in their sole
discretion, from time to time, may use their own resources (at no direct cost to
the Fund) to make payments to brokers, dealers or other financial institutions
for distribution and administrative services they perform. The Manager may use
its profits from the advisory fee it receives from the Fund. In their sole
discretion, the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Directors and its
Independent Directors specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Directors or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Directors and the Independent Directors must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund must obtain the approval
of both Class A and Class B shareholders for a proposed material amendment to
the Class A Plan that would materially increase payments under the Plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of
the shares of each class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Directors at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Directors.
Each plan states that while it is in effect, the selection and nomination
of those Directors of the Fund's parent corporation who are not "interested
persons" of the corporation (or the Fund) is committed to the discretion of the
Independent Directors. This does not prevent the involvement of others in the
selection and nomination process as long as the final decision as to selection
or nomination is approved by a majority of the Independent Directors.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares of that
class held by the recipient for itself and its customers does not exceed a
minimum amount, if any, that may be set from time to time by a majority of the
Independent Directors. The Board of Directors has set no minimum amount of
assets to qualify for payments under the plans.
|X| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Class A
service plan permits reimbursements to the Distributor at a rate of up to 0.25%
of average annual net assets of Class A shares. The Board has set the rate at
that level. While the plan permits the Board to authorize payments to the
Distributor to reimburse itself for services under the plan, the Board has not
yet done so. The Distributor makes payments to plan recipients quarterly at an
annual rate not to exceed 0.25% of the average annual net assets consisting of
Class A shares held in the accounts of the recipients or their customers.
For the fiscal year ended October 31, 1998 payments under the Class A plan
totaled $671,280, all of which was paid by the Distributor to recipients. That
included $557,688 paid to an affiliate of the Distributor's parent company. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares in
any fiscal year cannot be recovered in subsequent years. The Distributor may not
use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.
|X| Class B and Class C Service and Distribution Plan Fees. Under each
plan, service fees and distribution fees are computed on the average of the net
asset value of shares in the respective class, determined as of the close of
each regular business day during the period. The Class B and Class C plans
provide for the Distributor to be compensated for its services at a flat rate,
whether the Distributor's costs in distributing Class B and Class C shares and
servicing accounts are more or less than the amounts paid by the Fund under the
plan during the period for which the fee is paid. The types of services that
recipients provide are similar to the services provided under the Class A
service plan, described above.
The Class B and the Class C plans permit the Distributor to retain both
the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor currently intends to pay the service fee to recipients in advance
for the first year after the shares are purchased. After the first year shares
are outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the recipient on Class C shares outstanding for a
year or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Fund pays the
asset-based sales charges to the Distributor for its services rendered in
distributing Class B and Class C shares. The payments are made to the
Distributor in recognition that the Distributor: o pays sales commissions to
authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B and Class C
shares, and
o bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses.
For the fiscal year ended October 31, 1998, payments under the Class B
plan totaled $141,994 (including $11,835 paid to an affiliate of the
Distributor's parent). The Distributor retained $122,183 of the total amount.
For the fiscal year ended October 31, 1998, payments under the Class C plan
totaled $28,515 (including $3,586 paid to an affiliate of the Distributor's
parent). The Distributor retained $22,102 of the total amount.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. As of
October 31, 1998, the Distributor had incurred unreimbursed expenses under the
Class B plan in the amount of $623,479 (equal to 2.87% of the Fund's net assets
represented by Class B shares on that date) and unreimbursed expenses under the
Class C plan of $52,326 (equal to 1.08% of the Fund's net assets represented by
Class C shares on that date). If either the Class B or the Class C plan is
terminated by the Fund, the Board of Directors may allow the Fund to continue
payments of the asset-based sales charge to the Distributor for distributing
shares before the plan was terminated.
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication).
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each shareholder's
account. Your account's performance will vary from the model performance data if
your dividends are received in cash, or you buy or sell shares during the
period, or you bought your shares at a different time and price than the shares
used in the model.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
|_| The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. The "average annual total return"
of each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return"
calculation measures the change in value of a hypothetical investment of $1,000
over an entire period of years. Its calculation uses some of the same factors as
average annual total return, but it does not average the rate of return on an
annual basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for 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 Fund's Total Returns for the Periods Ended 10/31/98
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cumulative Total
Returns (10
Class of years
Shares or Life of
Class) Average Annual Total Returns
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5-Year 10-Year
(or (or
1-Year life-of-class) life-of-class)
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A 205.52% 224.16% -0.17% 5.92% 8.86% 10.16% 11.82%1 12.48%1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B 34.26% 37.26% 0.50% 5.10% 10.03%2 10.83%2 N/A N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C 29.01% 29.01% 4.19% 5.10% 10.72%3 10.72%3 N/A N/A
- -------------------------------------------------------------------------------
1. Inception of Class A: 9/16/85
2. Inception of Class B: 10/2/95
3. Inception of Class C: 5/1/96
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
n Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other flexible portfolio funds. The Lipper performance rankings are based on
total returns that include the reinvestment of capital gain distributions and
income dividends but do not take sales charges or taxes into consideration.
Lipper also publishes "peer-group" indices of the performance of all mutual
funds in a category that it monitors and averages of the performance of the
funds in particular categories.
n Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among domestic
stock funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) one, three, five and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after considering the
fund's sales charges and expenses. Risk measures a fund's (or class's)
performance below 90-day U.S. Treasury bill returns. Risk and investment return
are combined to produce star rankings reflecting performance relative to the
average fund in a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), four stars is "above average" (next 22.5%), three stars
is "average" (next 35%), two stars is "below average" (next 22.5%) and one star
is "lowest" (bottom 10%). The current star ranking is the fund's (or class's)
3-year ranking or its combined 3- and 5-year ranking (weighted 60%/40%
respectively), or its combined 3-, 5-, and 10-year ranking (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).
Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
n Performance Rankings and Comparisons by Other Entities and Publications.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, The Wall Street Journal, Barron's, or
similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's
classes of shares may be compared in publications to the performance of various
market indices or other investments, and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
- ------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
- ------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
n Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together:
o Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
o Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge
to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Bond Fund Oppenheimer Large Cap Growth Fund
Oppenheimer California Municipal Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Champion Income Fund Oppenheimer MidCap Fund Oppenheimer Convertible
Securities Fund Oppenheimer Multiple Strategies Fund Oppenheimer Developing
Markets Fund Oppenheimer Municipal Bond Fund Oppenheimer Disciplined Allocation
Fund Oppenheimer New York Municipal Fund Oppenheimer Disciplined Value Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Discovery Fund Oppenheimer
Pennsylvania Municipal Fund Oppenheimer Enterprise Fund Oppenheimer Quest
Balanced Value Fund Oppenheimer Europe Fund Oppenheimer Quest Capital Value
Fund,
Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value Fund,
Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Gold & Special Minerals Oppenheimer Quest Value Fund, Inc.
Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Fund Limited-Term New York Municipal Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A and Class B shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate for
the Class A shares purchased during that period. You can include purchases made
up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which
may be counted toward completion of a Letter) include: (a) Class A shares sold
with a front-end sales charge or subject to a Class
A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class
A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. The amount of the
Asset Builder investment may be changed or the automatic investments may be
terminated at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the Plan's applicable investments
reach $5 million. Cancellation of Purchase Orders. Cancellation of purchase
orders for the Fund's shares (for example, when a purchase check is returned to
the Fund unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date. That
loss is equal to the amount of the decline in the net asset value per share
multiplied by the number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the Fund for the
loss, the Distributor will do so. The Fund may reimburse the Distributor for
that amount by redeeming shares from any account registered in that investor's
name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
n Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class B
shares would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
n Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Directors' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Directors, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days and the values of some of the Fund's
portfolio securities may change significantly on these days, when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Manager determines that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.
n Securities Valuation. The Fund's Board of Directors has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows: (1) if last sale information is regularly reported, they
are valued at the
last reported sale price on the principal exchange on which
they are traded or on NASDAQ, as applicable, on that day, or
if last sale information is not available on a valuation date, they
are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid"
and "asked" prices on the valuation date or, if not, at the
closing "bid" price on the valuation date.
o Equity securities traded on a foreign securities exchange generally
are valued in one of the following ways: (1) at the last sale price available to
the pricing service approved by the
Board of Directors, or
(2) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its
last trading session on or immediately before the valuation date,
or
(3) at the mean between the "bid" and "asked" prices obtained from
the principal exchange on which the security is traded or, on the
basis of reasonable inquiry, from two market makers in the
security.
o Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Directors or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Directors or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than 397 days when
issued,
(2) debt instruments that had a maturity of 397 days or less when
issued and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days
or less when issued and which have a remaining maturity of 60
days or less.
o The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts: (1) money market debt
securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a
remaining maturity of 397 days or less.
o Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures. If the Manager is unable to locate two market makers
willing to give quotes, a security may be priced at the mean between the "bid"
and "asked" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Directors. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Directors or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus.
The information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Directors 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 liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Directors has the right to cause
the involuntary redemption of the shares held in any account if the account
holds fewer than 100 shares. If the Board exercises this right, it may also fix
the requirements for any notice to be given to the shareholders in question (not
less than 30 days). The Board may alternatively set requirements for the
shareholder to increase the investment, or set other terms and conditions so
that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Sending Redemption Proceeds by Wire. The wire of redemption proceeds may be
delayed if the Fund's custodian bank is not open for business on a day when the
Fund would normally authorize the wire to be made, which is usually the Fund's
next regular business day following the redemption. In those circumstances, the
wire will not be transmitted until the next bank business day on which the Fund
is open for business. No dividends will be paid on the proceeds of redeemed
shares awaiting transfer by wire.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the conditions of
applicable tax laws and will not be responsible for any tax penalties assessed
in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C to this
Statement of Additional Information.
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only 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.
|_| Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge. To
qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
Class must specify which class of shares they with to exchange.
n Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
n Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
n Processing Exchange Requests. Shares to be exchanged are redeemed on the
regular business day the Transfer Agent receives an exchange request in proper
form (the "Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by either
fund up to five business days if it determines that it would be disadvantaged by
an immediate transfer of the redemption proceeds. The Fund reserves the right,
in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund, the Fund may refuse the request.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A shares. That is because of
the effect of the asset-based sales charge on Class B and Class C shares. Those
dividends will also differ in amount as a consequence of any difference in the
net asset values of the different classes of shares.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Directors and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
<PAGE>
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as
shareholder servicing agent for the other Oppenheimer funds. Shareholders should
direct inquiries about their accounts to the Transfer Agent at the address and
toll-free numbers shown on the back cover.
The Custodian. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
================================================================================
The Board of Directors and Shareholders of
Oppenheimer Disciplined Allocation Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Disciplined Allocation Fund as of October 31, 1998,
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the two-year period then
ended and the ten months ended October 31, 1996. 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. The financial highlights for each of
the years in the three-year period ended December 31, 1995 were audited by other
auditors whose report dated February 9, 1996, expressed an unqualified opinion
on this information.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1998, by correspondence with the custodian and brokers;
and where confirmations were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Oppenheimer Disciplined Allocation Fund as of October 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the two-year period then ended and the ten
months ended October 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
November 20, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
====================================================================================================================================
<S>
<C> <C>
Common Stocks--49.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Materials--0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Metals--0.8%
Aluminum Co. of
America
33,300 $ 2,639,025
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--6.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Autos & Housing--2.5%
Federal-Mogul
Corp.
58,300 3,159,131
- ------------------------------------------------------------------------------------------------------------------------------------
Hertz Corp., Cl.
A
20,700 741,319
- ------------------------------------------------------------------------------------------------------------------------------------
Maytag
Corp.
57,700 2,852,544
- ------------------------------------------------------------------------------------------------------------------------------------
Republic Industries,
Inc.(1)
41,100 660,169
- ------------------------------------------------------------------------------------------------------------------------------------
Whirlpool
Corp.
15,500 794,375
- ------------
8,207,538
- ------------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment--1.7%
Alaska Air Group,
Inc.(1)
17,200 618,125
- ------------------------------------------------------------------------------------------------------------------------------------
AMR
Corp.(1)
18,800 1,259,600
- ------------------------------------------------------------------------------------------------------------------------------------
Delta Air Lines,
Inc.
4,600 485,587
- ------------------------------------------------------------------------------------------------------------------------------------
Eastman Kodak
Co.
28,200 2,185,500
- ------------------------------------------------------------------------------------------------------------------------------------
Hasbro,
Inc.
20,000 701,250
- ------------------------------------------------------------------------------------------------------------------------------------
Outback Steakhouse,
Inc.(1)
7,200 249,300
- ------------------------------------------------------------------------------------------------------------------------------------
Wendy's International,
Inc.
1,200 25,200
- ------------
5,524,562
- ------------------------------------------------------------------------------------------------------------------------------------
Retail: General--1.8%
Dayton Hudson
Corp.
31,600 1,339,050
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Department Stores,
Inc.(1)
24,800 953,250
- ------------------------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., Cl.
A(1)
31,700 483,425
- ------------------------------------------------------------------------------------------------------------------------------------
K Mart
Corp.(1)
33,700 476,012
- ------------------------------------------------------------------------------------------------------------------------------------
Nordstrom,
Inc.
19,200 524,400
- ------------------------------------------------------------------------------------------------------------------------------------
Sears Roebuck &
Co.
48,000 2,157,000
- ------------
5,933,137
- ------------------------------------------------------------------------------------------------------------------------------------
Retail: Specialty--0.3%
Payless ShoeSource,
Inc.(1)
21,900 1,027,931
</TABLE>
13 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Consumer Non-Cyclicals--11.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages--0.7%
Anheuser-Busch Cos.,
Inc.
40,200 $ 2,389,387
- ------------------------------------------------------------------------------------------------------------------------------------
Food--3.7%
Albertson's,
Inc.
42,000 2,333,625
- ------------------------------------------------------------------------------------------------------------------------------------
General Mills,
Inc.
28,000 2,058,000
- ------------------------------------------------------------------------------------------------------------------------------------
IBP,
Inc.
85,200 2,305,725
- ------------------------------------------------------------------------------------------------------------------------------------
Kroger
Co.(1)
58,100 3,224,550
- ------------------------------------------------------------------------------------------------------------------------------------
Safeway,
Inc.(1)
41,500 1,984,219
- ------------
11,906,119
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare/Drugs--2.6%
Amgen,
Inc.(1)
53,900 4,234,519
- ------------------------------------------------------------------------------------------------------------------------------------
Genzyme Corp. (General
Division)(1)
100,500 4,227,281
- ------------
8,461,800
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare/Supplies & Services--1.9%
Bard (C.R.),
Inc.
57,400 2,450,262
- ------------------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare
Corp.(1)
86,930 2,428,607
- ------------------------------------------------------------------------------------------------------------------------------------
WellPoint Health Networks,
Inc.(1)
18,500 1,362,062
- ------------
6,240,931
- ------------------------------------------------------------------------------------------------------------------------------------
Household Goods--2.7%
Dial Corp.
(The)
83,400 2,298,712
- ------------------------------------------------------------------------------------------------------------------------------------
Fort James
Corp.
89,350 3,601,922
- ------------------------------------------------------------------------------------------------------------------------------------
Premark International,
Inc.
91,500 2,899,406
- ------------
8,800,040
- ------------------------------------------------------------------------------------------------------------------------------------
Energy--1.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Oil-Integrated--1.1%
Exxon
Corp.
32,100 2,287,125
- ------------------------------------------------------------------------------------------------------------------------------------
Mobil
Corp.
18,800 1,422,925
- ------------
3,710,050
- ------------------------------------------------------------------------------------------------------------------------------------
Financial--6.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Banks--3.8%
Bank One
Corp.
67,300 3,289,287
- ------------------------------------------------------------------------------------------------------------------------------------
BankBoston
Corp.
77,000 2,834,562
- ------------------------------------------------------------------------------------------------------------------------------------
First Union
Corp.
59,500 3,451,000
- ------------------------------------------------------------------------------------------------------------------------------------
Golden West Financial
Corp.
30,200 2,738,762
- ------------
12,313,611
</TABLE>
14 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Insurance--2.8%
ACE
Ltd.
29,600 $ 1,002,700
- ------------------------------------------------------------------------------------------------------------------------------------
Allstate
Corp.
41,900 1,804,319
- ------------------------------------------------------------------------------------------------------------------------------------
American International Group,
Inc.
31,100 2,651,275
- ------------------------------------------------------------------------------------------------------------------------------------
Conseco,
Inc.
40,300 1,397,906
- ------------------------------------------------------------------------------------------------------------------------------------
Equitable Cos.,
Inc.
18,600 911,400
- ------------------------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., Cl.
A
43,500 1,334,906
- ------------
9,102,506
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial--5.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Materials--1.0%
Owens
Corning
37,300 1,354,456
- ------------------------------------------------------------------------------------------------------------------------------------
USG
Corp.
37,500 1,788,281
- ------------
3,142,737
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Services--1.2%
Viad
Corp.
70,500 1,934,344
- ------------------------------------------------------------------------------------------------------------------------------------
Waste Management, Inc.
(New)
40,165 1,812,446
- ------------
3,746,790
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing--3.3%
Ingersoll-Rand
Co.
55,650 2,810,325
- ------------------------------------------------------------------------------------------------------------------------------------
PACCAR,
Inc.
32,400 1,413,450
- ------------------------------------------------------------------------------------------------------------------------------------
Textron,
Inc.
49,000 3,644,375
- ------------------------------------------------------------------------------------------------------------------------------------
United Technologies
Corp.
28,600 2,724,150
- ------------
10,592,300
- ------------------------------------------------------------------------------------------------------------------------------------
Technology--9.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--1.6%
General Dynamics
Corp.
58,000 3,432,875
- ------------------------------------------------------------------------------------------------------------------------------------
Lockheed Martin
Corp.
17,371 1,934,695
- ------------
5,367,570
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Hardware--6.4%
Apple Computer,
Inc.(1)
66,300 2,461,387
- ------------------------------------------------------------------------------------------------------------------------------------
Compaq Computer
Corp.
119,500 3,779,188
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machines
Corp.
40,100 5,952,344
- ------------------------------------------------------------------------------------------------------------------------------------
Lexmark International Group, Inc., Cl.
A(1)
24,700 1,727,456
- ------------------------------------------------------------------------------------------------------------------------------------
Seagate Technology,
Inc.(1)
42,300 1,115,663
- ------------------------------------------------------------------------------------------------------------------------------------
Storage Technology Corp.
(New)(1)
68,800 2,300,500
- ------------------------------------------------------------------------------------------------------------------------------------
Xerox
Corp.
34,700 3,361,563
- ------------
20,698,101
</TABLE>
15 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Computer Software/Services--1.0%
First Data
Corp.
38,200 $ 1,012,300
- ------------------------------------------------------------------------------------------------------------------------------------
Network Associates,
Inc.(1)
49,300 2,095,250
- ------------
3,107,550
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications/Technology--0.6%
3Com
Corp.(1)
55,500 2,001,469
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities--8.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--2.5%
Baltimore Gas & Electric
Co.
51,500 1,615,813
- ------------------------------------------------------------------------------------------------------------------------------------
Edison
International
61,100 1,611,513
- ------------------------------------------------------------------------------------------------------------------------------------
FPL Group,
Inc.
49,000 3,065,563
- ------------------------------------------------------------------------------------------------------------------------------------
Montana Power
Co.
44,100 1,910,081
- ------------
8,202,970
- ------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities--1.1%
Columbia Energy
Group
63,650 3,683,744
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone Utilities--4.8%
AT&T
Corp.
70,100 4,363,725
- ------------------------------------------------------------------------------------------------------------------------------------
Bell Atlantic
Corp.
78,360 4,162,875
- ------------------------------------------------------------------------------------------------------------------------------------
Century Telephone Enterprises,
Inc.
17,600 999,900
- ------------------------------------------------------------------------------------------------------------------------------------
Frontier
Corp.
39,000 1,172,438
- ------------------------------------------------------------------------------------------------------------------------------------
US West,
Inc.
83,900 4,813,763
- ------------
15,512,701
- ------------
Total Common Stocks (Cost
$145,694,225)
162,312,569
====================================================================================================================================
Other Securities--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Ingersoll-Rand International Finance Corp. I, 6.22% Preferred
Redeemable Increased Dividend Equity Securities, 5/16/01
(Cost
$750,000)
30,000 785,625
Units
====================================================================================================================================
Rights, Warrants and Certificates--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Concentric Network Corp. Wts., Exp.
12/07(2)
100 10,000
- ------------------------------------------------------------------------------------------------------------------------------------
Dairy Mart Convenience Stores, Inc. Wts., Exp.
12/01(2)
666 173
- ------------------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc. Wts., Exp.
6/00(2)
100 6,948
- ------------------------------------------------------------------------------------------------------------------------------------
Microcell Telecommunications, Inc. Wts., Exp.
6/06(2)
500 9,063
- ------------------------------------------------------------------------------------------------------------------------------------
Nextel International Ltd. Wts., Exp.
4/07(2)
100 263
- ------------------------------------------------------------------------------------------------------------------------------------
Price Communications Corp. Wts., Exp.
8/07(2)
516 15,480
- ------------------------------------------------------------------------------------------------------------------------------------
Signature Brands, Inc. Wts., Exp.
12/49(2)
100 2,012
- ------------
Total Rights, Warrants and Certificates (Cost
$8,004)
43,939
</TABLE>
16 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
====================================================================================================================================
<S>
<C> <C>
Asset-Backed Securities--1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Dayton Hudson Credit Card Master Trust, Asset-Backed
Certificates, Series 1997-1, Cl. A, 6.25%,
8/25/05 $ 125,000
$ 128,476
- ------------------------------------------------------------------------------------------------------------------------------------
Housing Securities, Inc., Series 1993-G, Cl. G4, 6.625%,
1/25/09 750,000 754,448
- ------------------------------------------------------------------------------------------------------------------------------------
IROQUOIS Trust, Asset-Backed Amortizing Nts.,
Series 1997-2, Cl. A, 6.752%,
6/25/07(2)
1,175,000 1,194,736
- ------------------------------------------------------------------------------------------------------------------------------------
Olympic Automobile Receivables Trust, Automobile
Receivables-Backed Nts., Series 1997-A, Cl. A-5, 6.80%,
2/15/05 1,150,000 1,173,180
- ------------
Total Asset-Backed Securities (Cost
$3,203,513)
3,250,840
====================================================================================================================================
Mortgage-Backed Obligations--5.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Obligations, Series 1996-1, Cl. A2, 7.60%,
3/18/06 1,500,000
1,622,813
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Funding Corp., Mtg. Pass-Through Certificates,
Series 1994-10, Cl. A3, 6%,
5/25/09
250,000 251,483
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Farm Credit Bank, Medium-Term Nts., 5.24%,
10/1/08 1,750,000
1,733,197
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg.
Obligations, Gtd. Multiclass Mtg. Participation Certificates:
Series 1711, Cl. EA, 7%,
3/15/24
200,000 204,686
Series 1987, Cl. K, 7.50%,
9/15/27(2)
176,576 176,577
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Gtd. Multiclass Mtg.
Participation Certificates:
6%,
3/1/09
814,446 820,083
Series 1337, Cl. D, 6%,
8/15/07
1,000,000 1,000,620
Series 1820, Cl. PL, 5.75%,
7/15/06
1,000,000 1,005,930
Series 1843, Cl. VB, 7%,
4/15/03
65,000 67,051
Series 1849, Cl. VA, 6%,
12/15/10
824,531 837,411
Series 1994-43, Cl. PE, 6%,
12/25/19
800,000 805,000
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only
Stripped Mtg.-Backed Security:
Series 1542, Cl. QC, 7.937%,
10/15/20(3)
400,000 51,250
Series 1583, Cl. IC, 6.762%-7.846%,
1/15/20(3)
2,518,751 201,500
Series 1661, Cl. PK, 9.687%,
11/15/06(3)
511,906 31,994
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
6%,
12/1/03
685,614 688,665
6.50%,
3/1/26-4/1/26
765,210 771,624
7%,
4/1/00
45,722 46,016
7.50%,
1/1/08-6/1/08
670,390 688,478
</TABLE>
17 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
====================================================================================================================================
<S>
<C> <C>
Mortgage-Backed Obligations (continued)
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Multiclass Mtg. Participation Certificates, Trust 1992-15,
Cl. KZ, 7%,
2/25/22
$ 796,254 $ 808,938
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1993-181, Cl. C, 5.40%,
10/25/02
46,188 46,030
Trust 1993-190, Cl. Z, 5.85%,
7/25/08
410,432 412,099
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security, Trust 1993-223, Cl. PM, 7.448%,
10/25/23(3) 1,587,257 201,375
- ------------------------------------------------------------------------------------------------------------------------------------
GE Capital Mortgage Services, Inc., Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates, Series 1994-7,
Cl. A18, 6%,
2/25/09
1,143,592 1,092,840
- ------------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
7%,
4/15/09-2/15/24
1,275,446 1,306,816
7.50%,
3/15/09
494,780 509,213
8%,
5/15/17
378,404 395,716
- ------------------------------------------------------------------------------------------------------------------------------------
IMC Home Equity Trust, Asset-Backed Home Equity
Securities, Series 1998-3, Cl. A5, 6.36%,
8/20/22(4)
700,000 701,094
- ------------------------------------------------------------------------------------------------------------------------------------
Norwest Asset Securities Corp., Mtg. Pass-Through Certificates,
Series 1997-14, Cl. A-3, 6.75%,
10/25/27
1,000,000 1,007,810
- ------------------------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed Pass-Through
Certificates, Series 1997-QS9, Cl. 2, 6.75%,
9/25/27
875,000 873,626
- ------------
Total Mortgage-Backed Obligations (Cost
$18,051,958)
18,359,935
====================================================================================================================================
U.S. Government Obligations--9.3%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
6%,
2/15/26
7,050,000 7,702,132
7.50%,
11/15/16(5)
2,000,000 2,495,626
8.75%,
5/15/17(5)
8,250,000 11,537,113
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.625%,
2/15/06
5,600,000 5,990,253
6.125%,
8/15/07
1,250,000 1,378,908
6.50%,
8/15/05
1,000,000 1,115,938
- ------------
Total U.S. Government Obligations (Cost
$26,507,430)
30,219,970
</TABLE>
18 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
====================================================================================================================================
<S>
<C> <C>
Foreign Government Obligations--0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
United Mexican States Bonds, 6.97%, 8/12/00 (Cost
$246,255) $ 250,000 $
237,500
====================================================================================================================================
Municipal Bonds and Notes--0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
CA Infrastructure & ED Bank Special Purpose Trust Certificates,
Series 1997-1, 6.28%, 9/25/05 (Cost
$1,001,493)
1,000,000 1,021,900
====================================================================================================================================
Non-Convertible Corporate Bonds and Notes--20.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Materials--0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals--0.4%
Morton International, Inc., 9.25% Credit Sensitive Nts.,
6/1/20 565,000 757,817
- ------------------------------------------------------------------------------------------------------------------------------------
PPG Industries, Inc., 9% Debs.,
5/1/21
315,000 405,259
- ------------
1,163,076
- ------------------------------------------------------------------------------------------------------------------------------------
Metals--0.3%
Alcan Aluminum Ltd., 9.625% Debs.,
7/15/19
975,000 1,048,700
- ------------------------------------------------------------------------------------------------------------------------------------
Paper--0.2%
Aracruz Celulose SA, 10.375% Debs.,
1/31/02(2)
750,000 613,125
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Autos & Housing--0.3%
Black & Decker Corp., 6.625% Nts.,
11/15/00
810,000 834,181
- ------------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment--0.6%
Hilton Hotels Corp., 7.375% Nts.,
6/1/02
50,000 49,724
- ------------------------------------------------------------------------------------------------------------------------------------
Paramount Communications, Inc., 7.50% Sr. Nts.,
1/15/02 750,000
796,754
- ------------------------------------------------------------------------------------------------------------------------------------
Tricon Global Restaurants, Inc., 7.45% Sr. Unsec. Nts.,
5/15/05 1,000,000 1,020,025
- ------------
1,866,503
- ------------------------------------------------------------------------------------------------------------------------------------
Media--0.7%
Reed Elsevier, Inc., 6.625% Nts.,
10/15/23(6)
400,000 420,432
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 6.375% Sr. Unsub. Nts.,
5/1/03 500,000
517,696
- ------------------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs.,
10/30/07
875,000 960,371
- ------------------------------------------------------------------------------------------------------------------------------------
Viacom, Inc., 6.75% Sr. Unsec. Nts.,
1/15/03
500,000 513,945
- ------------
2,412,444
- ------------------------------------------------------------------------------------------------------------------------------------
Retail: General--0.4%
Federated Department Stores, Inc., 6.125% Cv. Sub. Nts.,
9/1/01(4) 750,000 764,002
- ------------------------------------------------------------------------------------------------------------------------------------
Price/Costco Cos., Inc., 7.125% Sr. Nts.,
6/15/05
550,000 593,571
- ------------
1,357,573
</TABLE>
19 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Consumer Non-Cyclicals--2.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Food--1.1%
CPC International, Inc., 6.15% Unsec. Nts., Series C,
1/15/06 $ 500,000 $ 521,454
- ------------------------------------------------------------------------------------------------------------------------------------
Dole Food Co. Inc., 6.75% Nts.,
7/15/00
650,000 658,562
- ------------------------------------------------------------------------------------------------------------------------------------
Grand Metro Inventory Corp., 7.125% Nts.,
9/15/04
1,250,000 1,343,149
- ------------------------------------------------------------------------------------------------------------------------------------
RACERS-Kellogg-98-1, 5.75% Nts.,
2/2/01(6)
1,000,000 1,013,108
- ------------
3,536,273
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare/Supplies & Services--0.3%
Columbia/HCA Healthcare Corp., 6.875% Nts.,
7/15/01
120,000 117,307
- ------------------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.:
8% Sr. Nts.,
1/15/05
325,000 332,898
8.625% Sr. Unsec. Nts.,
12/1/03
500,000 526,252
- ------------
976,457
- ------------------------------------------------------------------------------------------------------------------------------------
Household Goods--0.9%
Dial Corp. (The), 5.89% Medium-Term Nts., Series A,
10/22/01 750,000
760,060
- ------------------------------------------------------------------------------------------------------------------------------------
Fort James Corp.:
6.234% Nts.,
3/15/01
250,000 256,723
6.875% Sr. Nts.,
9/15/07
1,000,000 1,035,441
- ------------------------------------------------------------------------------------------------------------------------------------
Kimberly-Clark Corp., 7.875% Debs.,
2/1/23
355,000 391,805
- ------------------------------------------------------------------------------------------------------------------------------------
Procter & Gamble Co., 9.36% Debs., Series A,
1/1/21
250,000 324,914
- ------------
2,768,943
- ------------------------------------------------------------------------------------------------------------------------------------
Energy--2.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Services & Producers--1.4%
Chesapeake Energy Corp., 7.875% Sr. Nts., Series B,
3/15/04 750,000
596,250
- ------------------------------------------------------------------------------------------------------------------------------------
Coastal Corp.:
8.125% Sr. Nts.,
9/15/02
565,000 607,175
8.75% Sr. Nts.,
5/15/99
35,000 35,550
- ------------------------------------------------------------------------------------------------------------------------------------
Columbia Gas System, Inc., 6.80% Nts., Series C,
11/28/05 500,000
529,402
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana Land & Exploration Co., 7.65% Debs.,
12/1/23 990,000
1,052,200
- ------------------------------------------------------------------------------------------------------------------------------------
Petroliam Nasional Berhad, 6.875% Nts.,
7/1/03(2)
500,000 396,183
- ------------------------------------------------------------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875% Debs.,
1/1/21
500,000 649,985
- ------------------------------------------------------------------------------------------------------------------------------------
Williams Holdings of Delaware, Inc., 6.25% Sr. Unsec. Debs.,
2/1/06 750,000 771,638
- ------------
4,638,383
</TABLE>
20 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Oil-Integrated--0.9%
Gulf Canada Resources Ltd.:
8.25% Sr. Nts.,
3/15/17
$ 575,000 $ 538,703
9% Debs.,
8/15/99
325,000 326,370
- ------------------------------------------------------------------------------------------------------------------------------------
Norcen Energy Resources Ltd., 6.80% Debs.,
7/2/02
1,000,000 1,011,783
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleum Geo-Services ASA, 7.50% Nts.,
3/31/07
825,000 876,614
- ------------------------------------------------------------------------------------------------------------------------------------
Standard Oil Co., 9% Debs.,
6/1/19
65,000 66,309
- ------------
2,819,779
- ------------------------------------------------------------------------------------------------------------------------------------
Financial--5.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Banks--1.2%
Capital One Bank, Inc., 6.375% Sr. Nts.,
2/15/03
500,000 507,079
- ------------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New), 10.125% Sub. Nts.,
11/1/00 250,000
272,634
- ------------------------------------------------------------------------------------------------------------------------------------
Citicorp, 5.625% Sr. Nts.,
2/15/01
635,000 640,479
- ------------------------------------------------------------------------------------------------------------------------------------
Fleet Mtg./Norstar Group, Inc., 9.90% Sub. Nts.,
6/15/01 360,000
400,320
- ------------------------------------------------------------------------------------------------------------------------------------
Greenpoint Bank (Brooklyn, New York), 6.70% Medium-Term
Sr. Bank Nts.,
7/15/02
1,000,000 1,036,424
- ------------------------------------------------------------------------------------------------------------------------------------
Integra Financial Corp., 6.50% Sub. Nts.,
4/15/00
110,000 112,067
- ------------------------------------------------------------------------------------------------------------------------------------
People's Bank of Bridgeport (Connecticut), 7.20% Sub. Nts.,
12/1/06 1,000,000 1,064,668
- ------------
4,033,671
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial--2.5%
American General Institutional Capital B, 8.125% Bonds,
Series B,
3/15/46(6)
575,000 629,447
- ------------------------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp., 7.25% Nts.,
12/1/03
480,000 480,757
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Credit Co., 5.55% Unsec. Nts.,
2/15/01
1,130,000 1,134,696
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 6.05% Medium-Term Nts.,
Series D,
3/1/01
700,000 706,383
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Medium-Term Nts., 6.56%,
11/13/01 100,000 100,156
- ------------------------------------------------------------------------------------------------------------------------------------
Fleet Mtg. Group, Inc., 6.50% Nts.,
9/15/99
250,000 252,138
- ------------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 6% Sr. Unsec. Nts.,
1/14/03
1,000,000 1,012,104
- ------------------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.77% Nts., Series A,
8/27/01 1,000,000 1,023,930
- ------------------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.625% Nts.,
2/15/01
162,000 163,311
- ------------------------------------------------------------------------------------------------------------------------------------
GS Escrow Corp., 6.75% Sr. Nts.,
8/1/01(6)
1,000,000 979,418
- ------------------------------------------------------------------------------------------------------------------------------------
Norsk Hydro AS, 8.75% Bonds,
10/23/01
500,000 549,063
- ------------------------------------------------------------------------------------------------------------------------------------
PHH Corp., 6.50% Nts.,
2/1/00
350,000 355,076
- ------------------------------------------------------------------------------------------------------------------------------------
Sears Roebuck Acceptance Corp., 6% Unsec. Bonds,
3/20/03 750,000
764,951
- ------------
8,151,430
</TABLE>
21 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Insurance--1.2%
Cigna Corp., 7.90% Nts.,
12/14/98
$ 120,000 $ 120,318
- ------------------------------------------------------------------------------------------------------------------------------------
Conseco Financing Trust III, 8.796% Bonds,
4/1/27
850,000 872,073
- ------------------------------------------------------------------------------------------------------------------------------------
Conseco, Inc., 6.40% Nts.,
6/15/01
500,000 494,985
- ------------------------------------------------------------------------------------------------------------------------------------
Equitable Life Assurance Society (U.S.A.), 6.95% Surplus Nts.,
12/1/05(6) 500,000 532,530
- ------------------------------------------------------------------------------------------------------------------------------------
GenAmerica Capital I, 8.525% Nts.,
6/30/27(6)
750,000 751,860
- ------------------------------------------------------------------------------------------------------------------------------------
Life Re Capital Trust I, 8.72% Nts.,
6/15/27(6)
500,000 568,117
- ------------------------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 6.75% Nts.,
4/15/01 615,000
638,951
- ------------
3,978,834
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts--0.6%
Chelsea GCA Realty Partner, Inc., 7.75% Unsec. Nts.,
1/26/01 1,050,000
1,061,944
- ------------------------------------------------------------------------------------------------------------------------------------
First Industrial LP, 7.15% Bonds,
5/15/27
560,000 558,605
- ------------------------------------------------------------------------------------------------------------------------------------
Simon DeBartolo Group, Inc., 6.625% Nts.,
6/15/03(6)
500,000 489,531
- ------------
2,110,080
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial--3.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Materials--0.3%
American Standard Cos., Inc., 10.875% Sr. Nts.,
5/15/99(2) 840,000
858,900
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Services--2.4%
Fred Meyer, Inc., 7.375% Sr. Nts.,
3/1/05
1,250,000 1,318,801
- ------------------------------------------------------------------------------------------------------------------------------------
Norse CBO Ltd., 6.515% Collateralized Bond Obligations,
Series 1A, Cl. A3,
8/13/10(2)
1,000,000 995,000
- ------------------------------------------------------------------------------------------------------------------------------------
Owens-Illinois, Inc., 7.15% Sr. Nts.,
5/15/05
1,000,000 1,006,326
- ------------------------------------------------------------------------------------------------------------------------------------
Raytheon Co., 6.45% Nts.,
8/15/02
500,000 517,909
- ------------------------------------------------------------------------------------------------------------------------------------
Sony Corp., 6.125% Bonds,
3/4/03
750,000 766,075
- ------------------------------------------------------------------------------------------------------------------------------------
Sun Co., Inc., 7.95% Debs.,
12/15/01
1,175,000 1,258,041
- ------------------------------------------------------------------------------------------------------------------------------------
Tyco International Group SA, 6.125% Nts.,
11/1/08(6)
500,000 495,590
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Industries, Inc., 7.125% Sr. Nts.,
10/15/03(2)
500,000 501,550
- ------------------------------------------------------------------------------------------------------------------------------------
USI American Holdings, Inc., 7.25% Sr. Nts., Series B,
12/1/06 830,000 855,974
- ------------
7,715,266
</TABLE>
22 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Manufacturing--0.3%
U.S. Filter Corp., 6.375% Bonds,
5/15/01(6)
$1,000,000 $ 999,626
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation--0.6%
CSX Corp., 7.05% Debs.,
5/1/02
145,000 152,181
- ------------------------------------------------------------------------------------------------------------------------------------
Federal-Mogul Corp., 7.50% Nts.,
7/1/04
500,000 492,548
- ------------------------------------------------------------------------------------------------------------------------------------
Norfolk Southern Corp., 7.35% Nts.,
5/15/07
125,000 137,152
- ------------------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp.:
7% Nts.,
6/15/00
605,000 619,538
7.60% Nts.,
5/1/05
500,000 538,732
- ------------
1,940,151
- ------------------------------------------------------------------------------------------------------------------------------------
Technology--1.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--0.6%
Lockheed Martin Corp., 6.85% Unsec. Nts.,
5/15/01
1,250,000 1,300,543
- ------------------------------------------------------------------------------------------------------------------------------------
Northwest Airlines Corp., 8.375% Unsec. Nts.,
3/15/04
750,000 764,492
- ------------
2,065,035
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications/Technology--0.7%
AT&T Capital Corp., 6.25% Medium-Term Nts., Series F,
5/15/01 725,000 710,878
- ------------------------------------------------------------------------------------------------------------------------------------
US West Capital Funding, Inc., 6.125% Nts.,
7/15/02
500,000 516,008
- ------------------------------------------------------------------------------------------------------------------------------------
Worldcom, Inc., 6.25% Sr. Unsec. Nts.,
8/15/03
1,000,000 1,038,171
- ------------
2,265,057
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities--2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--0.8%
El Paso Electric Co., 8.25% First Mtg. Bonds, Series C,
2/1/03 500,000 530,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc., 6.31% Medium-Term Nts.,
Series B,
2/19/02
1,000,000 1,022,482
- ------------------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 7.125% Sr. Unsec. Nts.,
Series C,
7/1/01
1,000,000 1,018,321
- ------------
2,570,803
</TABLE>
23 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Gas Utilities--1.0%
Northern Illinois Gas Co., 6.45% First Mtg. Bonds,
8/1/01 $ 680,000 $
697,281
- ------------------------------------------------------------------------------------------------------------------------------------
Southern California Gas Co., 6.38% Medium-Term Nts.,
10/29/01 500,000
518,700
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee Gas Pipeline Co., 7.50% Bonds,
4/1/17
825,000 861,861
- ------------------------------------------------------------------------------------------------------------------------------------
Williams Cos., Inc., 6.20% Nts.,
8/1/02
1,250,000 1,273,985
- ------------
3,351,827
- ------------------------------------------------------------------------------------------------------------------------------------
Telephone Utilities--0.3%
Ameritech Capital Funding Corp., 5.65% Unsec. Nts.,
1/15/01 850,000
868,185
- ------------
Total Non-Convertible Corporate Bonds and Notes (Cost
$63,833,000) 64,944,302
====================================================================================================================================
Convertible Corporate Bonds and Notes--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp. (New), 8.50% Sub. Capital Nts.,
3/1/99 40,000
40,388
- ------------------------------------------------------------------------------------------------------------------------------------
Geotek Communications, Inc., 12% Cv. Sr. Sub. Nts.,
2/15/01(7) 100,000
- --
- ------------
Total Convertible Corporate Bonds and Notes (Cost
$135,112)
40,388
====================================================================================================================================
Short-Term Notes--8.8% (8)
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
4.78%,
11/4/98
8,000,000 7,996,813
5.14%,
11/12/98
5,600,000 5,591,290
5.425%,
11/17/98
10,000,000 9,978,756
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 5.145%,
11/10/98
5,000,000 4,993,569
- ------------
Total Short-Term Notes (Cost
$28,560,428)
28,560,428
====================================================================================================================================
Repurchase Agreements--2.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Zion First National Bank, 5.38%, dated 10/30/98, to be
repurchased at $8,703,901 on 11/2/98, collateralized by U.S. Treasury Nts.,
7.50%, 11/15/01, with a value of $8,887,611 (Cost
$8,700,000)
8,700,000 8,700,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost
$296,691,418)
98.0% 318,477,396
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of
Liabilities
2.0 6,658,836
- ------------ ------------
Net
Assets
100.0% $325,136,232
============ ============
</TABLE>
24 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Non-income producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 6 of
Notes to Financial Statements.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows.
4. Represents the current interest rate for a variable rate security.
5. Securities with an aggregate market value of $3,202,415 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
6. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Directors. These securities amount to $6,879,659 or 2.12% of the Fund's net
assets as of October 31, 1998.
7. Non-income producing security--issuer is in default.
8. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
See accompanying Notes to Financial Statements.
25 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1998
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value (cost $296,691,418)--see accompanying
statement
$318,477,396
- --------------------------------------------------------------------------------
Cash
119,647
- --------------------------------------------------------------------------------
Receivables and other assets:
Investments sold
5,804,204
Interest, dividends and principal paydowns 2,225,440 Daily variation on futures
contracts--Note 5 311,025 Shares of capital stock sold 165,252 Other 6,538
- ------------
Total assets
327,109,502
================================================================================
Liabilities
Payables and other liabilities:
Investments purchased
1,286,460
Shares of capital stock redeemed 350,875 Directors' fees--Note 1 126,704
Distribution and service plan fees 68,641 Shareholder reports 46,648 Transfer
and shareholder servicing agent fees 39,052 Other 54,890
- ------------
Total liabilities
1,973,270
================================================================================
Net Assets
$325,136,232
============
================================================================================
Composition of Net Assets
Par value of shares of capital stock $
21,031
- --------------------------------------------------------------------------------
Additional paid-in capital
294,014,624
- --------------------------------------------------------------------------------
Undistributed net investment income
986,365
- --------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions
4,944,552
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies
25,169,660
- ------------
Net assets
$325,136,232
============
26 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$298,558,127 and 19,323,008 shares of capital stock outstanding) $15.45
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $16.39
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $21,753,878 and
1,392,591 shares of capital stock outstanding) $15.62
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $4,824,227 and
315,163 shares of capital stock outstanding) $15.31
See accompanying Notes to Financial Statements.
27 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
===============================================================================
Investment Income
Interest $
9,484,998
- -------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $17,270)
1,929,206
- ------------
Total income
11,414,204
===============================================================================
Expenses
Management fees--Note 4
1,774,240
- -------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A
671,280
Class B
141,994
Class C
28,515
- -------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4
258,679
- -------------------------------------------------------------------------------
Shareholder reports
67,412
- -------------------------------------------------------------------------------
Directors' fees and expenses--Note 1
30,000
- -------------------------------------------------------------------------------
Legal, auditing and other professional fees
29,150
- -------------------------------------------------------------------------------
Registration and filing fees:
Class A
19,750
Class B
3,812
Class C
962
- -------------------------------------------------------------------------------
Accounting service fees--Note 4
15,000
- -------------------------------------------------------------------------------
Custodian fees and expenses
11,183
- -------------------------------------------------------------------------------
Insurance expenses
9,762
- -------------------------------------------------------------------------------
Other
36,942
- ------------
Total expenses
3,098,681
===============================================================================
Net Investment Income
8,315,523
================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments
4,973,557
Closing of futures contracts
76,396
Foreign currency transactions
(2,730)
- ------------
Net realized gain
5,047,223
- -------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on
investments:
Investments
233,468
Translation of assets and liabilities denominated in foreign
currencies
579
- ------------
Net change
234,047
- ------------
Net realized and unrealized gain
5,281,270
===============================================================================
Net Increase in Net Assets Resulting from Operations $
13,596,793
============
See accompanying Notes to Financial Statements.
28 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended October 31,
1998 1997
===================================================================================================
<S>
<C> <C>
Operations
Net investment income $
8,315,523 $ 7,729,813
- ---------------------------------------------------------------------------------------------------
Net realized gain
5,047,223 27,308,175
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
234,047 7,070,415
- ------------- -------------
Net increase in net assets resulting from operations
13,596,793 42,108,403
===================================================================================================
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A
(7,782,493) (8,280,055)
Class B
(326,896) (168,085)
Class C
(68,904) (21,190)
- ---------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A
(26,053,041) (19,860,930)
Class B
(1,001,059) (389,052)
Class C
(171,534) (21,246)
===================================================================================================
Capital Stock Transactions
Net increase (decrease) in net assets resulting from capital stock
transactions--Note 2:
Class A
75,962,031 (2,888,598)
Class B
13,987,615 4,390,846
Class C
3,532,579 1,194,708
===================================================================================================
Net Assets
Total increase
71,675,091 16,064,801
- ---------------------------------------------------------------------------------------------------
Beginning of period
253,461,141 237,396,340
- ------------- -------------
End of period (including undistributed net investment
income of $986,365 and $828,581, respectively) $
325,136,232 $ 253,461,141
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
29 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ------------------------------------------
Year Ended October 31,
1998
1997 1996(3)
=========================================================================================
<S> <C>
<C> <C>
Per Share Operating Data
Net asset value, beginning of period $16.81
$16.00 $15.46
- -----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45
.51(4) .46
Net realized and unrealized gain (loss) .45
2.25(4) .49
------
- ------ ------
Total income (loss) from investment
operations .90
2.76 .95
- -----------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.45)
(.56) (.36)
Distributions from net realized gain (1.81)
(1.39) (.05)
------
- ------ ------
Total dividends and distributions
to shareholders (2.26)
(1.95) (.41)
- -----------------------------------------------------------------------------------------
Net asset value, end of period $15.45
$16.81 $16.00
======
====== ======
=========================================================================================
Total Return, at Net Asset Value(5) 5.93%
18.82% 6.27%
=========================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $298,558
$243,267 $233,289
- -----------------------------------------------------------------------------------------
Average net assets (in thousands) $268,715
$238,821 $228,203
- -----------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.96%
3.17% 3.52%(6)
Expenses 1.04%
1.11% 1.11%(6)
- -----------------------------------------------------------------------------------------
Portfolio turnover rate(7) 96.9%
98.0% 85.4%
</TABLE>
<TABLE>
<CAPTION>
Class A
- ----------------------------------------
Year Ended December 31,
1995
1994 1993
=======================================================================================
<S> <C>
<C> <C>
Per Share Operating Data
Net asset value, beginning of period $13.44
$14.54 $13.81
- ---------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .60
.55 .48
Net realized and unrealized gain (loss) 2.59
(.86) 1.70
------
- ------ ------
Total income (loss) from
investment
operations 3.19
(.31) 2.18
- ---------------------------------------------------------------------------------------
Dividends and
distributions
to
shareholders:
Dividends from net investment income (.60)
(.55) (.48)
Distributions from net realized gain (.57)
(.24) (.97)
------
- ------ ------
Total dividends and
distributions
to shareholders (1.17)
(.79) (1.45)
- ---------------------------------------------------------------------------------------
Net asset value, end of period $15.46
$13.44 $14.54
======
====== ======
=======================================================================================
Total Return, at Net Asset Value(5) 23.95%
(2.11)% 15.89%
=======================================================================================
Ratios/Supplemental
Data
Net assets, end of
period
(in thousands) $218,099
$177,904 $171,205
- ---------------------------------------------------------------------------------------
Average net assets (in thousands) $200,172
$187,655 $138,629
- ---------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 4.00%
3.80% 3.40%
Expenses 1.17%
0.96% 1.02%
- ---------------------------------------------------------------------------------------
Portfolio turnover rate(7) 55.2%
115.0% 155.2%
</TABLE>
1. For the period from May 1, 1996 (inception of offering) to October 31, 1996.
2. For the period from October 2, 1995 (inception of offering) to December 31,
1995.
3. For the ten months ended October 31, 1996. The Fund changed its fiscal year
end from December 31 to October 31. On March 18, 1996, OppenheimerFunds, Inc.
became the investment advisor to the Fund.
4. Per share amounts calculated based on the average shares outstanding during
the period.
5. 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.
30 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- ------------------------------------------------------------------
Period Ended
Year Ended October
31, December 31,
1998
1997 1996(3) 1995(2)
============================================================================================================
<S> <C>
<C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $16.99
$16.16 $15.66 $15.48
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36
.40(4) .31 .07
Net realized and unrealized gain (loss) .43
2.27(4) .54 .70
------
- ------ ------ ------
Total income (loss) from
investment
operations .79
2.67 .85 .77
- ------------------------------------------------------------------------------------------------------------
Dividends and
distributions
to
shareholders:
Dividends from net investment income (.35)
(.45) (.30) (.07)
Distributions from net realized gain (1.81)
(1.39) (.05) (.52)
------
- ------ ------ ------
Total dividends and
distributions
to shareholders (2.16)
(1.84) (.35) (.59)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.62
$16.99 $16.16 $15.66
======
====== ====== ======
============================================================================================================
Total Return, at Net Asset Value(5) 5.10%
17.96% 5.51% 4.93%
============================================================================================================
Ratios/Supplemental
Data
Net assets, end of
period
(in thousands) $21,754
$8,720 $3,919 $650
- ------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $14,235
$6,183 $2,324 $375
- ------------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 2.19%
2.32% 2.86%(6) 0.73%(6)
Expenses 1.80%
1.89% 1.85%(6) 1.92%(6)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 96.9%
98.0% 85.4% 55.2%
</TABLE>
<TABLE>
<CAPTION>
Class C
- ----------------------------------------
Year Ended October 31,
1998
1997 1996(1)
=========================================================================================
<S> <C>
<C> <C>
Per Share Operating Data
Net asset value, beginning of period $16.70
$15.93 $15.71
- -----------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .37
.44(4) .30
Net realized and unrealized gain (loss) .40
2.19(4) .32
------
- ------ ------
Total income (loss) from
investment
operations .77
2.63 .62
- -----------------------------------------------------------------------------------------
Dividends and
distributions
to
shareholders:
Dividends from net investment income (.35)
(.47) (.35)
Distributions from net realized gain (1.81)
(1.39) (.05)
------
- ------ ------
Total dividends and
distributions
to shareholders (2.16)
(1.86) (.40)
- -----------------------------------------------------------------------------------------
Net asset value, end of period $15.31
$16.70 $15.93
======
====== ======
=========================================================================================
Total Return, at Net Asset Value(5) 5.10%
17.93% 4.08%
=========================================================================================
Ratios/Supplemental
Data
Net assets, end of
period
(in thousands) $4,824
$1,473 $188
- -----------------------------------------------------------------------------------------
Average net assets (in thousands) $2,861 $
805 $ 57
- -----------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 2.18%
2.18% 2.90%(6)
Expenses 1.80%
1.92% 1.87%(6)
- -----------------------------------------------------------------------------------------
Portfolio turnover rate(7) 96.9%
98.0% 85.4%
</TABLE>
6. Annualized.
7. 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 October 31, 1998 were $257,540,992 and $247,354,113, respectively.
See accompanying Notes to Financial Statements.
31 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer Disciplined Allocation Fund (the Fund), a series of Oppenheimer
Series Fund, Inc. (the Company), 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 to maximize total investment return
(including both capital appreciation and income) principally by allocating its
assets among stocks, corporate bonds, U.S. Government securities and money
market instruments according to changing market conditions. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers
Class A, Class B and Class C shares. Class A shares are sold with a front-end
sales charge. Class B and Class C shares may be subject to a contingent deferred
sales charge. All classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution and/or
service plan, expenses directly attributable to that class and exclusive voting
rights with respect to matters affecting that class. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Directors. 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 Directors to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount.
- --------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are
maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on
investments is separately identified from the fluctuations arising from changes
in market values of securities held and reported with all other foreign currency
gains and losses in the Fund's Statement of Operations.
32 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Directors' Fees and Expenses. The Fund has adopted a nonfunded retirement plan
for the Fund's independent directors. Benefits are based on years of service and
fees paid to each director during the years of service. During the year ended
October 31, 1998, a provision of $3,008 was made for the Fund's projected
benefit obligations and payments of $4,526 were made to retired directors,
resulting in an accumulated liability of $124,637 as of October 31, 1998.
The Board of Directors has adopted a deferred compensation plan for
independent Directors that enables a Director to elect to defer receipt of all
or a portion of annual fees they are entitled to receive from the Fund. Under
the plan, the compensation deferred by a Director is periodically adjusted as
though an equivalent amount had been invested in shares of one or more
Oppenheimer funds selected by the Director. The amount paid to the Director
under the plan will be determined based upon the performance of the selected
funds. Deferral of Directors' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
33 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of paydown gains and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. The
character of distributions made during the year from net investment income or
net realized gains may differ from its ultimate characterization for federal
income tax purposes. Also, due to timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the fiscal year in which
the income or realized gain was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended October 31, 1998, amounts have been reclassified to reflect a
decrease in additional paid-in capital of $21,580, an increase in undistributed
net investment income of $20,554, and an increase in accumulated net realized
gain on investments of $1,026.
- --------------------------------------------------------------------------------
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Discount on securities purchased is amortized over the life of
the respective securities, in accordance with federal income tax requirements.
Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
34 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
2. Shares of Capital Stock
The Fund has authorized 450 million of $0.001 par value shares of capital stock.
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended October 31, 1998 Year Ended
October 31, 1997
----------------------------
- ----------------------------
Shares Amount
Shares Amount
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class A:
Sold 1,454,634 $ 22,895,924
1,295,002 $ 20,645,750
Dividends and
distributions reinvested 2,193,655 33,253,817
1,821,876 27,715,425
Issued in connection with the
acquisition of Oppenheimer
LifeSpan Balanced Fund--Note 7 4,023,572 64,135,741
- -- --
Redeemed (2,818,335) (44,323,451)
(3,224,574) (51,249,773)
------------ ------------
- ------------ ------------
Net increase (decrease) 4,853,526 $ 75,962,031
(107,696) $ (2,888,598)
============ ============
============ ============
- ---------------------------------------------------------------------------------------------
Class B:
Sold 589,123 $ 9,351,049
279,134 $ 4,555,544
Dividends and
distributions reinvested 84,350 1,293,844
35,724 551,096
Issued in connection with the
acquisition of Oppenheimer
LifeSpan Balanced Fund--Note 7 328,973 5,299,757
- -- --
Redeemed (123,259) (1,957,035)
(43,911) (715,794)
------------ ------------
- ------------ ------------
Net increase 879,187 $ 13,987,615
270,947 $ 4,390,846
============ ============
============ ============
- ---------------------------------------------------------------------------------------------
Class C:
Sold 193,669 $ 2,998,346
80,502 $ 1,266,698
Dividends and
distributions reinvested 15,173 228,310
2,629 40,489
Issued in connection with the
acquisition of Oppenheimer
LifeSpan Balanced Fund--Note 7 70,016 1,105,546
- -- --
Redeemed (51,932) (799,623)
(6,697) (112,479)
------------ ------------
- ------------ ------------
Net increase 226,926 $ 3,532,579
76,434 $ 1,194,708
============ ============
============ ============
</TABLE>
================================================================================
3. Unrealized Gains and Losses on Investments
As of October 31, 1998, net unrealized appreciation on investments of
$21,785,978 was composed of gross appreciation of $27,458,842, and gross
depreciation of $5,672,864.
35 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager are in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.625% of the first
$300 million of average annual net assets, 0.50% of the next $100 million and
0.45% of average annual net assets in excess of $400 million. The Manager acts
as the accounting agent for the Fund at an annual fee of $15,000, plus
out-of-pocket costs and expenses reasonably incurred. The Fund's management fee
for the year ended October 31, 1998 was 0.62% of the average annual net assets
for Class A, Class B and Class C shares.
For the year ended October 31, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $481,886, of which $397,054 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 A, Class
B and Class C shares totaled $27,571, $316,680 and $21,560, respectively.
Amounts paid to an affiliated broker/dealer for Class B and Class C shares were
$111,293 and $5,503, respectively. During the year ended October 31, 1998, OFDI
received contingent deferred sales charges of $30,404 and $2,562, respectively,
upon redemption of Class B and Class C shares as reimbursement for sales
commissions advanced by OFDI at the time of sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund and other Oppenheimer
funds. OFS's total costs of providing such services are allocated ratably to
these funds.
The Fund has adopted a Service Plan for Class A shares to reimburse
OFDI for a portion of its costs incurred in connection with the personal service
and maintenance of shareholder accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate that may not exceed 0.25% of the average
annual net assets of Class A shares of the Fund. OFDI uses the service fee to
reimburse brokers, dealers, banks and other financial institutions quarterly for
providing personal service and maintenance of accounts of their customers that
hold Class A shares. During the year ended October 31, 1998, OFDI paid $557,688
to an affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
36 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
The Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate OFDI for its costs in distributing Class B and Class C
shares and servicing accounts. Under the Plans, the Fund pays OFDI an annual
asset-based sales charge of 0.75% per year on Class B and Class C shares, for
its services rendered in distributing Class B and Class C shares. OFDI also
receives a service fee of 0.25% per year to compensate dealers for providing
personal services for accounts that hold Class B and Class C shares. Each fee is
computed on the average annual net assets of Class B or Class C shares,
determined as of the close of each regular business day. During the year ended
October 31, 1998, OFDI paid $11,835 and $3,586, respectively, to an affiliated
broker/dealer as compensation for Class B and Class C personal service and
maintenance expenses and retained $122,183 and $22,102, respectively, as
compensation for Class B and Class C sales commissions and service fee advances,
as well as financing costs. If either Plan is terminated by the Fund, the Board
of Directors 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
October 31, 1998, OFDI had incurred excess distribution and servicing costs of
$623,479 for Class B and $52,326 for Class C.
================================================================================
5. Futures Contracts
The Fund may buy and sell index futures contracts in order to gain exposure to
or protect against changes in interest rates. The Fund may also buy or write put
or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against
increases in interest rates and the resulting negative effect on the value of
fixed rate portfolio securities. The Fund may also purchase futures contracts to
gain exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to
deposit either cash or securities (initial margin) in an amount equal to a
certain percentage of the contract value. Subsequent payments (variation margin)
are made or received by the Fund each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Fund recognizes a realized gain or loss when the contract
is closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options)
include the possibility that there may be an illiquid market and that a change
in the value of the contract or option may not correlate with changes in the
value of the underlying securities.
37 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
5. Futures Contracts (continued)
As of October 31, 1998, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
Number of Valuation as
of Unrealized
Contract Description Expiration Date Contracts October 31,
1998 Appreciation
- -----------------------------------------------------------------------------------------------
Contracts to Purchase
<S> <C> <C>
<C> <C>
Standard & Poor's 500 Index 12/98 143
$39,510,900 $3,383,103
==========
</TABLE>
================================================================================
6. Illiquid and Restricted Securities
As of October 31, 1998, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Directors as reflecting fair value. A security may be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund intends to invest no more than
10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation as of October 31, 1998, was $4,780,010, which
represents 1.47% of the Fund's net assets.
================================================================================
7. Acquisition of Oppenheimer LifeSpan Balanced Fund
On June 12, 1998, the Fund acquired all the net assets of Oppenheimer LifeSpan
Balanced Fund, pursuant to an agreement and plan of reorganization approved by
the Oppenheimer LifeSpan Balanced Fund shareholders on June 9, 1998. The Fund
issued (at an exchange ratio of 0.711330 for Class A, 0.789560 for Class B and
0.716167 for Class C of the Fund to one share of Oppenheimer LifeSpan Balanced
Fund) 4,023,572, 328,973 and 70,016 shares of capital stock for Class A, Class B
and Class C, respectively, valued at $64,135,741, $5,299,757 and $1,105,546 in
exchange for the net assets, resulting in combined Class A net assets of
$313,743,282, Class B net assets of $18,371,573 and Class C net assets of
$3,985,465 on June 12, 1998. The net assets acquired included net unrealized
appreciation of $3,969,222. The exchange qualified as a tax-free reorganization
for federal income tax purposes.
38 Oppenheimer Disciplined Allocation Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
8. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended
October
31, 1998.
39 Oppenheimer Disciplined Allocation Fund
<PAGE>
<PAGE>
A-5
Appendix A
- ------------------------------------------------------------------------------
RATINGS DEFINITIONS
- ------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- ------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- ------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor
to meet its financial commitment on the obligation. In the
event of adverse business, financial or economic conditions, the obligor is not
likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- ------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-2
Appendix B
- ------------------------------------------------------------------------------
Industry Classifications
- ------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-18
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans2 (4)
Group Retirement Plans3 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,
Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
special arrangement or waiver in a particular case is in the sole discretion of
the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
1. Certain waivers also apply to Class M. shares of Oppenheimer
Convertible Securities Fund.
2. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
3. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."1 This waiver provision applies to:
1 However, that commission
will not be paid on purchases of shares in amounts of $1 million or more
(including any right of accumulation) by a Retirement Plan that pays for the
purchase with the redemption proceeds of Class C shares of one or more
Oppenheimer funds held by the Plan for more than one year.
o Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial plan)
that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a) mutual
funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a
Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or
managed by MLAM (the funds described in (a) and (b) are referred
to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$3 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
Purchases by a Retirement Plan whose record keeper had a cost-allocation
agreement with the Transfer Agent on or before May 1, 1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
The Manager or its affiliates.
Present or former officers, directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews; relatives by virtue of a remarriage
(step-children, step-parents, etc.) are included.
Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
Employees and registered representatives (and their spouses) of dealers or
brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
"Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy shares
for their own accounts may also purchase shares without sales charge
but only if their accounts are linked to a master account of their
investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has
made such special arrangements . Each of these investors may be charged
a fee by the broker, agent or financial intermediary for purchasing
shares.
Directors, trustees, officers or full-time employees of OpCap Advisors or
its affiliates, their relatives or any trust, pension, profit sharing
or other benefit plan which beneficially owns shares for those persons.
Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company
or trust which is the beneficial owner of such accounts.
A unit investment trust that has entered into an appropriate agreement
with the Distributor.
Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under sections
401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each
case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases):
Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using the proceeds of
shares redeemed in the prior 30 days from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid. This
waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for in
this manner. This waiver must be requested when the purchase order is
placed for shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
To make Automatic Withdrawal Plan payments that are limited annually to no
more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
Fordistributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.2
2 This provision does not apply to IRAs.
(5) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.3
3 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10)Participant-directed redemptions to purchase shares of a mutual fund (other
than a fund managed by the Manager or a subsidiary of the Manager) if the plan
has made special arrangements with the Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored
IRA.
Fordistributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
Fordistributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: Shares redeemed involuntarily, as
described in "Shareholder Account Rules and Policies," in the applicable
Prospectus.
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.
Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
o Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To
return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.4
4 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic Relations Order
or, in the case of an IRA, a divorce or separation agreement described in
Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.5
5 This provision does not apply to loans from 403(b)(7) custodial plans.
(9) On account of the participant's separation from service.6
6 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to
purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if
the plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the
Plan's elimination as investment options under the Plan of all
of the Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age
59 1/2, as long as the aggregate value of the distributions
does not exceed 10% of the account's value annually (measured
from the establishment of the Automatic Withdrawal Plan).
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
Shares sold to the Manager or its affiliates.
Shares sold to registered management investment companies or separate accounts
of insurance companies having an agreement with the Manager or the Distributor
for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a
party.
<PAGE>
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap Value
Fund
Oppenheimer Quest Balanced Value Oppenheimer Quest Global Value Fund
Fund
Oppenheimer Quest Opportunity
Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Income Quest for Value New York Tax-Exempt
Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
purchased by such shareholder by exchange of shares of another Oppenheimer
fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24,
1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
Shareholders who were shareholders of the AMA Family of Funds on February
28, 1991 and who acquired shares of any of the Former Quest for Value
Funds by merger of a portfolio of the AMA Family of Funds.
Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
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
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
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
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Connecticut Mutual Investment
Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section): o Oppenheimer U. S. Government Trust, o Oppenheimer Bond Fund, o
Oppenheimer Disciplined Value Fund and o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
n Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual
Funds that were purchased at net asset value prior to March 18, 1996, remain
subject to the prior Class A CDSC, or if any additional shares are purchased
by those shareholders at net asset value pursuant to this arrangement they
will be subject to the prior Class A CDSC.
n Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1)
<PAGE>
anypurchaser, provided the total initial amount invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8)
<PAGE>
in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
o the Manager and its affiliates,
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
o registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
o employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
o dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of
the Fund specifically providing for the use of Class M shares of the
Fund in specific investment products made available to their
clients, and dealers, brokers or registered investment advisors that
had entered into an agreement with the Distributor or prior
distributor of the Fund's shares to sell shares to defined
contribution employee retirement plans for which the dealer, broker,
or investment advisor provides administrative services.
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Disciplined Allocation Fund
- ------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
67890
PX205.0399 (Rev. 5/99)
- ------------------------------------------------------------------------------
<PAGE>
Oppenheimer Disciplined Value Fund
- ------------------------------------------------------------------------------
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated March 1, 1999
Revised May 1, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated March 1, 1999. It should be read together
with the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or
by calling the Transfer Agent at the toll-free number shown above, or by
downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies......................... 6
Investment Restrictions............................................ 25
How the Fund is Managed ............................................... 28
Organization and History........................................... 28
Directors and Officers............................................. 29
The Manager........................................................ 34
Brokerage Policies of the Fund......................................... 36
Distribution and Service Plans......................................... 38
Performance of the Fund................................................ 41
About Your Account
How To Buy Shares...................................................... 45
How To Sell Shares..................................................... 53
How To Exchange Shares................................................. 58
Dividends, Capital Gains and Taxes..................................... 60
Additional Information About the Fund.................................. 62
Financial Information About the Fund
Independent Auditors' Report........................................... 63
Financial Statements................................................... 64
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Corporate Industry Classifications......................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
<PAGE>
99
- ------------------------------------------------------------------------------
A B O U T T H E F U N D
- ------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manger may use in selecting portfolio
securities will vary over time. The Fund is not required to use the investment
techniques and strategies described below at all times in seeking its goal. It
may use some of the special investment techniques and strategies at some times
or not at all.
In selecting equity investments for the Fund's portfolio, the portfolio
managers currently use a value investing style coupled with fundamental analysis
of issuers. In using a value approach, the managers look for stocks and other
securities that appear to be temporarily undervalued, by various measures, such
as price/earnings ratios. Value investing seeks stocks having prices that are
low in relation to their real worth or future prospects, in the hope that the
Fund will realize appreciation in the value of its holdings when other investors
realize the intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying
financial condition and prospects. Some of the measures used to identify these
securities include, among others:
|_| Price/Earnings ratio, which is the stock's price divided by its
earnings per share. A stock having a price/earnings ratio lower than its
historical range, or lower than the market as a whole or that of similar
companies may offer attractive investment opportunities.
|_| Price/book value ratio, which is the stock price divided by the book
value of the company per share. It measures the company's stock price in
relation to its asset value.
|_| Dividend Yield, which is measured by dividing the annual dividend by
the stock price per share.
|_| Valuation of Assets which compares the stock price to the value of the
company's underlying assets, including their projected value in the marketplace
and liquidation value.
|X| Investments in Equity Securities. The Fund does not limit its
investments in equity securities to issuers having a market capitalization of a
specified size or range, and therefore may invest in securities of small-, mid-
and large-capitalization issuers. At times, the Fund may have substantial
amounts of its assets invested in securities of issuers in one or more
capitalization ranges, based upon the Manager's use of its investment strategies
and its judgment of where the best market opportunities are to seek the Fund's
objective.
At times, the market may favor or disfavor securities of issuers of a
particular capitalization range. Securities of small capitalization issuers may
be subject to greater price volatility in general than securities of larger
companies. Therefore, if the Fund has substantial investments in smaller
capitalization companies at times of market volatility, the Fund's share price
may fluctuate more than that of funds focusing on larger capitalization issuers.
|_| Rights and Warrants. The Fund can invest up to 5% of its total
assets in warrants or rights. That limit does not apply to warrants and rights
that the Fund has acquired as part of units of securities or that are attached
to other securities. No more than 2% of the Fund's total assets may be invested
in warrants that are not listed on either The New York Stock Exchange or The
American Stock Exchange. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
o Convertible Securities. While many convertible securities are a
form of debt security, in some cases their conversion feature (allowing
conversion into equity securities) causes the Manager to regard them more as
"equity equivalents." In those cases, the rating assigned to the security has
less impact on the Manager's investment decision than in the case of
non-convertible fixed income securities. To determine whether convertible
securities should be regarded as "equity equivalents," the Manager examines the
following factors: (1) whether, at the option of the investor, the convertible
security can be
exchanged for a fixed number of shares of common stock of the
issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible
securities), and
(3) the extent to which the convertible security may be a defensive
"equity substitute," providing the ability to participate in any
appreciation in the price of the issuer's common stock.
o Preferred Stocks. Preferred stocks are equity securities but have
certain attributes of debt securities. Preferred stock, unlike common stock, has
a stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid before the issuer can pay dividends on common shares.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as provisions for their call
or redemption prior to maturity, which can have a negative effect on their
prices when interest rates decline. Preferred stock may be "participating"
stock, which means that it may be entitled to a dividend exceeding the stated
dividend in certain cases.
Preferred stocks are equity securities because they do not constitute a
liability of the issuer and therefore do not offer the same degree of protection
of capital as debt securities and may not offer the same degree of assurance of
continued income as debt securities. The rights of preferred stock on
distribution of a corporation's assets in the event of its liquidation are
generally subordinate to the rights associated with a corporation's debt
securities. Preferred stock generally has a preference over common stock on the
distribution of a corporation's assets in the event of its liquidation.
n Foreign Securities. The Fund can purchase equity and debt securities
issued or guaranteed by foreign companies or foreign governments or their
agencies. "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. They may be traded on foreign securities
exchanges or in the foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations. That is 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 potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or
adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
o Risks of Conversion to Euro. On January 1, 1999, eleven countries
in the European Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o issuers in which the Fund invests, because of changes in the
competitive environment from a consolidated currency market
and greater operational costs from converting to the new
currency. This might depress stock values.
o vendors the Fund depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Fund
buys), the Manager (which must price the Fund's investments to
deal with the conversion to the euro) and brokers, foreign
markets and securities depositories. If they are not prepared,
there could be delays in settlements and additional costs to
the Fund.
o exchange contracts and derivatives that are outstanding during
the transition to the euro. The lack of currency rate
calculations between the affected currencies and the need to
update the Fund's contracts could pose extra costs to the
Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's Custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
o Special Risks of Emerging Markets. Emerging and developing markets
abroad may also offer special opportunities for investing but have greater risks
than more developed foreign markets, such as those in Europe, Canada, Australia,
New Zealand and Japan. There may be even less liquidity in their securities
markets, and settlements of purchases and sales of securities may be subject to
additional delays. They are subject to greater risks of limitations on the
repatriation of income and profits because of currency restrictions imposed by
local governments. Those countries may also be subject to the risk of greater
political and economic instability, which can greatly affect the volatility of
prices of securities in those countries. The Manager will consider these factors
when evaluating securities in these markets.
n Portfolio Turnover. "Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during the year, its portfolio turnover
rate would have been 100%. The Fund's portfolio turnover rate will fluctuate
from year to year. The Fund does not expect to have a portfolio turnover rate of
100% annually. Increased portfolio turnover creates higher brokerage and
transaction costs for the Fund, which may reduce its overall performance.
Additionally, the realization of capital gains from selling portfolio securities
may result in distributions of taxable long-term capital gains to shareholders,
since the Fund will normally distribute all of its capital gains realized each
year, to avoid excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times
and at times may not use them.
n Investments in Bonds and Other Debt Securities. The Fund can invest in
bonds, debentures and other debt securities under normal market conditions.
Because the Fund currently emphasizes investments in equity securities, such as
stocks, it is not anticipated that significant amounts of the Fund's assets will
be invested in debt securities. However, if market conditions suggest that debt
securities may offer better growth opportunities than stocks, or if the Manager
determines to seek a higher income for liquidity purposes, the Manager might
shift up to 10% of the Fund's net assets into debt securities.
The Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., or at least "BBB" by Standard & Poor's Rating Service or Duff &
Phelps, Inc., or that have comparable ratings by another nationally-recognized
rating organization. In making investments in debt securities, the Manager may
rely to some extent on the ratings of ratings organizations or it may use its
own research to evaluate a security's credit-worthiness. If the securities that
the Fund buys are unrated, to be considered part of the Fund's holdings of
investment-grade securities, they must be judged by the Manager to be of
comparable quality to bonds rated as investment grade by a rating organization.
o Floating Rate and Variable Rate Obligations. Variable rate
obligations may have a demand feature that allows the Fund to tender the
obligation to the issuer or a third party prior to its maturity. The tender may
be at par value plus accrued interest, according to the terms of the
obligations.
The interest rate on a floating rate note is adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instruments rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate note is also based on a stated prevailing market rate but is
adjusted automatically at specified intervals of not less than one year.
Generally, the changes in the interest rate on such securities reduce the
fluctuation in their market value. As interest rates decrease or increase, the
potential for capital appreciation or depreciation is less than that for
fixed-rate obligations of the same maturity. The Manager may determine that an
unrated floating rate or variable rate obligation meets the Fund's quality
standards if it is backed by a letter of credit or guarantee issued by a bank
that meets those quality standards.
Floating rate and variable rate notes that have a stated maturity in
excess of one year may have demand features that permit the holder to recover
the principal amount of the underlying security at specified intervals and upon
notice. The issuer of that type of note normally has a corresponding right in
its discretion, after a given period, to prepay the outstanding principal amount
of the note plus accrued interest. Generally the issuer must provide a specified
number of days' notice to the holder.
o Special Risks of Lower-Grade Securities. It is not anticipated
that the Fund will invest a substantial portion of its assets in lower-grade
debt securities. Because lower-grade securities tend to offer higher yields than
investment-grade securities, the Fund might invest in lower grade securities if
the Manager is trying to achieve greater income (and, in some cases, the
appreciation possibilities of lower-grade securities might be a reason they are
selected for the Fund's portfolio).
"Lower-grade" debt securities are those rated below "investment grade,"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
included in the limitation on the percentage of the Fund's assets that can be
invested in lower-grade securities. The Fund can invest in securities rated as
low as "B" at the time the Fund buys them.
Some of the special credit risks of lower-grade securities are discussed
in the Prospectus. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of investment
grade securities. The issuer's low creditworthiness may increase the potential
for its insolvency. An overall decline in values in the high yield bond market
is also more likely during a period of a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. In the case of
foreign high yield bonds, these risks are in addition to the special risk of
foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
However, the Fund's limitations on buying these investments may reduce the
risks to the Fund, as will the Fund's policy of diversifying its investments.
Additionally, to the extent they can be converted into stock, convertible
securities may be less subject to some of these risks than non-convertible high
yield bonds, since stock may be more liquid and less affected by some of these
risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to greater risks than other investment-grade
securities, and have some speculative characteristics. Definitions of the debt
security ratings categories of Moody's, S&P, Fitch IBCA and Duff & Phelps are
included in Appendix A to this Statement of Additional Information.
o Interest Rate Risk. Interest rate risk refers to the fluctuations
in value of fixed-income securities resulting from the inverse relationship
between price and yield. For example, an increase in general interest rates will
tend to reduce the market value of already-issued fixed-income investments, and
a decline in general interest rates will tend to increase their value. In
addition, debt securities with longer maturities, which tend to have higher
yields, are subject to potentially greater fluctuations in value from changes in
interest rates than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities after the Fund
buys them will not affect the interest income payable on those securities
(unless the security pays interest at a variable rate pegged to interest rate
changes). However, those price fluctuations will be reflected in the valuations
of the securities, and therefore the Fund's net asset values will be affected by
those fluctuations.
n Mortgage-Related Securities. Mortgage-related securities are a form of
derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real-estate
related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related securities
tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of "locking in" attractive long-term interest
rates, and they may have less potential for appreciation during periods of
declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in responses to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the effective
duration of the Fund's portfolio of debt securities, and therefore its
sensitivity to interest rate changes, would increase.
As with other debt securities, the values of mortgage related securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.
o Collateralized Mortgage Obligations. CMOs are multi-class bonds
that are backed by pools of mortgage loans or mortgage pass-through
certificates. They may be collateralized by:
(1)
pass-through certificates issued or guaranteed by
Government National Mortgage Association, Federal National
Mortgage Association, or Federal Home Loan Mortgage
Corporation,
(2)
unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans'
Affairs,
(3)
unsecuritized conventional mortgages,
(4) other
mortgage-related securities, or
(5) any
combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the reverse direction to an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
n U.S. Government Securities. These are securities issued or guaranteed by
the U.S. Treasury or other U.S. government agencies or corporate entities
referred to as "instrumentalities" of the U.S. government. The obligations of
U.S. government agencies or instrumentalities in which the Fund may invest may
or may not be guaranteed or supported by the "full faith and credit" of the
United States. "Full faith and credit" means generally that the taxing power of
the U.S. government is pledged to the payment of interest and repayment of
principal on a security. If a security is not backed by the full faith and
credit of the United States, the owner of the security must look principally to
the agency issuing the obligation for repayment. The owner might not be able to
assert a claim against the United States if the issuing agency or
instrumentality does not meet its commitment. The Fund will invest in securities
of U.S. government agencies and instrumentalities only if the Manager is
satisfied that the credit risk with respect to such instrumentality is minimal.
o U.S. Treasury Obligations. These include Treasury bills
(maturities of one year or less when issued), Treasury notes (maturities of from
one to ten years when issued), and Treasury bonds (maturities of more than ten
years when issued). Treasury securities are backed by the full faith and credit
of the United States as to timely payments of interest and repayments of
principal. They also can include U. S. Treasury securities that have been
"stripped" by a Federal Reserve Bank, zero-coupon U.S. Treasury securities
described below, and Treasury Inflation-Protection Securities ("TIPS").
o Treasury Inflation-Protection Securities. The Fund can buy these
U.S. Treasury securities, called "TIPS," that are designed to provide an
investment vehicle that is not vulnerable to inflation. The interest rate paid
by TIPS is fixed. The principal value rises or falls semi-annually based on
changes in the published Consumer Price Index. If inflation occurs, the
principal and interest payments on TIPS are adjusted to protect investors from
inflationary loss. If deflation occurs, the principal and interest payments will
be adjusted downward, although the principal will not fall below its face amount
at maturity.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
o U.S. Government Mortgage-Related Securities. The Fund can invest
in a variety of mortgage-related securities that are issued by U.S. Government
agencies or instrumentalities, some of which are described below.
o GNMA Certificates. The Government National Mortgage Association
("GNMA") is a wholly-owned corporate instrumentality of the United States within
the U.S. Department of Housing and Urban Development. GNMA's principal programs
involve its guarantees of privately-issued securities backed by pools of
mortgages. GNMA Certificates are debt securities representing an interest in one
or a pool of mortgages that are insured by the Federal Housing Administration or
the Farmers Home Administration or guaranteed by the Veterans Administration.
The GNMA Certificates in which the Fund invests are of the "fully modified
pass-through" type. They provide that the registered holders of the Certificates
will receive timely monthly payments of the pro-rata share of the scheduled
principal payments on the underlying mortgages, whether or not those amounts are
collected by the issuers. Amounts paid include, on a pro rata basis, any
prepayment of principal of such mortgages and interest (net of servicing and
other charges) on the aggregate unpaid principal balance of the GNMA
Certificates, whether or not the interest on the underlying mortgages has been
collected by the issuers.
The GNMA Certificates purchased by the Fund are guaranteed as to timely
payment of principal and interest by GNMA. In giving that guarantee, GNMA
expects that payments received by the issuers of GNMA Certificates on account of
the mortgages backing the Certificates will be sufficient to make the required
payments of principal of and interest on those Certificates. However, if those
payments are insufficient, the guaranty agreements between the issuers of the
Certificates and GNMA require the issuers to make advances sufficient for the
payments. If the issuers fail to make those payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under any
guaranty issued by GNMA as to such mortgage pools. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that such
guaranties "constitute general obligations of the United States backed by its
full faith and credit." GNMA is empowered to borrow from the United States
Treasury to the extent necessary to make any payments of principal and interest
required under those guaranties.
GNMA Certificates are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to the
extent of payments received by the issuers on account of such mortgages, GNMA
Certificates do not constitute a liability of those issuers, nor do they
evidence any recourse against those issuers. Recourse is solely against GNMA.
Holders of GNMA Certificates (such as the Fund) have no security interest in or
lien on the underlying mortgages.
Monthly payments of principal will be made, and additional prepayments of
principal may be made, to the Fund with respect to the mortgages underlying the
GNMA Certificates held by the Fund. All of the mortgages in the pools relating
to the GNMA Certificates owned by the Fund are subject to prepayment without any
significant premium or penalty, at the option of the mortgagors. While the
mortgages on 1-to-4-family dwellings underlying certain GNMA Certificates have a
stated maturity of up to 30 years, it has been the experience of the mortgage
industry that the average life of comparable mortgages, as a result of
prepayments, refinancing and payments from foreclosures, is considerably less.
o Federal Home Loan Mortgage Corporation Certificates. FHLMC, a
corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each registered
holder of a FHLMC Certificate timely payment of the amounts representing a
holder's proportionate share in: (iv) interest payments less servicing and
guarantee fees, (v) principal prepayments, and (vi) the ultimate collection of
amounts representing the holder's
proportionate interest in principal payments on the mortgage
loans in the pool represented by the FHLMC Certificate, in
each case whether or not such amounts are actually received.
The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.
o Federal National Mortgage Association (Fannie Mae) Certificates.
Fannie Mae, a federally-chartered and privately-owned corporation, issues Fannie
Mae Certificates which are backed by a pool of mortgage loans. Fannie Mae
guarantees to each registered holder of a Fannie Mae Certificate that the holder
will receive amounts representing the holder's proportionate interest in
scheduled principal and interest payments, and any principal prepayments, on the
mortgage loans in the pool represented by such Certificate, less servicing and
guarantee fees, and the holder's proportionate interest in the full principal
amount of any foreclosed or other liquidated mortgage loan. In each case the
guarantee applies whether or not those amounts are actually received. The
obligations of Fannie Mae under its guarantees are obligations solely of Fannie
Mae and are not backed by the full faith and credit of the United States or any
of its agencies or instrumentalities other than Fannie Mae.
o Zero-Coupon U.S. Government Securities. The Fund can buy
zero-coupon U.S. government securities. These will typically be U.S. Treasury
Notes and Bonds that have been stripped of their unmatured interest coupons, the
coupons themselves, or certificates representing interests in those stripped
debt obligations and coupons.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. The discount
typically decreases as the maturity date approaches.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities that pay interest. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon securities
tend to rise more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
n "Stripped" Mortgage Related Securities. The Fund can invest in stripped
mortgage-related securities that are created by segregating the cash flows from
underlying mortgage loans or mortgage securities to create two or more new
securities. Each has a specified percentage of the underlying security's
principal or interest payments. These are a form of derivative investment.
Mortgage securities may be partially stripped so that each class receives
some interest and some principal. However, they may be completely stripped. In
that case all of the interest is distributed to holders of one type of security,
known as an "interest-only" security, or "I/O," and all of the principal is
distributed to holders of another type of security, known as a "principal-only"
security or "P/O." Strips can be created for pass-through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
n Cash Equivalents. For defensive purposes the Fund can invest in a
variety of "cash-equivalents," which are high quality short-term debt
instruments. The following is a brief description of the types of money market
securities the Fund may invest in. Money market securities are high-quality,
short-term debt instruments that may be issued by the U.S. Government,
corporations, banks or other entities. They may have fixed, variable or floating
interest rates.
o U.S. Government Securities. These include obligations issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, described above.
o Bank Obligations. The Fund may buy time deposits, certificates of
deposit and bankers' acceptances. They must be :
l obligations issued or guaranteed by a domestic or foreign bank
(including a foreign branch of a domestic bank) having total
assets of at least $1 billion,
l banker's acceptances (which may or may not be supported by
letters of credit) only if guaranteed by a U.S. commercial
bank with total assets of at least U.S. $1 billion.
The Fund can make time deposits. These are non-negotiable
deposits in a bank for a specified period of time. They may be subject to early
withdrawal penalties. Time deposits that are subject to early withdrawal
penalties are subject to the Fund's limits on illiquid investments, unless the
time deposit matures in seven days or less. "Banks" include commercial banks,
savings banks and savings and loan associations.
o Commercial Paper. The Fund may invest in commercial paper, if it
is rated within the top two rating categories of Standard & Poor's and Moody's.
If the paper is not rated, it may be purchased if issued by a company having a
credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund may buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
o Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by the
Fund at varying rates of interest under direct arrangements between the Fund, as
lender, and the borrower. They permit daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may prepay up to the full amount of the note without penalty. These
notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and
borrower, it is not expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. Accordingly, the Fund's right to redeem such notes is
dependent upon the ability of the borrower to pay principal and interest on
demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an ongoing
basis, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation
on investments by the Fund in illiquid securities, described in the Prospectus.
Currently, the Fund does not intend that its investments in variable amount
master demand notes will exceed 5% of its total assets.
n When-Issued and Delayed-Delivery Transactions. The Fund can invest in
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" (or "forward-commitment") basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of entering
into the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
n Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for defensive purposes.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Directors from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's fundamental policy limits on holding illiquid investments. The Fund
cannot enter into a repurchase agreement that causes more than 10% of its net
assets to be subject to repurchase agreements having a maturity beyond seven
days. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Manager will monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
n Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Directors, 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.
As a fundamental policy, the Fund will not invest more than 10% of its
total assets in illiquid or restricted securities, including repurchase
agreements having a maturity beyond seven days, portfolio securities for which
market quotations are not readily available and time deposits that mature in
more than 2 days. Certain restricted securities that are eligible for resale to
qualified institutional purchasers, as described below, may not be subject to
that limit. The Fund currently does not intend to invest more than 5% of its
total assets in illiquid and restricted securities. The Manager monitors
holdings of illiquid securities on an ongoing basis to determine whether to sell
any holdings to maintain adequate liquidity.
To enable the Fund to sell its holdings of a restricted security not
registered under the Securities Act of 1933, the Fund may have to cause those
securities to be registered. The expenses of registering restricted securities
may be negotiated by the Fund with the issuer at the time the Fund buys the
securities. When the Fund must arrange registration because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the security and the time the security is registered so
that the Fund could sell it. The Fund would bear the risks of any downward price
fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated above. Those percentage restrictions do not limit purchases of
restricted securities that are eligible for sale to qualified institutional
purchasers under Rule 144A of the Securities Act of 1933, if those securities
have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
n Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Directors. It may do so to try to provide income or to raise cash for liquidity
purposes. As a fundamental policy, these loans are limited to not more than 33
1/3% of the value of the Fund's total assets. There are some risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans of securities
but may do so in the future.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder's, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
n Hedging. The Fund can use hedging to attempt to protect against declines
in the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate selling securities for investment reasons. To do so, the Fund
could:
o sell futures contracts, or
o write covered calls on securities or futures. Covered calls may also
be used to increase the Fund's income, but the Manager does not
expect to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so, the Fund could buy futures.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund and its
fundamental policies.
o Futures. The Fund can buy and sell exchange-traded futures
contracts that relate to (1) broadly-based stock indices ("stock index futures")
(2) debt securities (these are referred to as "interest rate futures"), (3)
other broadly-based securities indices (these are referred to as "financial
futures"), (4) foreign currencies (these are referred to as "forward
contracts"), or (5) securities.
A broadly-based stock index is used as the basis for trading stock index
futures. An index may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index cannot
be purchased or sold directly. Financial futures are similar contracts based on
the future value of the basket of securities that comprise the index. These
contracts obligate the seller to deliver, and the purchaser to take, cash to
settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
Custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions, except forward contracts,
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
o Writing Covered Call Options. Under its fundamental policies, the
Fund is permitted to write (that is, sell) covered calls on securities, indices,
futures and forward contracts. If the Fund sells a call option, it must be
covered. That means the Fund must own the security subject to the call while the
call is outstanding, or, for calls on futures and indices, the call may be
covered by segregating liquid assets to enable the Fund to satisfy its
obligations if the call is exercised. Up to 20% of the Fund's total assets may
be subject to calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's custodian bank, or a securities depository acting for the
Custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
If the Fund writes an over-the-counter ("OTC") option, it will enter into
an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
The Fund may realize a profit if a call it has written expires
unexercised, because the Fund will retain the underlying security and the
premium it received when it wrote the call. Any such profits are considered
short-term capital gains for Federal income tax purposes, as are the premiums on
lapsed calls. When distributed by the Fund they are taxable as ordinary income.
Because of the Fund's fundamental policies prohibiting the purchase of call
options, the Fund cannot effect closing purchase transactions to terminate calls
it has written.
The Fund can also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying on its
books an equivalent dollar amount of liquid assets. The Fund will segregate
additional liquid assets if the value of the segregated assets drops below 100%
of the current value of the future. Because of this segregation requirement, in
no circumstances would the Fund's receipt of an exercise notice as to that
future require the Fund to deliver a futures contract. It would simply put the
Fund in a short futures position, which is permitted by the Fund's hedging
policies.
o Selling Call Options on Foreign Currencies. The Fund can sell
calls on foreign currencies. They include calls that trade on a securities or
commodities exchange or in the over-the-counter markets or are quoted by major
recognized dealers in such options. The Fund could use these calls to try to
protect against declines in the dollar value of foreign securities and increases
in the dollar cost of foreign securities the Fund wants to acquire.
If the Manager anticipates a decline in the dollar value of a foreign
currency, the decline in the dollar value of portfolio securities denominated in
that currency might be partially offset by writing calls on that foreign
currency. However, the currency rates could fluctuate in a direction adverse to
the Fund's position.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its Custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by identifying on its books liquid
assets in an amount equal to the exercise price of the option.
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The Fund could pay a brokerage commission each time it sells a call, or
sells an underlying investment in connection with the exercise of a call. Those
commissions could be higher on a relative basis than the commissions for direct
purchases or sales of the underlying investments. Premiums paid for options are
small in relation to the market value of the underlying investments.
Consequently, options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling futures to attempt to
protect against declines in the value of the Fund's portfolio securities. The
risk is that the prices of the futures will correlate imperfectly with the
behavior of the cash prices of the Fund's securities. For example, it is
possible that while the Fund has used hedging instruments in a short hedge, the
market might advance and the value of the securities held in the Fund's
portfolio might decline. If that occurred, the Fund would lose money on the
hedging instruments and also experience a decline in the value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio of securities will
tend to move in the same direction as the indices upon which the hedging
instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures. It is possible that when the Fund
does so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund might enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar may suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Interest Rate Swap Transactions. The Fund can enter into interest
rate swap agreements. In an interest rate swap, the Fund and another party
exchange their right to receive or their obligation to pay interest on a
security. For example, they might swap the right to receive floating rate
payments for fixed rate payments. The Fund can enter into swaps only on
securities that it owns. Also, the Fund will identify on its books liquid assets
(such as cash or U.S. government securities) to cover any amounts it could owe
under swaps that exceed the amounts it is entitled to receive, and it will
adjust that amount daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party.
Under these agreements, if a default results in a loss to one party, the
measure of that party's damages is calculated by reference to the average cost
of a replacement swap for each swap. It is measured by the mark-to-market value
at the time of the termination of each swap. The gains and losses on all swaps
are then netted, and the result is the counterparty's gain or loss on
termination. The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
o Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write may be affected by options written
or held by other entities, including other investment companies having the same
adviser as the Fund (or an adviser that is an affiliate of the Fund's adviser).
The exchanges also impose position limits on futures transactions. An exchange
may order the liquidation of positions found to be in violation of those limits
and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
o Tax Aspects of Certain Hedging Instruments. Certain foreign
currency exchange contracts in which the Fund may invest are treated as "Section
1256 contracts" under the Internal Revenue Code. In general, gains or losses
relating to Section 1256 contracts are characterized as 60% long-term and 40%
short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are forward contracts
generally are treated as ordinary income or loss. In addition, Section 1256
contracts held by the Fund at the end of each taxable year are
"marked-to-market," and unrealized gains or losses are treated as though they
were realized. These contracts also may be marked-to-market for purposes of
determining the excise tax applicable to investment company distributions and
for other purposes under rules prescribed pursuant to the Internal Revenue Code.
An election can be made by the Fund to exempt those transactions from this
marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for Federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that
occur between the time the Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or
pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the
date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
Investment Restrictions
n What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
Policies described in the Prospectus or this Statement of Additional
Information are "fundamental" only if they are identified as such. The Fund's
Board of Directors can change non-fundamental policies without shareholder
approval. However, significant changes to investment policies will be described
in supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Fund's principal investment policies are
described in the Prospectus.
n Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
|_| The Fund cannot issue senior securities. However, it can make payments
or deposits of margin in connection with options or futures transactions, lend
its portfolio securities, enter into repurchase agreements, borrow money and
pledge its assets as permitted by its other fundamental policies. For purposes
of this restriction, the issuance of shares of common stock in multiple classes
or series, the purchase or sale of options, futures contracts and options on
futures contracts, forward commitments, and repurchase agreements entered into
in accordance with the Fund's investment policies, and the pledge, mortgage or
hypothecation of the Fund's assets are not deemed to be senior securities.
|_| The Fund cannot invest more than 5% of its total assets (taken at
market value at the time of each investment) in the securities (other than
securities of the U.S. government or its agencies) of any one issuer or invest
more than 15% of its total assets in the obligations of any one bank. This
restriction applies to repurchase agreements with any one bank or dealer.
Additionally, the Fund cannot purchase more than either 10% principal amount of
the outstanding debt securities of an issuer, or 10% of the outstanding voting
securities of an issuer. This restriction shall not apply to securities issued
or guaranteed by the U.S. government or its agencies, bank instruments or bank
repurchase agreements.
|_| The Fund cannot invest more than 25% of the value of its total assets
in the securities of issuers in any single industry. However, this limitation
shall not apply to the purchase of obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities. For the purpose of this
restriction, each utility that provides a separate service (for example, gas,
gas transmission, electric or telephone) shall be considered to be a separate
industry. This test shall be applied on a pro forma basis using the market value
of all assets immediately prior to making any investment. The Fund has
undertaken as a matter of non-fundamental policy to apply this restriction to
25% or more of its total assets.
|_| The Fund cannot, by itself or together with any other fund, portfolio
or portfolios, make investments for the purpose of exercising control over, or
management of, any issuer.
|_| The Fund cannot purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization. It can also purchase in the open market securities of closed-end
investment companies if no underwriter or dealer's commission or profit, other
than the customary broker's commission is involved and only if immediately
thereafter not more than 10% of the Fund's total assets, taken at market value,
would be invested in such securities.
|_| The Fund cannot purchase or sell interests in oil, gas or other
mineral exploration or development programs, commodities, commodity contracts or
real estate. However, the Fund can purchase securities of issuers that invest or
deal an any of the above interests and can invest for hedging purposes in
futures contracts on securities, financial instruments and indices, and foreign
currency, as are approved for trading on a registered exchange.
|_| The Fund cannot purchase any securities on margin or make short sales
of securities or maintain a short position. However, the Fund can obtain such
short- term credits as may be necessary for the clearance of purchases and sales
of portfolio securities. The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related options
transactions is not considered to be the purchase of a security on margin.
|_| The Fund cannot make loans. However, the Fund may lend portfolio
securities in accordance with the Fund's investment policies up to 33 1/3% of
the Fund's total assets taken at market value. The Fund can also enter into
repurchase agreements, and purchase all or a portion of an issue of publicly
distributed debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities.
|_| The Fund cannot borrow amounts in excess of 10% of its total assets,
taken at market value at the time of the borrowing. It can borrow only from
banks as a temporary measure for extraordinary or emergency purposes. It cannot
make investments in portfolio securities while such outstanding borrowings
exceed 5% of its total assets.
o The Fund cannot allow its current obligations under reverse repurchase
agreements, together with borrowings, to exceed 1/3 of the value of its total
assets (less all its liabilities other than the obligations under borrowings and
such agreements).
|_| The Fund cannot mortgage, pledge, hypothecate or in any manner
transfer, as security for indebtedness, any securities owned or held by the Fund
except as may be necessary in connection with borrowings as mentioned in its
restriction on borrowing, above. In that case such mortgaging, pledging or
hypothecating may not exceed 10% of the Fund's total assets, taken at market
value at the time of the borrowing. The deposit of cash, cash equivalents and
liquid debt securities in a segregated account with the Fund's custodian bank
and/or with a broker in connection with futures contracts or related options
transactions and the purchase of securities on a "when-issued" basis are not
deemed to be pledges.
o The Fund cannot underwrite securities of other issuers. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 in reselling its portfolio securities.
o The Fund cannot write, purchase or sell puts, calls or combinations
thereof, except that it can write covered call options.
o The Fund cannot invest in securities of foreign issuers if at the time
of acquisition more than 10% of its total assets, taken at market value at the
time of the investment, would be invested in such securities. However, up to 25%
of the total assets of the Fund may be invested in the aggregate in such
securities that are (i) issued, assumed or guaranteed by foreign governments, or
political subdivisions or instrumentalities thereof, (ii) assumed or guaranteed
by domestic issuers (including Eurodollar securities), or (iii) issued, assumed
or guaranteed by foreign issuers having a class of securities listed for trading
on The New York Stock Exchange.
o The Fund cannot invest more than 10% in the aggregate of the value of
its total assets in repurchase agreements maturing in more than seven days, time
deposits maturing in more than two days, portfolio securities that do not have
readily available market quotations and all other illiquid assets.
For purposes of the fundamental investment restrictions, the term "borrow"
does not include mortgage dollar rolls, reverse repurchase agreements or lending
portfolio securities. The terms "illiquid securities" and "portfolio securities
that do not have readily available market quotations" include restricted
securities. However, reverse repurchase agreements are treated as borrowings,
master demand notes may be deemed to be illiquid securities and mortgage dollar
rolls are sales transactions and not financings.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
For purposes of the Fund's policy not to concentrate its investments as
described above, the Fund has adopted the industry classifications set forth in
Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Fund is Managed
Organization and History. The Fund is one of two investment portfolios, or
"series," of Oppenheimer Series Fund, Inc. That corporation is an open-end,
management investment company organized as a Maryland corporation in 1981, and
was called Connecticut Mutual Investment Accounts, Inc. until March 18, 1996,
when the Manager became the Fund's investment adviser. The Fund is a diversified
mutual fund, and until March 18, 1996 was called Connecticut Mutual Growth
Account.
The Fund's parent corporation is governed by a Board of Directors, which
is responsible for protecting the interests of shareholders under Maryland law.
The Directors meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
|X| Classes of Shares. The Board of Directors has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has four classes of
shares: Class A, Class B, Class C and Class Y. All classes invest in the same
investment portfolio. Each class of shares: o has its own dividends and
distributions, o pays certain expenses which may be different for the different
classes, o may have a different net asset value, o may have separate voting
rights on matters in which interests of one
class are different from interests of another class, and o votes as
a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Directors are authorized to create new series and classes of shares.
The Directors may reclassify unissued shares of the Fund's parent corporation or
its series or classes into additional series or classes of shares. The Directors
also may divide or combine the shares of a class into a greater or lesser number
of shares without changing the proportionate beneficial interest of a
shareholder in the Fund. Shares do not have cumulative voting rights or
preemptive or subscription rights. Shares may be voted in person or by proxy at
shareholder meetings.
|X| Meetings of Shareholders. Although the Fund is not required by
Maryland law to hold annual meetings, it may hold shareholder meetings from time
to time on important matters. The shareholders of the Fund's parent corporation
have the right to call a meeting to remove a Director or to take certain other
action described in the Articles of Incorporation or under Maryland law.
The Fund will hold meetings when required to do so by the Investment
Company Act or other applicable law. The Fund will hold a meeting when the
Directors call a meeting or upon proper request of shareholders. If the Fund's
parent corporation receives a written request of the record holders of at least
25% of the outstanding shares eligible to be voted at a meeting to call a
meeting for a specified purpose (which might include the removal of a Director),
the Directors will call a meeting of shareholders for that specified purpose.
The Fund's parent corporation has undertaken that it will then either give the
applicants access to the Fund's shareholder list or mail the applicants'
communication to all other shareholders at the applicants' expense.
Shareholders of the Fund and of its parent corporation's other series vote
together in the aggregate on certain matters at shareholders' meetings. Those
matters include the election of Directors and ratification of appointment of the
independent auditors. Shareholders of a particular series or class vote
separately on proposals that affect that series or class. Shareholders of a
series or class that is not affected by a proposal are not entitled to vote on
the proposal. For example, only shareholders of a particular series vote on any
material amendment to the investment advisory agreement for that series. Only
shareholders of a particular class of a series vote on certain amendments to the
Distribution and/or Service Plans if the amendments affect only that class.
Directors and Officers of the Fund. The Directors of the Fund's parent
corporation and the Fund's officers and their principal occupations and business
affiliations during the past five years are listed below. Directors denoted with
an asterisk (*) below are deemed to be "interested persons" of the Fund's parent
corporation and the Fund under the Investment Company Act. All of the Directors
are also trustees, directors or managing general partners of the following New
York-based Oppenheimer funds1:
<PAGE>
Oppenheimer California Municipal Fund Oppenheimer International Small Company
Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Developing Markets Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Discovery Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Enterprise Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Europe Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Global Fund Oppenheimer Municipal Bond Fund
Oppenheimer Global Growth & Income Fund Oppenheimer New York Municipal Fund
Oppenheimer Gold & Special Minerals Oppenheimer Series Fund, Inc.
Fund
Oppenheimer Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Wixted, Zack, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of February 1, 1999, the Directors and officers of
the Fund as a group owned of record or beneficially less than 1% of each class
of shares of the Fund. The foregoing statement does not reflect ownership of
shares of the Fund held of record by an employee benefit plan for employees of
the Manager, other than the shares beneficially owned under the plan by the
officers of the Fund listed above. Ms. Macaskill and Mr. Donohue are trustees of
that plan.
1 Ms. Macaskill is not a Director of Oppenheimer Money Market Fund, Inc.
Leon Levy, Chairman of the Board of Directors, Age 73
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since 1982)
and Chairman of Avatar Holdings, Inc. (real estate development).
Robert G. Galli, Director, Age 65
19750 Beach Road, Jupiter Island, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 to
December 1997); Vice President (June 1990 to March 1994) and General Counsel of
Oppenheimer Acquisition Corp., the Manager's parent holding company; Executive
Vice President (December 1977 to October 1995), General Counsel and a director
(December 1975 to October 1993) of the Manager; Executive Vice President and a
director (July 1978 to October 1993) and General Counsel of the Distributor,
OppenheimerFunds Distributor, Inc.; Executive Vice President and a director
(April 1986 to October 1995) of HarbourView Asset Management Corporation; Vice
President and a director (October 1988 to October 1993) of Centennial Asset
Management Corporation, (HarbourView and Centennial are investment adviser
subsidiaries of the Manager); and an officer of other Oppenheimer funds.
Benjamin Lipstein, Director, Age 75
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Bridget A. Macaskill, President and Director *, Age 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corp.; Chairman and a director of
Shareholder Services, Inc. (since August 1994), and Shareholder Financial
Services, Inc. (since September 1995) (both are transfer agent subsidiaries of
the Manager); President (since September 1995) and a director (since October
1990) of Oppenheimer Acquisition Corp.; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director (since July 1996) of
Oppenheimer Real Asset Management, Inc., and investment advisory subsidiary of
the Manager; President and a director (since October 1997) of OppenheimerFunds
International Ltd., an offshore fund management subsidiary of the Manager;
Chairman, President and of Oppenheimer Millennium Funds plc; an offshore
investment company; President and a director or trustee of other Oppenheimer
funds; a director of Hillsdown Holdings plc (a U.K. food company).
Elizabeth B. Moynihan, Director, Age 69
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute), and a member of the Executive Committee of the Board of
Trustees of the National Building Museum; a member of the Trustees Council,
Preservation League of New York State.
Kenneth A. Randall, Director, Age 71
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil and gas producer), and Prime
Retail, Inc. (real estate investment trust); formerly President and Chief
Executive Officer of The Conference Board, Inc. (international economic and
business research) and a director of Lumbermens Mutual Casualty Company,
American Motorists Insurance Company and American Manufacturers Mutual Insurance
Company.
Edward V. Regan, Director, Age 68
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of RB Asset
(real estate manager) and OffitBank; a Trustee of Financial Accounting
Foundation (FASB and GASB); formerly New York State Comptroller and trustee, New
York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Director, Age 68
8 Sound Shore Drive, Greenwich, Connecticut 06830
Retired 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 Directors*, Age 73
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Chairman Emeritus (since August 1991) and a director (since January 1969) of the
Manager; formerly Chairman of the Manager and the Distributor.
Pauline Trigere, Director, Age 86
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of P.T. Concept (design and sale of women's
fashions).
Clayton K. Yeutter, Director, Age 68
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a law firm); a director of Zurich Financial
Services (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) Counselor to the President (Bush)
for Domestic Policy, Chairman of the Republican National Committee, Secretary of
the U.S. Department of Agriculture, and U.S. Trade Representative; and formerly
a director of B.A.T. Industries, Ltd. (tobacco and financial services), IMC
Global (fertilizer producer) and Lindsay Mfg. Co. (maker of irrigation
equipment).
<PAGE>
Peter M. Antos, Vice President and Portfolio Manager, Age: 53.
One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103
Chartered Financial Analyst; Senior Vice President of the Manager and
HarbourView Asset Management Corp. (since March 1996); an officer and portfolio
manager of other Oppenheimer funds; previously Vice President and Senior
Portfolio Manager, Equities of Connecticut Mutual Life Insurance Company and its
subsidiary, G.R. Phelps & Co. (1989-1996).
Michael C. Strathearn, Vice President and Portfolio Manager, Age: 46.
One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103
Chartered Financial Analyst; Vice President of the Manager and HarbourView Asset
Management Corp (since March 1996); an officer of other Oppenheimer funds;
previously a Portfolio Manager, Equities, of Connecticut Mutual Life Insurance
Company (1988-1996).
Kenneth B. White, Vice President and Portfolio Manager, Age: 47.
One Financial Plaza, 755 Main Street, Hartford, Connecticut 06103
Chartered Financial Analyst; Vice President of the Manager and HarbourView Asset
Management Corp. (since March 1996); an officer of other Oppenheimer funds;
previously a Portfolio Manager, Equities, of Connecticut Mutual Life Insurance
Company (1992-1996).
Andrew J. Donohue, Secretary, Age 48
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corp., Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since September 1995); President and a director of Centennial Asset Management
Corp. (since September 1995); President, General Counsel and a director of
Oppenheimer Real Asset Management, Inc. (since July 1996); General Counsel
(since May 1996) and Secretary (since April 1997) of Oppenheimer Acquisition
Corp.; Vice President and a director of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.
Brian W. Wixted, Treasurer; Age: 39.
6803 South Tucson Way, Englewood,
Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; formerly
Principal and Chief Operating Officer, Bankers Trust Company - Mutual Fund
Services Division (1995-1999); Vice President and Chief Financial Officer of CS
First Boston Investment Management Corp. (1991-1995); and Vice President and
Accounting Manager, Merrill Lynch Asset Management (1987-1991).
Robert G. Zack, Assistant Secretary, Age 50
Two World Trade Center, 34th Floor, New York, NY 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager; Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds. Robert J. Bishop, Assistant Treasurer, Age 40 6803 South Tucson Way,
Englewood, Colorado 80112 Vice President of the Manager/Mutual Fund Accounting
(since May 1996); an officer of other Oppenheimer funds; formerly an Assistant
Vice President of the Manager/Mutual Fund Accounting (April 1994-May 1996), and
a Fund Controller for the Manager.
Scott T. Farrar, Assistant Treasurer, Age 33
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds; formerly
an Assistant Vice President of the Manager/Mutual Fund Accounting (April
1994-May 1996), and a Fund Controller for the Manager.
|X| Remuneration of Directors. The officers of the Fund and certain
Directors of the Fund's parent corporation (Ms. Macaskill and Mr. Spiro) who are
affiliated with the Manager receive no salary or fee from the Fund. The
remaining Directors received the compensation shown below. The compensation from
the Fund was paid during its fiscal period ended October 31, 1998. The
compensation from all of the New York-based Oppenheimer funds (including the
Fund) was received as a director, trustee or member of a committee of the boards
of those funds during the calendar year 1998.
<PAGE>
------------------------------------------------------------------------------
Total
Retirement Compensation
Benefits From all
Aggregate Accrued as Part New York based
Director's Name Compensation of Fund Oppenheimer
and Other Positions from Fund1 Expenses Funds (21 Funds)2
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Leon Levy $6,652 $2,270 $162,600
Chairman
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Robert G. Galli $1,655 None $113,383
Study Committee Member3
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Benjamin Lipstein
Study Committee
Chairman, $6,973 $3,185 $140,550
Audit Committee Member
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Elizabeth B. Moynihan $2,668 None $99,000
Study Committee Member
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Kenneth A. Randall $3,947 $1,500 $90,800
Audit Committee Member
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Edward V. Regan
Proxy Committee
Chairman, Audit $2,420 None $89,800
Committee Member
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Russell S. Reynolds, Jr. $2,223 $412 $67,200
Proxy Committee Member
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Pauline Trigere $2,679 $1,062 $60,000
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Clayton K. Yeutter $1,8114 $-0- $67,200
Proxy Committee Member
------------------------------------------------------------------------------
Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Director.
For the 1998 calendar year.
Aggregate compensation from the Fund reflects fees from 1/1/98 to 10/31/98.
Total Compensation for the 1998 calendar year includes compensation received
for serving as Trustee or Director of 11 other Oppenheimer funds.
Includes $381 deferred under Deferred Compensation Plan described below.
|X| Retirement Plan for Directors. The Fund and its parent
corporation have adopted a retirement plan that provides for payments to retired
Directors. Payments are up to 80% of the average compensation paid during a
Director's five years of service in which the highest compensation was received.
A Director must serve as director or trustee for any of the New York-based
Oppenheimer funds for at least 15 years to be eligible for the maximum payment.
Each Director's retirement benefits will depend on the amount of the Director's
future compensation and length of service. Therefore the amount of those
benefits cannot be determined at this time, nor can we estimate the number of
years of credited service that will be used to determine those benefits.
n Deferred Compensation Plan. The Board of Directors has adopted a
Deferred Compensation Plan for disinterested directors 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
Director is periodically adjusted as though an equivalent amount had
been invested in shares of one or more Oppenheimer funds selected by the
Director. The amount paid to the Director under the plan will be determined
based upon the performance of the selected funds.
Deferral of Directors' 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 Director or to pay any particular level
of compensation to any Director. Pursuant to an Order issued by the Securities
and Exchange Commission, the Fund may invest in the funds selected by the
Director under the plan without shareholder approval for the limited purpose of
determining the value of the Director's deferred fee account.
n Major Shareholders. As of February 1, 1999, the only persons who owned
of record or were known by the Fund to own beneficially 5% or more of any class
of the Fund's outstanding shares were:
MML Securities Corporation, 1414, Springfield, MA 01144-1008 which owned
1,886,597.974 Class A shares (approximately 8.56% of the outstanding Class
A shares) for the benefit of its clients.
Mass Mutual Life Insurance Co., 1295 State Street, Springfield, MA
01111-0001, which owned 3,250,135.739 Class A shares (approximately 14.74%
of the outstanding Class A shares) and 6,094,682.587 Class Y shares (100%
of the outstanding Class Y shares) for the benefit of its clients.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. The
Manager and the Fund have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers,
that would compete with or take advantage of the Fund's portfolio transactions.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
n The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio managers
of the Fund are employed by the Manager and are the persons who are principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Equity Portfolio Department provide the portfolio managers with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage commissions,
fees to certain Directors, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration costs
and non-recurring expenses, including litigation costs. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class.
------------------------------------------------------------------------------
Fiscal Year ended 10/31: Management Fees Paid to OppenheimerFunds, Inc.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
19961 $ 559,197
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 $1,850,924
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $3,658,650
------------------------------------------------------------------------------
1.Fiscal period from 1/1/96 to 10/31/96. For the period from 1/1/96 to 3/18/96
fees paid to the Fund's prior investment adviser were $159,989.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager may withdraw the right of the Fund's parent
corporation to use the name "Oppenheimer" as part of its name and the name of
the Fund.
<PAGE>
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
The Manager is authorized by the advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the Investment
Company Act. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Directors.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for the
Fund and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those considerations, as a factor in selecting
brokers for the Fund's portfolio transactions, the Manager may also consider
sales of shares of the Fund and other investment companies for which the Manager
or an affiliate serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. Instead of using a broker for those transactions, the Fund normally
deals directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The investment research services provided by a
particular broker may be useful only to one or more of the advisory accounts of
the Manager and its affiliates. The investment research received for the
commissions of those other accounts may be useful both to the Fund and one or
more of the Manager's other accounts. Investment research may be supplied to the
Manager by a third party at the instance of a broker through which trades are
placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of Directors permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Directors permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
------------------------------------------------------------------------------
Fiscal Year Ended 10/31: Total Brokerage Commissions Paid by the Fund1
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1996 2 $173,513
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1997 $892,947
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1998 $2,003,6383
------------------------------------------------------------------------------
4. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
5. For the fiscal period from 1/1/96 to 10/31/96.
6. In the fiscal year ended 10/31/98, the amount of transactions directed to
brokers for research services was $903,289,168 and the amount of the
commissions paid to broker-dealers for those services was $1,372,485
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund's
parent corporation, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The Distributor is not obligated to sell a specific number of shares. Expenses
normally attributable to sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
<PAGE>
- -------------------------------------------------------------------------------
Aggregate Class A
Front-End Front-End Commissions Commissions Commissions
Fiscal Sales Sales on Class A on Class B on Class C
Year Charges on Charges Shares Shares Shares
Ended Class A Retained by Advanced by Advanced by Advanced by
10/31: Shares Distributor Distributor1 Distributor1 Distributor1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
19962 $ 534,988 $341,543 $ 11,222 $ 149,781 $ 6,734
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $ 885,737 $558,864 $ 18,532 $ 836,130 $ 55,829
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $1,667,118 $789,178 $178,820 $1,811,143 $100,603
- -------------------------------------------------------------------------------
3. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
4. Fiscal period from 1/1/86 to 10/31/96. Excludes amounts paid to and/or
retained by the Fund's prior general distributor for the period from 1/1/96
to 3/18/96.
- -------------------------------------------------------------------------------
Fiscal Class A Contingent Class B Contingent
Year Deferred Sales Deferred Sales Class C Contingent
Ended Charges Retained by Charges Retained by Deferred Sales Charges
10/31 Distributor Distributor Retained by Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 N/A $202,849 $10,623
- -------------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act. Under those plans the Fund pays the
Distributor for all or a portion of its costs incurred in connection with the
distribution and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Directors, including
a majority of the Independent Directors2, cast in person at a meeting called for
the purpose of voting on that plan. Each plan has also been approved by the
holders of a "majority" (as defined in the Investment Company Act) of the shares
of the applicable class. The shareholder vote for the Distribution and Service
Plan for Class C shares was cast by the Manager as the sole initial holder of
Class C shares of the Fund.
2. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Directors" in this Statement of Additional Information refers to
those Directors who are not "interested persons" of the Fund (or its parent
corporation) and who do not have any direct or indirect financial interest in
the operation of the distribution plan or any agreement under the plan.
Under the plans, the Manager and the Distributor, in their sole
discretion, from time to time, may use their own resources (at no direct cost to
the Fund) to make payments to brokers, dealers or other financial institutions
for distribution and administrative services they perform. The Manager may use
its profits from the advisory fee it receives from the Fund. In their sole
discretion, the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Directors and its
Independent Directors specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Directors or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Directors and the Independent Directors must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund must obtain the approval
of both Class A and Class B shareholders for a proposed material amendment to
the Class A Plan that would materially increase payments under the Plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of
the shares of each class, voting separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Directors at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan, and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Directors.
Each plan states that while it is in effect, the selection and nomination
of those Directors of the Fund's parent corporation who are not "interested
persons" of the corporation (or the Fund) is committed to the discretion of the
Independent Directors. This does not prevent the involvement of others in the
selection and nomination process as long as the final decision as to selection
or nomination is approved by a majority of the Independent Directors.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares of that
class held by the recipient for itself and its customers does not exceed a
minimum amount, if any, that may be set from time to time by a majority of the
Independent Directors. The Board of Directors has set no minimum amount of
assets to qualify for payments under the plans.
o Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Class A
service plan permits reimbursements to the Distributor at a rate of up to 0.25%
of average annual net assets of Class A shares. The Board has set the rate at
that level. While the plan permits the Board to authorize payments to the
Distributor to reimburse itself for services under the plan, the Board has not
yet done so. The Distributor makes payments to plan recipients quarterly at an
annual rate not to exceed 0.25% of the average annual net assets consisting of
Class A shares held in the accounts of the recipients or their customers.
For the fiscal year ended October 31, 1998 payments under the Class A Plan
totaled $1,102,621, all of which was paid by the Distributor to recipients. That
included $667,521 paid to an affiliate of the Distributor's parent company. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares in
any fiscal year cannot be recovered in subsequent years. The Distributor may not
use payments received under the Class A Plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.
o Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans provide
for the Distributor to be compensated for its services at a flat rate, whether
the Distributor's costs in distributing Class B and Class C shares and servicing
accounts are more or less than the amounts paid by the Fund under the plan
during the period for which the fee is paid. The types of services that
recipients provide are similar to the services provided under the Class A
service plan, described above.
The Class B and the Class C plans permit the Distributor to retain both
the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor currently intends to pay the service fee to recipients in advance
for the first year after the shares are purchased. After the first year shares
are outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the recipient on Class C shares outstanding for a
year or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Fund pays the
asset-based sales charges to the Distributor for its services rendered in
distributing Class B and Class C shares. The payments are made to the
Distributor in recognition that the Distributor: o pays sales commissions to
authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B and Class C
shares, and
o bears the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
For the fiscal year ended October 31, 1998, payments under the Class B
plan totaled $1,101,303 (including $42,263 paid to an affiliate of the
Distributor's parent). The Distributor retained $933,605 of the total amount.
For the fiscal year ended October 31, 1998, payments under the Class C plan
totaled $153,334 (including $12,392 paid to an affiliate of the Distributor's
parent). The Distributor retained $110,797 of the total amount.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. As of
October 31, 1998, the Distributor had incurred unreimbursed expenses under the
Class B plan in the amount of $3,212,917 (equal to 2.61% of the Fund's net
assets represented by Class B shares on that date) and unreimbursed expenses
under the Class C plan of $219,766 (equal to 1.21% of the Fund's net assets
represented by Class C shares on that date). If either the Class B or the Class
C plan is terminated by the Fund, the Board of Directors may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
distributing shares before the plan was terminated.
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication).
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each shareholder's
account. Your account's performance will vary from the model performance data if
your dividends are received in cash, or you buy or sell shares during the
period, or you bought your shares at a different time and price than the shares
used in the model.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
|_| The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period. There is no sales charge on Class Y
shares.
|_| Average Annual Total Return. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for 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 Fund's Total Returns for the Periods Ended 10/31/98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cumulative
Total
Class of Returns (10
Shares years
or Life of
Class) Average Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5-Year 10-Year
(or (or
1-Year life-of-class) life-of-class)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A1 328.64% 354.79% -3.64% 2.24% 13.24% 14.59% 15.67% 16.35%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B 50.27% 53.27% -3.00% 1.47% 14.13%2 14.87%2 N/A N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C 35.37% 35.37% 0.57% 1.47% 12.88%3 12.88%3 N/A N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class Y N/A 26.87% N/A 2.63% N/A 13.53%4 N/A N/A
- --------------------------------------------------------------------------------
1. Inception of Class A: 9/16/85.
2. Inception of Class B: 10/2/95.
3. Inception of Class C: 5/1/96.
4. Inception of Class Y: 12/16/96.
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
n Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other growth funds. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
n Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among domestic
stock funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) one, three, five and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after considering the
fund's sales charges and expenses. Risk measures a fund's (or class's)
performance below 90-day U.S. Treasury bill returns. Risk and investment return
are combined to produce star rankings reflecting performance relative to the
average fund in a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), four stars is "above average" (next 22.5%), three stars
is "average" (next 35%), two stars is "below average" (next 22.5%) and one star
is "lowest" (bottom 10%). The current star ranking is the fund's (or class's)
3-year ranking or its combined 3- and 5-year ranking (weighted 60%/40%
respectively), or its combined 3-, 5-, and 10-year ranking (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).
Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
n Performance Rankings and Comparisons by Other Entities and Publications.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, The Wall Street Journal, Barron's, or
similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's
classes of shares may be compared in publications to the performance of various
market indices or other investments, and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
- ------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
- ------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
n Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together:
o Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
o current purchases of Class A and Class B shares of the Fund and
other Oppenheimer funds to reduce the sales charge rate that applies
to current purchases of Class A shares, and
o Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge
to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Bond Fund Oppenheimer Large Cap Growth Fund
Oppenheimer California Municipal Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Champion Income Fund Oppenheimer MidCap Fund Oppenheimer Convertible
Securities Fund Oppenheimer Multiple Strategies Fund Oppenheimer Developing
Markets Fund Oppenheimer Municipal Bond Fund Oppenheimer Disciplined Allocation
Fund Oppenheimer New York Municipal Fund Oppenheimer Disciplined Value Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Discovery Fund Oppenheimer
Pennsylvania Municipal Fund Oppenheimer Enterprise Fund Oppenheimer Quest
Balanced Value Fund Oppenheimer Europe Fund Oppenheimer Quest Capital Value
Fund,
Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value Fund,
Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Gold & Special Minerals Oppenheimer Quest Value Fund, Inc.
Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Fund Limited-Term New York Municipal Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A and Class B shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate for
the Class A shares purchased during that period. You can include purchases made
up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
6. The shares eligible for purchase under the Letter (or the holding of which
may be counted toward completion of a Letter) include: (d) Class A shares sold
with a front-end sales charge or subject to a Class
A contingent deferred sales charge,
(e) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(f) Class A or Class B shares acquired by exchange of either (1) Class
A shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. The amount of the
Asset Builder investment may be changed or the automatic investments may be
terminated at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the Plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the Plan's applicable investments
reach $5 million. Cancellation of Purchase Orders. Cancellation of purchase
orders for the Fund's shares (for example, when a purchase check is returned to
the Fund unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date. That
loss is equal to the amount of the decline in the net asset value per share
multiplied by the number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the Fund for the
loss, the Distributor will do so. The Fund may reimburse the Distributor for
that amount by redeeming shares from any account registered in that investor's
name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
n Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class B
shares would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
n Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Directors' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Directors, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days and the values of some of the Fund's
portfolio securities may change significantly on these days, when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Manager determines that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.
n Securities Valuation. The Fund's Board of Directors has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows: (3) if last sale information is regularly reported, they
are valued at the
last reported sale price on the principal exchange on which
they are traded or on NASDAQ, as applicable, on that day, or
(4) if last sale information is not available on a valuation date,
they are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid"
and "asked" prices on the valuation date or, if not, at the
closing "bid" price on the valuation date.
o Equity securities traded on a foreign securities exchange generally
are valued in one of the following ways: (4) at the last sale price available to
the pricing service approved by the
Board of Directors, or
(5) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its
last trading session on or immediately before the valuation date,
or
(6) at the mean between the "bid" and "asked" prices obtained from
the principal exchange on which the security is traded or, on the
basis of reasonable inquiry, from two market makers in the
security.
o Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Directors or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Directors or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (4) debt instruments that have a
maturity of more than 397 days when
issued,
(5) debt instruments that had a maturity of 397 days or less when
issued and have a remaining maturity of more than 60 days, and
(6) non-money market debt instruments that had a maturity of 397 days
or less when issued and which have a remaining maturity of 60
days or less.
o The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts: (3) money market debt
securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(4) debt instruments held by a money market fund that have a
remaining maturity of 397 days or less.
o Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures. If the Manager is unable to locate two market makers
willing to give quotes, a security may be priced at the mean between the "bid"
and "asked" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Directors. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Directors or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus.
The information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
or Class Y shares. The Fund may amend, suspend or cease offering this
reinvestment privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Directors 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 liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Directors has the right to cause
the involuntary redemption of the shares held in any account if the account
holds fewer than 100 shares. If the Board exercises this right, it may also fix
the requirements for any notice to be given to the shareholders in question (not
less than 30 days). The Board may alternatively set requirements for the
shareholder to increase the investment, or set other terms and conditions so
that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Sending Redemption Proceeds by Wire. The wire of redemption proceeds may be
delayed if the Fund's custodian bank is not open for business on a day when the
Fund would normally authorize the wire to be made, which is usually the Fund's
next regular business day following the redemption. In those circumstances, the
wire will not be transmitted until the next bank business day on which the Fund
is open for business. No dividends will be paid on the proceeds of redeemed
shares awaiting transfer by wire.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the conditions of
applicable tax laws and will not be responsible for any tax penalties assessed
in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C to this
Statement of Additional Information.
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
o All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds-sponsored 401 (k) plans.
o Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge. To
qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
n How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years of the
initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they
are redeemed within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
Class must specify which class of shares they with to exchange.
n Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
n Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
n Processing Exchange Requests. Shares to be exchanged are redeemed on the
regular business day the Transfer Agent receives an exchange request in proper
form (the "Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by either
fund up to five business days if it determines that it would be disadvantaged by
an immediate transfer of the redemption proceeds. The Fund reserves the right,
in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund, the Fund may refuse the request.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A and Class Y shares. That is
because of the effect of the asset-based sales charge on Class B and Class C
shares. Those dividends will also differ in amount as a consequence of any
difference in the net asset values of the different classes of shares.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Directors and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
<PAGE>
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer Agent
at the address and toll-free numbers shown on the back cover.
The Custodian. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
================================================================================
The Board of Directors and Shareholders of
Oppenheimer Disciplined Value Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Disciplined Value Fund as of October 31, 1998, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended
and the financial highlights for each of the years in the two-year period then
ended and the ten months ended October 31, 1996. 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. The financial highlights for each of
the years in the three-year period ended December 31, 1995, were audited by
other auditors whose report dated February 9, 1996, expressed an unqualified
opinion on this information.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1998 by correspondence with the custodian and brokers;
and where confirmations were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Oppenheimer Disciplined Value Fund as of October 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the two-year period then ended October 31,
1998, and the ten months ended October 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
November 20, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments October 31, 1998
- --------------------------------------------------------------------------------
Market
Value
Shares See Note 1
================================================================================
Common Stocks--93.5%
- --------------------------------------------------------------------------------
Basic Materials--1.4%
- --------------------------------------------------------------------------------
Metals--1.4%
Aluminum Co. of America 133,700 $
10,595,725
- --------------------------------------------------------------------------------
Consumer Cyclicals--13.5%
- --------------------------------------------------------------------------------
Autos & Housing--5.5%
Federal-Mogul Corp. 275,900
14,950,331
- --------------------------------------------------------------------------------
Ford Motor Co. 73,100
3,965,675
- --------------------------------------------------------------------------------
Hertz Corp., Cl. A 100,100
3,584,831
- --------------------------------------------------------------------------------
Maytag Corp. 231,100
11,425,006
- --------------------------------------------------------------------------------
Republic Industries, Inc./(1)/ 184,100
2,957,106
- --------------------------------------------------------------------------------
Whirlpool Corp. 70,400
3,608,000
- ------------
40,490,949
- --------------------------------------------------------------------------------
Leisure & Entertainment--3.7%
Alaska Air Group, Inc./(1)/ 51,100
1,836,406
- --------------------------------------------------------------------------------
AMR Corp./(1)/ 90,300
6,050,100
- --------------------------------------------------------------------------------
Delta Air Lines, Inc. 32,000
3,378,000
- --------------------------------------------------------------------------------
Eastman Kodak Co. 134,800
10,447,000
- --------------------------------------------------------------------------------
Hasbro, Inc. 103,900
3,642,994
- --------------------------------------------------------------------------------
Outback Steakhouse, Inc./(1)/ 41,600
1,440,400
- --------------------------------------------------------------------------------
Wendy's International, Inc. 4,800
100,800
- ------------
26,895,700
- --------------------------------------------------------------------------------
Retail: General--3.6%
Dayton Hudson Corp. 126,300
5,351,962
- --------------------------------------------------------------------------------
Federated Department Stores, Inc./(1)/ 95,600
3,674,625
- --------------------------------------------------------------------------------
Fruit of the Loom, Inc., Cl. A/(1)/ 195,400
2,979,850
- --------------------------------------------------------------------------------
K Mart Corp./(1)/ 239,400
3,381,525
- --------------------------------------------------------------------------------
Nordstrom, Inc. 82,000
2,239,625
- --------------------------------------------------------------------------------
Sears Roebuck & Co. 191,500
8,605,531
- ------------
26,233,118
- --------------------------------------------------------------------------------
Retail: Specialty--0.7%
Payless ShoeSource, Inc./(1)/ 104,300
4,895,581
- --------------------------------------------------------------------------------
Consumer Non-Cyclicals--21.8%
- --------------------------------------------------------------------------------
Beverages--1.4%
Anheuser-Busch Cos., Inc. 168,800
10,033,050
13 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market
Value
Shares See Note 1
- --------------------------------------------------------------------------------
Food--6.8%
Albertson's, Inc. 168,000 $
9,334,500
- --------------------------------------------------------------------------------
General Mills, Inc. 116,400
8,555,400
- --------------------------------------------------------------------------------
IBP, Inc. 352,700
9,544,944
- --------------------------------------------------------------------------------
Kroger Co./(1)/ 227,300
12,615,150
- --------------------------------------------------------------------------------
Safeway, Inc./(1)/ 207,600
9,925,875
- ------------
49,975,869
- --------------------------------------------------------------------------------
Healthcare/Drugs--4.7%
Amgen, Inc./(1)/ 198,500
15,594,656
- --------------------------------------------------------------------------------
Genzyme Corp. (General Division)/(1)/ 452,600
19,037,487
- ------------
34,632,143
- --------------------------------------------------------------------------------
Healthcare/Supplies & Services--3.9%
Bard (C.R.), Inc. 275,900
11,777,481
- --------------------------------------------------------------------------------
Tenet Healthcare Corp./(1)/ 377,180
10,537,466
- --------------------------------------------------------------------------------
WellPoint Health Networks, Inc./(1)/ 83,000
6,110,875
- ------------
28,425,822
- --------------------------------------------------------------------------------
Household Goods--5.0%
Dial Corp. (The) 316,700
8,729,044
- --------------------------------------------------------------------------------
Fort James Corp. 427,187
17,220,976
- --------------------------------------------------------------------------------
Premark International, Inc. 351,000
11,122,312
- ------------
37,072,332
- --------------------------------------------------------------------------------
Energy--1.7%
- --------------------------------------------------------------------------------
Oil-Integrated--1.7%
Exxon Corp. 115,800
8,250,750
- --------------------------------------------------------------------------------
Mobil Corp. 57,900
4,382,306
- ------------
12,633,056
- --------------------------------------------------------------------------------
Financial--11.9%
- --------------------------------------------------------------------------------
Banks--6.9%
Bank One Corp. 304,500
14,882,437
- --------------------------------------------------------------------------------
BankBoston Corp. 273,200
10,057,175
- --------------------------------------------------------------------------------
First Union Corp. 257,500
14,935,000
- --------------------------------------------------------------------------------
Golden West Financial Corp. 116,700
10,583,231
- ------------
50,457,843
- --------------------------------------------------------------------------------
Insurance--5.0%
ACE Ltd. 137,000
4,640,875
- --------------------------------------------------------------------------------
Allstate Corp. 176,800
7,613,450
- --------------------------------------------------------------------------------
American International Group, Inc. 127,100
10,835,275
14 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market
Value
Shares See Note 1
- --------------------------------------------------------------------------------
Insurance (continued)
Conseco, Inc. 152,000 $
5,272,500
- --------------------------------------------------------------------------------
Equitable Cos., Inc. 72,000
3,528,000
- --------------------------------------------------------------------------------
Travelers Property Casualty Corp., Cl. A 167,000
5,124,812
- ------------
37,014,912
- --------------------------------------------------------------------------------
Industrial--10.1%
- --------------------------------------------------------------------------------
Industrial Materials--2.0%
Owens Corning 191,000
6,935,687
- --------------------------------------------------------------------------------
USG Corp. 156,900
7,482,169
- ------------
14,417,856
- --------------------------------------------------------------------------------
Industrial Services--2.4%
Viad Corp. 322,600
8,851,338
- --------------------------------------------------------------------------------
Waste Management, Inc. (New) 195,685
8,830,286
- ------------
17,681,624
- --------------------------------------------------------------------------------
Manufacturing--5.7%
Ingersoll-Rand Co. 243,800
12,311,900
- --------------------------------------------------------------------------------
PACCAR, Inc. 74,800
3,263,150
- --------------------------------------------------------------------------------
Textron, Inc. 215,800
16,050,125
- --------------------------------------------------------------------------------
United Technologies Corp. 110,200
10,496,550
- ------------
42,121,725
- --------------------------------------------------------------------------------
Technology--18.3%
- --------------------------------------------------------------------------------
Aerospace/Defense--2.7%
General Dynamics Corp. 208,800
12,358,350
- --------------------------------------------------------------------------------
Lockheed Martin Corp. 70,371
7,837,570
- ------------
20,195,920
- --------------------------------------------------------------------------------
Computer Hardware--12.5%
Apple Computer, Inc./(1)/ 263,300
9,775,013
- --------------------------------------------------------------------------------
Compaq Computer Corp. 447,900
14,164,838
- --------------------------------------------------------------------------------
International Business Machines Corp. 187,300
27,802,344
- --------------------------------------------------------------------------------
Lexmark International Group, Inc., Cl. A/(1)/ 127,700
8,931,019
- --------------------------------------------------------------------------------
Seagate Technology, Inc./(1)/ 202,400
5,338,300
- --------------------------------------------------------------------------------
Storage Technology Corp. (New)/(1)/ 297,000
9,930,938
- --------------------------------------------------------------------------------
Xerox Corp. 166,100
16,090,938
- ------------
92,033,390
15 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market
Value
Shares See Note 1
- --------------------------------------------------------------------------------
Computer Software/Services--2.0%
First Data Corp. 146,800 $
3,890,200
- --------------------------------------------------------------------------------
Network Associates, Inc./(1)/ 247,000
10,497,500
- ------------
14,387,700
- --------------------------------------------------------------------------------
Telecommunications/Technology--1.1%
3Com Corp./(1)/ 222,900
8,038,331
- --------------------------------------------------------------------------------
Utilities--14.8%
- --------------------------------------------------------------------------------
Electric Utilities--4.9%
Baltimore Gas & Electric Co. 258,000
8,094,750
- --------------------------------------------------------------------------------
Edison International 255,300
6,733,538
- --------------------------------------------------------------------------------
FPL Group, Inc. 196,200
12,274,763
- --------------------------------------------------------------------------------
Montana Power Co. 215,000
9,312,188
- ------------
36,415,239
- --------------------------------------------------------------------------------
Gas Utilities--2.1%
Columbia Energy Group 263,250
15,235,594
- --------------------------------------------------------------------------------
Telephone Utilities--7.8%
AT&T Corp. 267,400
16,645,650
- --------------------------------------------------------------------------------
Bell Atlantic Corp. 273,928
14,552,425
- --------------------------------------------------------------------------------
Century Telephone Enterprises, Inc. 96,200
5,465,363
- --------------------------------------------------------------------------------
Frontier Corp. 96,500
2,901,031
- --------------------------------------------------------------------------------
US West, Inc. 304,400
17,464,950
- ------------
57,029,419
- ------------
Total Common Stocks (Cost $628,728,114)
686,912,898
Units
================================================================================
Rights, Warrants and Certificates--0.0%
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts., Exp. 12/07/(2)/ 100
10,000
- --------------------------------------------------------------------------------
Dairy Mart Convenience Stores, Inc. Wts., Exp. 12/01/(2)/ 333
87
- --------------------------------------------------------------------------------
Intermedia Communications, Inc. Wts., Exp. 6/00/(2)/ 50
3,474
- --------------------------------------------------------------------------------
Microcell Telecommunications, Inc. Wts., Exp. 6/06/(2)/ 500
9,062
- --------------------------------------------------------------------------------
Price Communications Corp. Wts., Exp. 8/07/(2)/ 344
10,320
- --------------------------------------------------------------------------------
Signature Brands, Inc. Wts., Exp. 12/49/(2)/ 50
1,006
- ------------
Total Rights, Warrants and Certificates (Cost $7,533)
33,949
16 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Market
Value
Amount See Note 1
================================================================================
Mortgage-Backed Obligations--0.0%
- --------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg.
Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Trust 1993-181,
Cl. C, 5.40%, 10/25/02 $ 7,105 $
7,082
- --------------------------------------------------------------------------------
Federal National Mortgage Assn., Medium-Term Nts.,
6.56%, 11/13/01 100,000
100,156
- ------------
Total Mortgage-Backed Obligations (Cost $107,106)
107,238
================================================================================
Non-Convertible Corporate Bonds and Notes--0.0%
- --------------------------------------------------------------------------------
American Standard Cos., Inc., 10.875% Sr. Nts.,
5/15/99/(2)/ 60,000
61,350
- --------------------------------------------------------------------------------
Cigna Corp., 7.90% Nts., 12/14/98 40,000
40,106
- ------------
Total Non-Convertible Corporate Bonds and Notes
(Cost $105,259)
101,456
================================================================================
Convertible Corporate Bonds and Notes--0.0%
- --------------------------------------------------------------------------------
Geotek Communications, Inc., 12% Cv. Sr. Sub. Nts.,
2/15/01/(3)/ (Cost $46,270) 50,000
- --
================================================================================
Short-Term Notes--2.5%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 4.78%, 11/4/98/(4)/ 8,000,000
7,996,813
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 4.78%, 11/23/98/(4)/ 10,000,000
9,970,789
- ------------
Total Short-Term Notes (Cost $17,967,602)
17,967,602
================================================================================
Repurchase Agreements--1.7%
- --------------------------------------------------------------------------------
Repurchase agreement with Zion First National Bank, 5.38%, dated 10/30/98, to be
repurchased at $12,605,649 on 11/2/98, collateralized by U.S. Treasury Nts.,
7.50%, 11/15/01, with a value of $12,871,713 (Cost $12,600,000) 12,600,000
12,600,000
- --------------------------------------------------------------------------------
Total Investments, at Value (Cost $659,561,884) 97.7%
717,723,143
- --------------------------------------------------------------------------------
Other Assets Net of Liabilities 2.3
16,734,052
-----------
- ------------
Net Assets 100.0%
$734,457,195
===========
============
1. Non-income producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 5 of
Notes to Financial Statements.
3. Non-income producing--issuer is in default.
4. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
See accompanying Notes to Financial Statements.
17 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
====================================================================================
<S>
<C>
Assets
Investments, at value (cost $659,561,884)--see accompanying statement
$717,723,143
- ------------------------------------------------------------------------------------
Cash
81,753
- ------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold
20,241,887
Interest and dividends
875,178
Shares of capital stock sold
483,843
Other
16,729
- ------------
Total assets
739,422,533
====================================================================================
Liabilities
Payables and other liabilities:
Investments purchased
4,073,944
Shares of capital stock redeemed 408,965 Distribution and service plan fees
127,942 Directors' fees--Note 1 101,737 Transfer and shareholder servicing agent
fees 38,171 Other 214,579
- ------------
Total liabilities
4,965,338
====================================================================================
Net Assets
$734,457,195
============
====================================================================================
Composition of Net Assets
Par value of shares of capital stock $
35,139
- ------------------------------------------------------------------------------------
Additional paid-in capital
642,468,835
- ------------------------------------------------------------------------------------
Undistributed net investment income
5,144,211
- ------------------------------------------------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions
28,647,751
- ------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3
58,161,259
- ------------
Net assets
$734,457,195
============
</TABLE>
18 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$456,263,913 and 21,816,729 shares of capital stock outstanding) $20.91
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $22.19
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $123,259,656 and
5,917,043 shares of capital stock outstanding) $20.83
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $18,204,294 and
883,681 shares of capital stock outstanding) $20.60
- --------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $136,729,332 and 6,521,712 shares of capital stock outstanding) $20.97
See accompanying Notes to Financial Statements.
19 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
===================================================================================
<S>
<C>
Investment Income
Dividends (net of foreign withholding taxes of $18,139) $
7,861,416
- -----------------------------------------------------------------------------------
Interest
4,555,195
- ------------
Total income
12,416,611
===================================================================================
Expenses
Management fees--Note 4
3,658,650
- -----------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A
1,102,621
Class B
1,101,303
Class C
153,334
- -----------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4:
Class A
607,058 Class B 151,719 Class C 21,360 Class Y 33,197
- -----------------------------------------------------------------------------------
Shareholder reports
204,758
- -----------------------------------------------------------------------------------
Registration and filing fees:
Class A 35,710 Class B 14,300 Class C 2,658 Class Y 15,602
- -----------------------------------------------------------------------------------
Directors' fees and expenses--Note 1
31,027
- -----------------------------------------------------------------------------------
Legal, auditing and other professional fees
30,931
- -----------------------------------------------------------------------------------
Custodian fees and expenses
20,050
- -----------------------------------------------------------------------------------
Accounting service fees--Note 4
15,000
- -----------------------------------------------------------------------------------
Insurance expenses
9,067
- -----------------------------------------------------------------------------------
Other
15,415
- ------------
Total expenses
7,223,760
===================================================================================
Net Investment Income
5,192,851
===================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments
28,718,400
Foreign currency transactions
(2,593)
- ------------
Net realized gain
28,715,807
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
(34,730,525)
- ------------
Net realized and unrealized loss
(6,014,718)
===================================================================================
Net Decrease in Net Assets Resulting from Operations $
(821,867)
============
</TABLE>
See accompanying Notes to Financial Statements.
20 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
October 31,
1998 1997
================================================================================================
<S>
<C> <C>
Operations
Net investment income $
5,192,851 $ 3,074,306
- ------------------------------------------------------------------------------------------------
Net realized gain
28,715,807 67,704,492
- ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(34,730,525) (16,812,534)
- ------------- -------------
Net increase (decrease) in net assets resulting from operations
(821,867) 53,966,264
================================================================================================
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A
(2,053,090) (641,547)
Class B
(205,567) (12,589)
Class C
(16,094) (1,655)
Class Y
(722,961) (3)
- ------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A
(44,818,463) (12,873,125)
Class B
(10,405,845) (496,006)
Class C
(1,243,556) (63,782)
Class Y
(11,174,826) (69)
================================================================================================
Capital Stock Transactions Net increase in net assets resulting from capital
stock transactions--Note 2:
Class A
131,069,760 164,714,499
Class B
52,155,257 75,670,149
Class C
9,659,857 8,998,996
Class Y
56,697,598 79,722,352
================================================================================================
Net Assets
Total increase
178,120,203 368,983,484
- ------------------------------------------------------------------------------------------------
Beginning of period
556,336,992 187,353,508
- ------------- -------------
End of period (including undistributed net investment
income of $5,144,211 and $2,934,887, respectively) $
734,457,195 $ 556,336,992
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
21 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
A
- -------------------------------------------------------
Year
Ended
Year Ended October
31, Dec. 31,
1998 1997
1996/(4)/ 1995
========================================================================================================
<S> <C> <C>
<C> <C>
Per Share Operating Data
Net asset value, beginning of period $23.31
$19.65 $17.84 $14.20
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16
.23/(5)/ .15 .25
Net realized and unrealized gain (loss) .32
4.91/(5)/ 1.88 4.88
-------- --------
- -------- --------
Total income (loss) from investment operations .48
5.14 2.03 5.13
- --------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.12)
(.07) (.10) (.25)
Distributions from net realized gain (2.76)
(1.41) (.12) (1.24)
-------- --------
- -------- --------
Total dividends and distributions
to shareholders (2.88)
(1.48) (.22) (1.49)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.91
$23.31 $19.65 $17.84
======== ========
======== ========
========================================================================================================
Total Return, at Net Asset Value /(6)/ 2.24%
27.60% 11.41% 36.40%
========================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $456,264 $371,810
$180,784 $118,118
- --------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $442,138 $234,314
$135,940 $ 98,063
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.84%
1.05% 1.01%/(7)/ 1.53%
Expenses 0.98%
1.07% 1.13%/(7)/ 1.22%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate /(8)/ 106.3%
103.1% 73.9% 69.7%
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997. 2. For the period from May 1, 1996 (inception of offering) to October 31,
1996. 3. For the period from October 2, 1995 (inception of offering) to December
31, 1995. 4. For the ten months ended October 31, 1996. The Fund changed its
fiscal year end from December 31 to October 31. On March 18, 1996,
OppenheimerFunds, Inc. became the investment advisor to the Fund.
22 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- --------------------- -----------------------------------------------
Period
Ended
Year Ended October 31, Dec. 31,
1994 1993 1998 1997 1996/(4)/ 1995/(3)/
=========================================================================
<S> <C> <C> <C> <C> <C>
$15.14 $14.20 $23.32 $19.77 $18.08 $17.83
- -------------------------------------------------------------------------
.22 .30 .02 .09/(5)/ .05 .02
(.32) 2.64 .30 4.91/(5)/ 1.83 1.40
------- ------- -------- ------- ------ ------
(.10) 2.94 .32 5.00 1.88 1.42
- -------------------------------------------------------------------------
(.22) (.30) (.05) (.04) (.07) (.02)
(.62) (1.70) (2.76) (1.41) (.12) (1.15)
------- ------- -------- ------- ------ ------
(.84) (2.00) (2.81) (1.45) (.19) (1.17)
- -------------------------------------------------------------------------
$ 14.20 $ 15.14 $ 20.83 $ 23.32 $19.77 $18.08
======= ======= ======== ======= ====== ======
=========================================================================
(0.65)% 20.91% 1.47% 26.61% 10.43% 8.04%
=========================================================================
$78,390 $64,495 $123,260 $83,291 $5,854 $ 717
- -------------------------------------------------------------------------
$71,956 $54,682 $110,240 $30,019 $2,903 $ 306
- -------------------------------------------------------------------------
1.50% 1.95% 0.08% 0.22% 0.22%/(7)/
0.21%/(7)/
1.02% 1.05% 1.73% 1.84% 1.88%/(7)/
1.97%/(7)/
- -------------------------------------------------------------------------
98.5% 99.7% 106.3% 103.1% 73.9% 69.7%
</TABLE>
5. Per share amounts calculated based on the average shares outstanding during
the period. 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.
23 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
C Class Y
- ------------------------------------ -----------------------
Year Ended October
31, Year Ended October 31,
1998 1997
1996/(2)/ 1998 1997/(1)/
==============================================================================================================
<S> <C> <C>
<C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $23.07 $19.57
$18.79 $23.34 $20.31
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .01 .10(5)
.06 .22 .31/(5)/
Net realized and unrealized gain (loss) .31 4.85(5)
.94 .34 4.20/(5)/
------- -------
- ------ -------- -------
Total income (loss) from investment
operations .32 4.95
1.00 .56 4.51
- --------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.03) (.04)
(.10) (.17) (.07)
Distributions from net realized gain (2.76) (1.41)
(.12) (2.76) (1.41)
------- -------
- ------ -------- -------
Total dividends and distributions
to shareholders (2.79) (1.45)
(.22) (2.93) (1.48)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 20.60 $ 23.07
$19.57 $ 20.97 $ 23.34
======= =======
====== ======== =======
==============================================================================================================
Total Return, at Net Asset Value /(6)/ 1.47% 26.64%
5.35% 2.63% 23.62%
==============================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $18,204 $10,243 $
715 $136,729 $90,994
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $15,355 $ 4,477 $
342 $118,010 $51,775
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.06% 0.17%
0.04%/(7)/ 1.19% 1.21%/(7)/
Expenses 1.73% 1.86%
1.87%/(7)/ 0.62% 0.78%/(7)/
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate /(8)/ 106.3% 103.1%
73.9% 106.3% 103.1%
</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 October 31, 1998 were $812,485,864 and $637,725,479, respectively.
See accompanying Notes to Financial Statements.
24 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer Disciplined Value Fund (the Fund), a series of Oppenheimer Series
Fund, Inc. (the Company), 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 long term growth of capital by investing
primarily in common stocks with low price-earnings ratios and
better-than-anticipated earnings. Realization of current income is a secondary
consideration. The Fund's investment advisor is OppenheimerFunds, Inc. (the
Manager). The Fund offers Class A, Class B, Class C and Class Y shares. Class A
shares are sold with a front-end sales charge. Class B and Class C shares may be
subject to a contingent deferred sales charge. All classes of shares have
identical rights to earnings, assets and voting privileges, except that each
class has its own expenses directly attributable to that class and exclusive
voting rights with respect to matters affecting that class. Classes A, B and C
have separate distribution and/or service plans. No such plan has been adopted
for Class Y shares. Class B shares will automatically convert to Class A shares
six years after the date of purchase. The following is a summary of significant
accounting policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
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 Directors. 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 Directors to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount.
- --------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are
maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on
investments is separately identified from the fluctuations arising from changes
in market values of securities held and is reported with all other foreign
currency gains and losses in the Fund's Statement of Operations.
25 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Directors' Fees and Expenses. The Fund has adopted a nonfunded retirement plan
for the Fund's independent Directors. Benefits are based on years of service and
fees paid to each Director during the years of service. During the year ended
October 31, 1998, a provision of $8,429 was made for the Fund's projected
benefit obligations and payments of $3,017 were made to retired Directors,
resulting in an accumulated liability of $99,833 as of October 31, 1998.
The Board of Directors has adopted a deferred compensation plan for
independent Directors that enables a Director to elect to defer receipt of all
or a portion of annual fees they are entitled to receive from the Fund. Under
the plan, the compensation deferred by a Director is periodically adjusted as
though an equivalent amount had been invested in shares of one or more
Oppenheimer funds selected by the Director. The amount paid to the Director
under the plan will be determined based upon the performance of the selected
funds. Deferral of Directors' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
26 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
The Fund adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended October 31, 1998, amounts have been reclassified to reflect a
decrease in additional paid-in capital of $21,608, an increase in undistributed
net investment income of $14,185, and an increase in accumulated net realized
gain on investments of $7,423.
- --------------------------------------------------------------------------------
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.
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.
27 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
2. Shares of Capital Stock
The Fund has authorized 500 million of $0.001 par value shares of capital stock.
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended October 31, 1998 Year
Ended October 31, 1997
---------------------------
- ---------------------------
Shares Amount
Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class A:
Sold 6,055,274 $ 134,355,655
3,692,585 $ 80,366,467
Dividends and
distributions reinvested 1,943,840 40,173,794
682,565 13,378,298
Issued in connection with the
acquisition of:
Oppenheimer Value
Stock Fund--Note 7 -- --
7,652,373 178,988,994
Oppenheimer LifeSpan
Growth Fund--Note 7 2,464,057 55,909,466
- -- --
Redeemed (4,594,504) (99,369,155)
(5,280,662) (108,019,260)
---------- -------------
- ---------- -------------
Net increase 5,868,667 $ 131,069,760
6,746,861 $ 164,714,499
========== =============
========== =============
- ------------------------------------------------------------------------------------------------
Class B:
Sold 2,774,749 $ 61,540,380
1,144,402 $ 25,787,163
Dividends and
distributions reinvested 487,844 10,101,800
25,026 494,015
Issued in connection with the
acquisition of:
Oppenheimer Value
Stock Fund--Note 7 -- --
2,351,076 55,109,219
Oppenheimer LifeSpan
Growth Fund--Note 7 269,319 6,105,453
- -- --
Redeemed (1,187,193) (25,592,376)
(244,280) (5,720,248)
---------- -------------
- ---------- -------------
Net increase 2,344,719 $ 52,155,257
3,276,224 $ 75,670,149
========== =============
========== =============
- ------------------------------------------------------------------------------------------------
Class C:
Sold 531,746 $ 11,620,021
289,313 $ 6,258,500
Dividends and
distributions reinvested 59,153 1,212,044
3,239 63,228
Issued in connection with the
acquisition of:
Oppenheimer Value Stock
Fund--Note 7 -- --
150,017 3,478,897
Oppenheimer LifeSpan
Growth Fund--Note 7 67,517 1,513,732
- -- --
Redeemed (218,753) (4,685,940)
(35,084) (801,629)
---------- -------------
- ---------- -------------
Net increase 439,663 $ 9,659,857
407,485 $ 8,998,996
========== =============
========== =============
</TABLE>
28 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31, 1998 Period
Ended October 31, 1997/(1)/
---------------------------
- --------------------------------
Shares Amount
Shares Amount
================================================================================================
<S> <C> <C>
<C> <C>
Class Y:
Sold 3,047,435 $ 66,033,007
4,130,366 $ 85,062,741
Dividends and distributions
reinvested 575,974 11,897,787
- -- --
Redeemed (1,000,402) (21,233,196)
(231,661) (5,340,389)
---------- -------------
- --------- -------------
Net increase 2,623,007 $ 56,697,598
3,898,705 $ 79,722,352
========== =============
========= =============
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997 for Class Y shares.
================================================================================
3. Unrealized Gains and Losses on Investments
As of October 31, 1998, net unrealized appreciation on investments of
$58,161,259 was composed of gross appreciation of $82,540,289, and gross
depreciation of $24,379,030.
================================================================================
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 0.625% of the first
$300 million of average annual net assets, 0.50% of the next $100 million and
0.45% of average annual net assets in excess of $400 million. The Manager acts
as the accounting agent for the Fund at an annual fee of $15,000, plus
out-of-pocket costs and expenses reasonably incurred. The Fund's management fee
for the year ended October 31, 1998 was 0.53% of the average annual net assets
for Class A, Class B, Class C and Class Y shares.
For the year ended October 31, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $1,667,118, of which $789,178
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 $1,811,143 and $100,603, respectively, of which $435,243
and $9,638, respectively, was paid to an affiliated broker/dealer for Class B
and Class C shares. During the year ended October 31, 1998, OFDI received
contingent deferred sales charges of $202,849 and $10,623, respectively, upon
redemption of Class B and Class C shares, as reimbursement for sales commissions
advanced by OFDI at the time of sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund and other Oppenheimer
funds. OFS's total costs of providing such services are allocated ratably to
these funds.
29 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates (continued)
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 October 31, 1998, OFDI paid $667,521 to an
affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
The Fund has adopted Distribution and Service Plans for Class B and
Class C shares to compensate OFDI for its costs in distributing Class B and
Class C shares and servicing accounts. Under the Plans, the Fund pays OFDI an
annual asset-based sales charge of 0.75% per year for its services rendered in
distributing Class B and Class C shares. OFDI also receives a service fee of
0.25% per year to compensate dealers for providing personal services for
accounts that hold Class B and Class C shares. Each fee is computed on the
average annual net assets of Class B or Class C shares, determined as of the
close of each regular business day. During the year ended October 31, 1998, OFDI
paid $42,263 and $12,392, respectively, to an affiliated broker/dealer as
compensation for Class B and Class C personal service and maintenance expenses
and retained $933,605 and $110,797, respectively, as compensation for Class B
and Class C sales commissions and service fee advances, as well as financing
costs. If either Plan is terminated by the Fund, the Board of Directors 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 October 31, 1998, OFDI
had incurred excess distribution and servicing costs of $3,212,917 for Class B
and $219,766 for Class C.
================================================================================
5. Illiquid and Restricted Securities
As of October 31, 1998, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Directors as reflecting fair value. A security may be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund intends to invest no more than
10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation as of October 31, 1998, was $95,299, which represents
0.01% of the Fund's net assets.
30 Oppenheimer Disciplined Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended
October
31, 1998.
================================================================================
7. Acquisition of Oppenheimer LifeSpan Growth Fund and Oppenheimer Value Stock
Fund
On June 12, 1998, the Fund acquired all the net assets of Oppenheimer LifeSpan
Growth Fund, pursuant to an agreement and plan of reorganization approved by the
Oppenheimer LifeSpan Growth Fund shareholders on June 9, 1998. The Fund issued
(at an exchange ratio of 0.522101 for Class A, 0.523202 for Class B and
0.524279
for Class C of the Fund to one share of Oppenheimer LifeSpan Growth Fund)
2,464,057, 269,319 and 67,517 shares of capital stock for Class A, Class B and
Class C, respectively, valued at $55,909,466, $6,105,453 and $1,513,732, in
exchange for the net assets, resulting in combined Class A net assets of
$523,396,393, Class B net assets of $128,631,768 and Class C net assets of
$19,081,033 on June 12, 1998. The net assets acquired included net unrealized
appreciation of $4,184,576. The exchange qualified as a tax-free reorganization
for federal income tax purposes.
On July 25, 1997, the Fund acquired all the net assets of
Oppenheimer Value Stock Fund, pursuant to an agreement and plan of
reorganization approved by the Oppenheimer Value Stock Fund shareholders on July
21, 1997. The Fund issued (at an exchange ratio of 0.922802 for Class A,
0.925875 for Class B and 0.925875 for Class C of the Fund to one share of
Oppenheimer Value Stock Fund) 7,652,373, 2,351,076 and 150,017 shares of capital
stock for Class A, Class B and Class C, respectively, valued at $178,988,994,
$55,109,219 and $3,478,897, in exchange for the net assets, resulting in
combined Class A net assets of $356,598,856, Class B net assets of $74,391,341
and Class C net assets of $8,707,171 on July 25, 1997. The net assets acquired
included net unrealized appreciation of $79,130,574. The exchange qualified as a
tax-free reorganization for federal income tax purposes.
31 Oppenheimer Disciplined Value Fund
<PAGE>
<PAGE>
A-5
Appendix A
- ------------------------------------------------------------------------------
RATINGS DEFINITIONS
- ------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- ------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- ------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- ------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
- ------------------------------------------------------------------------------
Industry Classifications
- ------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-14
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (7)
plans qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
(8) non-qualified deferred compensation plans, (9) employee benefit plans2 (10)
Group Retirement Plans3 (11) 403(b)(7) custodial plan accounts (12) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,
Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
special arrangement or waiver in a particular case is in the sole discretion of
the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
4. Certain waivers also apply to Class M. shares of Oppenheimer
Convertible Securities Fund.
5. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
6. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."1 This waiver provision applies to:
1 However, that commission
will not be paid on purchases of shares in amounts of $1 million or more
(including any right of accumulation) by a Retirement Plan that pays for the
purchase with the redemption proceeds of Class C shares of one or more
Oppenheimer funds held by the Plan for more than one year.
o Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial plan)
that:
(4) buys shares costing $500,000 or more, or
(5) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(6) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(3) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(4) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(4) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a) mutual
funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a
Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or
managed by MLAM (the funds described in (a) and (b) are referred
to as "Applicable Investments").
(5) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$3 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
(6) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
Purchases by a Retirement Plan whose record keeper had a cost-allocation
agreement with the Transfer Agent on or before May 1, 1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
The Manager or its affiliates.
Present or former officers, directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews; relatives by virtue of a remarriage
(step-children, step-parents, etc.) are included.
Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
Employees and registered representatives (and their spouses) of dealers or
brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
"Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy shares
for their own accounts may also purchase shares without sales charge
but only if their accounts are linked to a master account of their
investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has
made such special arrangements . Each of these investors may be charged
a fee by the broker, agent or financial intermediary for purchasing
shares.
Directors, trustees, officers or full-time employees of OpCap Advisors or
its affiliates, their relatives or any trust, pension, profit sharing
or other benefit plan which beneficially owns shares for those persons.
Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company
or trust which is the beneficial owner of such accounts.
A unit investment trust that has entered into an appropriate agreement
with the Distributor.
Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
o
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code),
in each case if those purchases are made through a broker, agent or
other financial intermediary that has made special arrangements with
the Distributor for those purchases.
A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases):
Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using the proceeds of
shares redeemed in the prior 30 days from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid. This
waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for in
this manner. This waiver must be requested when the purchase order is
placed for shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
To make Automatic Withdrawal Plan payments that are limited annually to no
more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
Fordistributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(10) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(11) To return excess contributions.
(12) To return contributions made due to a mistake of fact.
(13) Hardship
withdrawals, as defined in the plan.2
2 This provision does not apply to IRAs.
(14) Under a Qualified Domestic Relations
Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue Code.
(15) To meet the minimum distribution requirements of the Internal
Revenue Code.
(16) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(17) For loans to participants or beneficiaries.
(18) Separation from service.3
3 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10)Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of
the Manager) if the plan has made special arrangements with the
Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored
IRA.
Fordistributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
Fordistributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: Shares redeemed involuntarily, as
described in "Shareholder Account Rules and Policies," in the applicable
Prospectus.
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.
Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
o
<PAGE>
Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(14) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(15) To return excess contributions made to a participant's account.
(16) To return contributions made due to a mistake of fact.
(17) To make hardship withdrawals, as defined in the plan.4
4 This provision does not apply to IRAs.
(18) To make distributions required under
a Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue
Code.
(19) To meet the minimum distribution requirements of the Internal
Revenue Code.
(20) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(21) For loans to participants or beneficiaries.5
5 This provision does not apply to loans from 403(b)(7) custodial plans.
(22) On account of the
participant's separation from service.6
6 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(23) Participant-directed redemptions to
purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if
the plan has made special arrangements with the Distributor.
(24) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
(25) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the
Plan's elimination as investment options under the Plan of all
of the Oppenheimer funds that had been offered.
(26) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age
59 1/2, as long as the aggregate value of the distributions
does not exceed 10% of the account's value annually (measured
from the establishment of the Automatic Withdrawal Plan).
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
Shares sold to the Manager or its affiliates.
Shares sold to registered management investment companies or separate accounts
of insurance companies having an agreement with the Manager or the Distributor
for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a
party.
<PAGE>
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap Value
Fund
Oppenheimer Quest Balanced Value Oppenheimer Quest Global Value Fund
Fund
Oppenheimer Quest Opportunity
Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Income Quest for Value New York Tax-Exempt
Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
purchased by such shareholder by exchange of shares of another Oppenheimer
fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24,
1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
Shareholders who were shareholders of the AMA Family of Funds on February
28, 1991 and who acquired shares of any of the Former Quest for Value
Funds by merger of a portfolio of the AMA Family of Funds.
Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
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
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
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
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Connecticut Mutual Investment
Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section): o Oppenheimer U. S. Government Trust, o Oppenheimer Bond Fund, o
Oppenheimer Disciplined Value Fund and o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
n Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (3)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(4) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual
Funds that were purchased at net asset value prior to March 18, 1996, remain
subject to the prior Class A CDSC, or if any additional shares are purchased
by those shareholders at net asset value pursuant to this arrangement they
will be subject to the prior Class A CDSC.
n Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (7)
<PAGE>
anypurchaser, provided the total initial amount invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(8) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(9) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(10) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(11) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(12) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (10) by the estate of a deceased shareholder;
(11) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(12) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(13) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(14) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(15) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(16) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(17)
<PAGE>
i n connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(18) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
o the Manager and its affiliates,
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
o registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
o employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
o dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of
the Fund specifically providing for the use of Class M shares of the
Fund in specific investment products made available to their
clients, and dealers, brokers or registered investment advisors that
had entered into an agreement with the Distributor or prior
distributor of the Fund's shares to sell shares to defined
contribution employee retirement plans for which the dealer, broker,
or investment advisor provides administrative services.
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Disciplined Value Fund
- ------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
67890
PX375.0399 (Rev. 5/99)
