Oppenheimer Disciplined Allocation Fund
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Prospectus dated March 1, 1999
Oppenheimer Disciplined Allocation Fund is a mutual fund that seeks to
maximize total investment return by allocating its assets among investments
in stocks, corporate bonds, U.S. government securities and money market
instruments.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. It also contains
important information about how to buy and sell shares of the Fund and other
account features. Please read this Prospectus carefully before you invest and
keep it for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
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Contents
About the Fund
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
About the Fund
The Fund's Objective and Investment Strategies
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What Is the Fund's Investment Objective? The Fund's objective is to maximize
total investment return (including 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.
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What Does the Fund Invest In? The Fund invests mainly in stocks, bonds and
money market instruments. The Manager can allocate the Fund's investments
among these different types of securities in different proportions at
different times to seek the Fund's goal. That allocation is based on the
Manager's judgment of where the best opportunities are for total return after
evaluating market and economic conditions.
At least 25% of the Fund's total assets normally will be invested in
fixed-income senior securities. Otherwise, the Fund is not required to
allocate its investments among stocks, bonds and money market instruments in
any fixed proportion but may have some of its assets invested in each asset
class in relative proportions that change over time.
|X| Equity Securities. The Fund can buy a variety of domestic and
foreign equity investments, including common and preferred stocks, warrants
and convertible securities (many of which are debt securities that the
Manager considers to be "equity substitutes" because of their conversion
feature). The Fund can buy securities of companies in different
capitalization ranges. There are limits on the Fund's investments in foreign
securities.
|X| Debt Securities. The Fund can also invest in a variety of debt
securities, such as securities issued or guaranteed by the U.S. government and
its agencies and instrumentalities, including mortgage-related securities and
collateralized mortgage obligations ("CMOs"). It can also buy municipal
securities, foreign government securities, and domestic and foreign corporate
debt obligations including convertible securities. The Fund can buy debt
securities rated below investment grade (these are commonly called "junk
bonds"), but has limits on those investments.
|X| Money Market Instruments. Under normal market conditions (when the
equity and debt securities markets are not unstable, in the Manager's view),
the Fund can hold up to 40% of its total assets in money market instruments,
such as short-term U.S. government securities and commercial paper.
The Fund can also use hedging instruments and certain derivative
investments to try to manage investment risks. These investments are more
fully explained in "About the Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for purchase or sale by the Fund, the Fund's portfolio
managers follow an investment process that uses quantitative tools to analyze
market dynamics and economic trends, to determine the allocation of the
Fund's portfolio over different asset classes. In selecting stocks for the
portfolio, the portfolio managers use a disciplined value investment style.
While this process and the inter-relationship of the factors used may change
over time and its implementation may vary in particular cases, in general the
investment selection process includes the strategies described below:
o The portfolio managers use a quantitative analysis of the equity and
debt securities markets in combination with their individual
analysis and judgment to determine the allocation of the Fund's
portfolio among the asset classes. They analyze market trends,
general economic data and relative performance of the asset
classes in which the Fund can invest. For example, during periods
of slowing corporate growth rates, they might shift more assets
to bonds and other fixed-income securities.
o In selecting stocks, they use value investing techniques to identify a
universe of stocks that are undervalued in the market, focusing
on stocks that have lower price/earnings (P/E) ratios compared,
for example, to the P/E ratio of the S&P 500 Index.
o The portfolio managers use both quantitative tools and fundamental
analysis, including internal research and reports by other market
analysts, to identify stocks within the selected universe that
may provide growth opportunities, for example, by selecting
stocks of issuers that have better earnings than analysts have
expected ("positive earnings surprise"). The expectation is that
these stocks will increase in value when the market re-evaluates
the issuers and the price/earnings ratios of their stocks.
o If the P/E ratio of a stock held by the Fund moves significantly above
the P/E ratio of the broad market benchmark the portfolio
managers use, or if the issuer's business fundamentals
deteriorate, the portfolio managers will consider selling the
stock.
o In selecting bonds, the portfolio managers normally expect that portion
of the Fund's portfolio to have an average maturity (measured on
a dollar-weighted basis) of between 6 and 14 years.
Who Is the Fund Designed For? The Fund is designed primarily for investors
seeking total investment return over the long term from a flexible portfolio
investing in different asset classes, including stocks and bonds. Because the
Fund invests a portion of its assets in stocks, those investors should be
willing to assume the risks of short-term share price fluctuations that are
typical for a fund that can have substantial stock investments. Since the
Fund's income level will fluctuate and will likely be small, it is not
designed for investors needing an assured level of current income. Because of
its focus on long-term total return, the Fund may be appropriate for a
portion of a retirement plan investment. The Fund is not a complete
investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks and bonds are subject to changes in their value from a number of
factors. They include changes in general stock and bond market movements
(this is referred to as "market risk"), or the change in value of particular
stocks and bonds because of an event affecting the issuer (this is referred
to as "credit risk").
The Fund's value selection strategy might not produce the desired
investment results if the securities selected do not appreciate in value over
time. Changes in interest rates can also affect stock and bond prices (this
is known as "interest rate risk").
These risks collectively form the risk profile of the Fund and can
affect the value of the Fund's investments, its investment performance and
its price per share. These risks mean that you can lose money by investing in
the Fund. When you redeem your shares, they may be worth more or less than
what you paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by carefully researching securities before they are purchased. The Fund
attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial amount of stock of any one
company and by not investing too great a percentage of the Fund's assets in
any one company. Also, the Fund does not concentrate 25% or more of its
investments in any one industry. However, changes in the overall market
prices of securities and the income they pay can occur at any time.
The share price of the Fund will change daily based on changes in
market prices of securities and market conditions, and in response to other
economic events. There is no assurance that the Fund will achieve its
investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently has
substantial investments in stocks, the value of the Fund's portfolio will be
affected by changes in the stock markets. Market risk will affect the Fund's
net asset value per share, which will fluctuate as the values of the Fund's
portfolio securities change.
A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other. In particular, because the Fund currently emphasizes investments in
stocks of U.S. issuers, it will be affected primarily by changes in U.S.
stock markets.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more
than others, or by 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.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the
issuer. The Fund can invest in securities of large companies but it can also
buy stocks of small and medium-size companies, which may have more volatile
stock prices than stocks of large companies.
|X| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income may be reduced and if the issuer fails to
repay principal, the value of that bond and of the Fund's shares may be
reduced. While the Fund's investments in U.S. government securities are
subject to little credit risk, the Fund's other investments in debt
securities, particularly high-yield lower-grade debt securities, are subject
to risks of default.
|X| Interest Rate Risks. The values of debt securities, including U.S.
government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally fall. The magnitude of these
fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of
the Fund's investments in debt securities.
|X| Prepayment Risk. Prepayment risk occurs when the issuer of a security
can prepay the principal prior to the security's maturity. Securities subject
to prepayment risk, including the CMOs and other mortgage-related securities
that the Fund can buy, generally offer less potential for gains when
prevailing interest rates decline, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected
maturity of a short or medium-term security. That could cause its value to
fluctuate more widely in response to changes in interest rates. In turn, this
could cause the value of the Fund's shares to fluctuate more.
|X| There are Special Risks in Using Derivative Investments. The Fund can
use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract
whose value depends on (or is derived from) the value of an underlying asset,
interest rate or index. Options, futures, mortgage-related securities and
CMOs, asset-backed securities, interest rate "swaps" and "stripped"
securities are examples of derivatives the Fund can use.
If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. If that happens, the Fund's share price
could decline or the Fund could get less income than expected. The Fund
limits the amounts of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investments and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? The stock markets can be volatile, and the
price of the Fund's shares will go up and down as a result. The Fund's
income-oriented investments may help cushion the Fund's total return from
changes in stock prices, but fixed-income securities have their own risks.
The Fund seeks to reduce the effects of these risks by diversifying its
investments over different asset classes. In the OppenheimerFunds spectrum,
the Fund is generally more conservative than funds that invest only in
stocks, but more aggressive than funds that invest solely in investment grade
bonds.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the last ten calendar years and by showing how
the average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]
Sales charges are not included in the calculations of return in this bar
chart, and if those charges were included, the returns would be less than
those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 12.09% (4 Q'98) and the lowest return (not
annualized) for a calendar quarter was -8.60% (3 Q'98).
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Average Annual Total 5 Years 10 Years
Returns for the periods 1 Year (or life of (or life of
ended December 31, 1998 class if, less) class if, less)
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Class A Shares 4.48% 10.37% 12.59%
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S&P 500 Index 28.60% 24.05% 19.19%
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Class B Shares 5.00% 11.83% N/A
(inception 10/02/95)
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S&P 500 Index 28.60% 28.08%* N/A
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Class C Shares 8.98% 12.81% N/A
(inception 05/01/96)
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S&P 500 Index 28.60% 28.96%* N/A
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*The "life-of-class" index performance is shown from 9/30/95 for Class B and
4/30/96 for Class C.
The Fund's average annual total returns in the table include the applicable
sales charge: for Class A, the current maximum initial sales charge of 5.75%;
for Class B, the contingent deferred sales charges of 5% (1-year) and 3%
(life of class); and for Class C, the 1% contingent deferred sales charge for
the 1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in
additional shares. Because the Fund invests primarily in stocks, the Fund's
performance is compared to the S&P 500 Index, an unmanaged index of equity
securities that is a measure of the general domestic stock market. However,
the index performance reflects the reinvestment of income but does not
consider the effects of transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset value
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
October 31, 1998.
Shareholder Fees (charges paid directly from your investment):
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Class A Shares Class B Shares Class C Shares
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Maximum Sales Charge
(Load) on purchases 5.75% None None
(as % of offering
price)
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Maximum Deferred
Sales Charge (Load)
(as % of the lower of None1 5%2 1%3
the original offering
price or redemption
proceeds)
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1. A contingent deferred sales charge may apply to redemptions of investments
of $1 million or more ($500,000 for retirement plan accounts) of Class A
shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Class A Shares Class B Shares Class C Shares
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Management Fees 0.62% 0.62% 0.62%
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Distribution and/or 0.25% 1.00% 1.00%
Service (12b-1) Fees
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Other Expenses 0.17% 0.18% 0.18%
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Total Annual Operating 1.04% 1.80% 1.80%
Expenses
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Expenses may vary in future years. "Other expenses" include transfer agent
fees, custodial expenses, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for
the time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that
the class's operating expenses remain the same. Your actual costs may be
higher or lower because expenses will vary over time. Based on these
assumptions your expenses would be as follows:
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If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
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Class A Shares $675 $887 $1,116 $1,773
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Class B Shares $683 $866 $1,175 $1,733
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Class C Shares $283 $566 $ 975 $2,116
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If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
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Class A Shares $675 $887 $1,116 $1,773
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Class B Shares $183 $566 $ 975 $1,733
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Class C Shares $183 $566 $ 975 $2,116
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In the first example, expenses include the initial sales charge for Class A
and the applicable Class B or Class C contingent deferred sales charges. In
the second example, the Class A expenses include the sales charge, but Class
B and Class C expenses do not include the contingent deferred sales charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's
portfolio among the different types of permitted investments will vary over
time based upon the evaluation of economic and market trends by the Manager.
The Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
|X| Stock and Other Equity Investments. The Fund can invest in equity
securities of issuers that may be of small, medium or large capitalization,
to seek total investment return. The Fund can invest in common stock as well
as other equity securities, including preferred stocks, rights and warrants,
and securities convertible into common stock. The Fund can buy securities
issued by domestic or foreign companies. However, the Fund investments in
stocks are currently focused on those of U.S. issuers.
o Convertible Securities. Many convertible securities are a form
of debt security, but the Manager regards some of them as "equity
substitutes" because of their feature allowing them to be converted into
common stock. Therefore, their ratings have less impact on the Manager's
investment decision than in the case of other debt securities. The Fund's
investments in convertible securities may include securities rated as low as
"B" by Moody's Investor Services, Inc. or Standard & Poor's Rating Service or
having comparable ratings by other national rating organizations (or, if they
are unrated, having comparable ratings assigned by the Manager). Those
ratings are below "investment grade" and the securities are subject to
greater risk of default by the issuer than investment grade securities.
Debt Securities. The Fund can invest in a variety of debt securities
to seek its goal. The debt securities the Fund buys may be rated by
nationally recognized rating organizations or they may be unrated securities
assigned an equivalent rating by the Manager. The Fund's debt investments may
be "investment grade" (that is, in the four highest rating categories of a
national rating organization) or may be lower-grade securities (sometimes
called "junk bonds") rated as low as "B." The Fund does not invest more than
10% of its total assets in unrated debt securities. A description of the
ratings definitions of national rating organizations is included in Appendix
A to the Statement of Additional Information.
While the Fund can invest as much as 20% of its total assets in
lower-grade securities, currently it does not intend to invest more than 10%
of its total assets in these investments. While the Fund is not required to
sell a bond that falls below that rating after the Fund buys it, the Manager
will monitor the Fund's holdings to determine whether to sell these
securities.
o Special Credit Risks of Lower-Grade Securities. All corporate
debt securities (whether foreign or domestic) are subject to some degree of
credit risk. Credit risk relates to the ability of the issuer to meet
interest or principal payments on a security as they become due. Because the
Fund can invest in securities below investment grade to seek high income, the
Fund's credit risks are greater than those of funds that buy only investment
grade bonds. Lower-grade debt securities may be subject to greater market
fluctuations and greater risks of loss of income and principal than
higher-rated debt securities.
Securities that are (or that have fallen) below investment grade are
exposed to a greater risk that the issuers of those securities might not meet
their debt obligations. While investment grade securities are subject to
risks of non-payment of interest and principal, generally, higher yielding
lower-grade bonds, whether rated or unrated, have greater risks than
investment grade securities. These securities may be subject to greater
market fluctuations and risk of loss of income and principal than investment
grade securities. There may be less of a market for them and therefore they
may be harder to sell at an acceptable price when the Manager wants to
dispose of them. There is a relatively greater possibility that the issuer's
earnings may be insufficient to make the payments of interest and principal
due on the bonds. These risks mean that the Fund's net asset value per share
could be reduced by declines in value of these securities, and it might not
earn the income it expects.
o U.S. Government Securities. The Fund can invest in securities
issued or guaranteed by the U.S. Treasury or other government agencies or
corporate entities referred to as "instrumentalities." These are referred to
as "U.S. government securities" in this Prospectus. They can include CMOs and
other mortgage-related securities. Mortgage-related securities are subject to
additional risks of unanticipated prepayments of the underlying mortgages,
which can affect the income stream to the Fund from those securities as well
as their values.
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"). Although not rated, Treasury obligations have little credit risk
but are subject to interest rate risk.
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 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"). These
have relatively little credit risk.
o Mortgage-Related U.S. Government Securities. These
include interests in pools of residential or commercial mortgages, in the
form of CMOs and other "pass-through" mortgage securities. CMOs that are U.S.
government securities have collateral to secure payment of interest and
principal. They may be issued in different series with different interest
rates and maturities. The collateral is either in the form of mortgage
pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency. The
Fund can have significant amounts of its assets invested in mortgage-related
U.S. government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.
If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds
in other securities paying interest at lower rates, which could reduce the
Fund's total return.
When interest rates rise rapidly, if prepayments occur more slowly than
expected, a short- or medium-term CMO can in effect become a long-term
security, subject to greater fluctuations in value. These prepayment risks
can make the prices of CMOs very volatile when interest rates change. The
prices of longer-term debt securities tend to fluctuate more than those of
shorter-term debt securities. That volatility will affect the Fund's share
prices. Additionally, the Fund may buy mortgage-related securities at a
premium. Accelerated prepayments on those securities could cause the Fund to
lose a portion of its principal investment represented by the premium the
Fund paid.
o Private-Issuer Mortgage-Backed Securities. The Fund can invest
a substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Private issuer securities are subject to the credit risks of the
issuers, although in some cases the securities may be supported by insurance
or guarantees. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings
and loans, mortgage bankers and other non-governmental issuers.
o Asset-Backed Securities. The Fund can buy other types of
asset-backed securities that are fractional interests in pools of loans
collateralized by loans or other assets or receivables. They are issued by
trusts and special purpose corporations, that pass the income from the
underlying pool to the buyer of the interest. These securities are subject to
the risk of default by the issuer as well as by the borrowers of the
underlying loans in the pool.
o Money Market Instruments and Short-Term Debt Securities. Under normal
market conditions the Fund can invest in a variety of short-term debt
obligations having a maturity of one year or less. These include:
o Money market instruments. Generally, these are debt obligations
having ratings in the top two rating categories of national rating
organizations (or equivalent ratings assigned by the Manager). Examples
include commercial paper of domestic issuers or foreign companies (foreign
issuers must have assets of $1 billion or more).
o Short-term debt obligations of the U.S. government or
corporations.
o Obligations of domestic or foreign banks or savings and loan
associations, such as certificates of deposit and bankers' acceptances.
Under normal market conditions this strategy would be used primarily
for cash management or liquidity purposes. The yields on shorter-term debt
obligations tend to be less than on longer-term debt. Therefore, to the
extent that the Fund uses this strategy, it might help preserve principal but
might reduce opportunities to seek growth of capital as part of its objective
of total return.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Directors can change non-fundamental investment policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a majority of the Fund's outstanding voting
shares. The Fund's investment objective is a not a fundamental policy, but
will not be changed by the Fund's Board of Directors without advance notice
to shareholders.
Investment restrictions that are fundamental policies are listed in the
Statement of Additional Information. An investment policy is not fundamental
unless this Prospectus or the Statement of Additional Information says that
it is.
|X| Portfolio Turnover. The Fund ordinarily does not engage in short-term
trading to try to achieve its objective. Portfolio turnover affects brokerage
costs the Fund pays. If the Fund realizes capital gains when it sells its
portfolio investments, it must generally pay those gains out to shareholders,
increasing their taxable distributions. The Financial Highlights table below
shows the Fund's portfolio turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| Foreign Investing. The Fund can buy equity or debt securities of
companies and debt securities of governments in any country, developed or
underdeveloped. As a fundamental policy, the Fund cannot invest more than 10%
of its total assets in foreign securities. As an exception to that
restriction the Fund can invest up to 25% of its total assets in foreign
equity or debt securities that are:
o issued, assumed or guaranteed by foreign governments or their political
subdivisions or instrumentalities,
o assumed or guaranteed by domestic issuers (including Eurodollar
securities), or
o issued, assumed or guaranteed by foreign issuers that have a class of
securities listed for trading on The New York Stock Exchange.
While foreign securities offer special investment opportunities, there
are also special risks, such as foreign taxation, risks of delays in
settlements of securities transactions, and the effects of a change in value
of a foreign currency against the U.S. dollar, which will result in a change
in the U.S. dollar value of securities denominated in that foreign currency.
|X| Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In the broadest sense, exchange-traded
options, futures contracts, mortgage-related securities, interest rate swaps,
inverse floaters, CMOs and certain hedging instruments the Fund might use may
be considered "derivative investments."
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the
U.S. and abroad may also influence the performance of derivatives. As a
result of these risks the Fund could realize less principal or income from
the investment than expected. Certain derivative investments held by the
Fund may be illiquid.
|X| Zero-Coupon and "Stripped" Securities. Some of the U.S. government
debt securities the Fund buys are zero-coupon bonds that pay no interest.
They are issued at a substantial discount from their face value. "Stripped"
securities are the separate income or principal components of a debt
security. Some CMOs or other mortgage related securities may be stripped,
with each component having a different proportion of principal or interest
payments. One class might receive all the interest and the other all the
principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing securities. The
Fund may have to pay out the imputed income on zero coupon securities without
receiving the actual cash currently. Stripped securities are particularly
sensitive to changes in interest rates.
The values of interest-only mortgage related securities are also very
sensitive to prepayments of underlying mortgages. When prepayments tend to
fall, the timing of the cash flows to principal-only securities increases,
making them more sensitive to changes in price. The market for some of these
securities may be limited, making it difficult for the Fund to dispose of its
holdings at an acceptable price.
|X| Hedging. The Fund can buy and sell certain kinds of futures
contracts, put and call options, forward contracts and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on its use of them. The Fund is not required to use
hedging instruments in seeking its goal.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised
on an investment that has increased in value, the Fund will be required to
sell the investment at the call price and will not be able to realize any
profit if the investment has increased in value above the call price. In
writing a put, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return.
The Fund could also experience losses if the prices of its futures and
options positions were not correlated with its other investments or if it
could not close out a position because of an illiquid market.
|X| Temporary Defensive Investments. In times of unstable market or
economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. Generally they would be high-quality money
market instruments and short-term debt obligations of the types described
above under "Money Market Instruments and Short-Term Debt Obligations." To
the extent the Fund invests defensively in these securities, it might not
achieve its investment objective of maximizing total investment return, as
discussed above.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and
other investors. That failure could have a negative impact on handling
securities trades, pricing and accounting services. Data processing errors by
government issuers of securities could result in economic uncertainties, and
those issuers may incur substantial costs in attempting to prevent or fix
such errors, all of which could have a negative effect on the Fund's
investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although
there cannot be assurance of success. Additionally, the services they
provide depend on the interaction of their computer systems with those of
brokers, information services, the Fund's Custodian and other parties.
Therefore, any failure of the computer systems of those parties to deal with
the year 2000 might have a negative effect on the services they provide to
the Fund. The extent of that risk cannot be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses
the Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board of
Directors, under an Investment Advisory Agreement that states the Manager's
responsibilities. The Agreement sets forth the fees paid by the Fund to the
Manager and describes the expenses that the Fund is responsible to pay to
conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Managers. The Fund has a portfolio management team
consisting of five portfolio managers. The principal portfolio manager, Peter
M. Antos, is a Vice President of the Fund and a Senior Vice President of the
Manager. He has been the Fund's senior portfolio manager since 1989 and is an
officer and portfolio manager of other Oppenheimer funds. Prior to joining
the Manager in 1996, he was employed by the G.R. Phelps & Co., Inc., the
Fund's prior investment adviser, and its parent, Connecticut Mutual Life
Insurance Company.
Portfolio managers Stephen F. Libera, Michael C. Strathearn, Kenneth B.
White and Arthur J. Zimmer are also Vice Presidents of the Fund. Mr. Zimmer
is a Senior Vice President of the Manager. Messrs. Libera, Strathearn and
White are Vice Presidents of the Manager. Each serves as an officer and
portfolio manager of other Oppenheimer funds. Before joining the Manager in
1996, Messrs. Libera, Strathearn and White were employed as portfolio
managers by Connecticut Mutual Life Insurance Company. Mr. Libera has been a
portfolio manager of the Fund since 1985, Mr. Strathearn since 1988, Mr.
White since 1992, and Mr. Zimmer since 1996.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.625% of the first $300 million of average annual
net assets of the Fund, 0.500% of the next $100 million, and 0.450% of
average annual net assets in excess of $400 million. The Fund's management
fee for its last fiscal year ended October 31, 1998, was 0.62% of average
annual net assets for each class of shares.
- ------------------------------------------------------------------------------
About Your Account
- ------------------------------------------------------------------------------
How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Fund's Distributor, or directly through the Distributor, or automatically
through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents to accept
purchase (and redemption) orders. The Distributor, in its sole discretion,
may reject any purchase order for the Fund's shares.
|X| Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X| Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
Colorado 80217. If you don't list a dealer on the application, the
Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment with a financial advisor before
you make a purchase to be sure that the Fund is appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With
AccountLink, shares are purchased for your account on the regular business
day the Distributor is instructed by you to initiate the Automated Clearing
House (ACH) transfer to buy the shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by telephone
instructions using OppenheimerFunds PhoneLink, also described below. Please
refer to "AccountLink," below for more details.
|X| Buying Shares Through Asset Builder Plans. You may purchase shares
of the Fund (and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder Application
and the Statement of Additional Information.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
|_| With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans
and military allotment plans, you can make initial and subsequent investments
for as little as $25. Subsequent purchases of at least $25 can be made by
telephone through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing
plans and 401(k) plans, you can start your account with as little as $250. If
your IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
|_| The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them appears in
the Statement of Additional Information, or you can ask your dealer or call
the Transfer Agent), or reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the
net asset value per share plus any initial sales charge that applies). The
offering price that applies to a purchase order is based on the next
calculation of the net asset value per share that is made after the
Distributor receives the purchase order at its offices in Denver, Colorado,
or after any agent appointed by the Distributor receives the order and sends
it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier
on some days. (All references to time in this Prospectus mean "New York
time").
The net asset value per share is determined by dividing the value of
the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. To determine net asset value, the Fund's Board
of Directors has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures for
valuing illiquid and restricted securities and obligations for which market
values cannot be readily obtained. Because some foreign securities trade in
markets and exchanges that operate on U.S. holidays and weekends, the values
of some of the Fund's foreign investments may change significantly on days
when investors cannot buy or redeem shares.
|_| To receive the offering price for a particular day, in most cases
the Distributor or its designated agent must receive your order by the time
of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the
order will receive the next offering price that is determined after your
order is received.
|_| If you buy shares through a dealer, your dealer must receive the
order by the close of The New York Stock Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of business
on a regular business day (normally 5:00 P.M.) to receive that day's offering
price. Otherwise, the order will receive the next offering price that is
determined.
- ------------------------------------------------------------------------------
What Classes of Shares Does the Fund Offer? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million for regular accounts or $500,000 for
certain retirement plans). The amount of that sales charge will vary
depending on the amount you invest. The sales charge rates are listed in "How
Can I Buy Class A Shares?" below.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That contingent deferred
sales charge varies depending on how long you own your shares, as described
in "How Can I Buy Class B Shares?" below.
- ------------------------------------------------------------------------------
|X| Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within 12 months of buying them, you will
normally pay a contingent deferred sales charge of 1%, as described in "How
Can I Buy Class C Shares?" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
best suited to your needs depends on a number of factors that you should
discuss with your financial advisor. Some factors to consider are how much
you plan to invest and how long you plan to hold your investment. If your
goals and objectives change over time and you plan to purchase additional
shares, you should re-evaluate those factors to see if you should consider
another class of shares. The Fund's operating costs that apply to a class of
shares and the effect of the different types of sales charges on your
investment will vary your investment results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are
different. You should review these factors with your financial advisor. The
discussion below assumes that you will purchase only one class of shares, and
not a combination of shares of different classes.
|X| How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the appropriate
class of shares. Because of the effect of class-based expenses, your choice
will also depend on how much you plan to invest. For example, the reduced
sales charges available for larger purchases of Class A shares may, over
time, offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares of
Class B or Class C.
|_| Investing for the Short Term. If you have a relatively
short-term investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class A or
Class C shares rather than Class B shares. That is because of the effect of
the Class B contingent deferred sales charge if you redeem within six years,
as well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares might be
the appropriate choice (especially for investments of less than $100,000),
because there is no initial sales charge on Class C shares, and the
contingent deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge
available for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more
of Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less
than $100,000 for the longer-term, for example for retirement, and do not
expect to need access to your money for seven years or more, Class B shares
may be appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all
of the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders.
Other features (such as Automatic Withdrawal Plans) may not be advisable
(because of the effect of the contingent deferred sales charge) for Class B
or Class C shareholders. Therefore, you should carefully review how you plan
to use your investment account before deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are
not borne by Class A shares, such as the Class B and Class C asset-based
sales charge described below and in the Statement of Additional Information.
Share certificates are not available for Class B and Class C shares, and if
you are considering using your shares as collateral for a loan, that may be a
factor to consider.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares
than for selling another class. It is important to remember that Class B and
Class C contingent deferred sales charges and asset-based sales charges have
the same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by
the dealer or financial institution for its own account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement
of Additional Information details the conditions for the waiver of sales
charges that apply in certain cases, and the special sales charge rates that
apply to purchases of shares of the Fund by certain groups, or under
specified retirement plan arrangements or in other special types of
transactions.
How Can I Buy Class A Shares? Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales charge.
However, in some cases, described below, purchases are not subject to an
initial sales charge, and the offering price will be the net asset value. In
other cases, reduced sales charges may be available, as described below or in
the Statement of Additional Information. Out of the amount you invest, the
Fund receives the net asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated
to your dealer as commission. The Distributor reserves the right to reallow
the entire commission to dealers. The current sales charge rates and
commissions paid to dealers and brokers are as follows:
------------------------------------------------------------------------------
Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Offering Price
Amount Invested
------------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
------------------------------------------------------------------------------
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
------------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
------------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
------------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
------------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
------------------------------------------------------------------------------
|X| Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more of the
Oppenheimer funds aggregating $1 million or more or for certain purchases by
particular types of retirement plans described in Appendix C to the Statement
of Additional Information. The Distributor pays dealers of record
commissions in an amount equal to 1.0% of purchases of $1 million or more
other than by those retirement accounts. For those retirement plan accounts,
the commission is 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of purchases over $5 million, calculated on a calendar
year basis. In either case, the commission will be paid only on purchases
that were not previously subject to a front-end sales charge and dealer
commission.1
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called
the "Class A contingent deferred sales charge") may be deducted from the
redemption proceeds. That sales charge will be equal to 1.0% of the lesser
of (1) the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or
capital gain distributions) or (2) the original net asset value of the
redeemed shares. However, the Class A contingent deferred sales charge will
not exceed the aggregate amount of the commissions the Distributor paid to
your dealer on all purchases of Class A shares of all Oppenheimer funds you
made that were subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable
when shares are redeemed, the Fund will first redeem shares that are not
subject to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them. The Class A contingent deferred sales
charge is waived in certain cases described in Appendix C to the Statement of
Additional Information.
The Class A contingent deferred sales charge is not charged on
exchanges of shares under the Fund's exchange privilege (described below).
However, if the shares acquired by exchange are redeemed within 18 calendar
months of the end of the calendar month in which the exchanged shares were
originally purchased, then the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be
eligible to buy Class A shares at reduced sales charge rates under the Fund's
"Right of Accumulation" or a Letter of Intent, as described in "Reduced Sales
Charges" in the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and
contingent deferred sales charges are not imposed in the circumstances
described in Appendix C to the Statement of Additional Information. In order
to receive a waiver of the Class A contingent deferred sales charge, you must
notify the Transfer Agent when purchasing shares whether any of the special
conditions apply.
How Can I Buy Class B Shares? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales charge
will be deducted from the redemption proceeds. The Class B contingent
deferred sales charge is paid to compensate the Distributor for its expenses
of providing distribution-related services to the Fund in connection with the
sale of Class B shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the
original net asset value. The contingent deferred sales charge is not
imposed on:
|_| the amount of your account value represented by an increase in
net asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or capital
gains distributions, or
|_| shares redeemed in the special circumstances described in
Appendix C to the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 6 years, and
3. shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
------------------------------------------------------------------------------
Contingent Deferred Sales Charge on
Years Since Beginning of Month in Redemptions in That Year
Which Purchase Order was Accepted (As % of Amount Subject to Charge)
------------------------------------------------------------------------------
0 - 1 5.0%
------------------------------------------------------------------------------
1 - 2 4.0%
------------------------------------------------------------------------------
2 - 3 3.0%
------------------------------------------------------------------------------
3 - 4 3.0%
------------------------------------------------------------------------------
4 - 5 2.0%
------------------------------------------------------------------------------
5 - 6 1.0%
------------------------------------------------------------------------------
6 and following None
------------------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the sales charge,
all purchases are considered to have been made on the first regular business
day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares
automatically convert to Class A shares 72 months after you purchase them.
This conversion feature relieves Class B shareholders of the asset-based
sales charge that applies to Class B shares under the Class B Distribution
and Service Plan, described below. The conversion is based on the relative
net asset value of the two classes, and no sales load or other charge is
imposed. When Class B shares convert, any other Class B shares that were
acquired by the reinvestment of dividends and distributions on the converted
shares will also convert to Class A shares. The conversion feature is subject
to the continued availability of a tax ruling described in the Statement of
Additional Information.
How Can I Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. The Class C
contingent deferred sales charge is paid to compensate the Distributor for
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the
original net asset value. The contingent deferred sales charge is not
imposed on:
|_| the amount of your account value represented by the increase in
net asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or capital
gains distributions, or
|_| shares redeemed in the special circumstances described in
Appendix C to the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 12 months, and
3. shares held the longest during the 12-month period.
Distribution and Service (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares. It reimburses the Distributor for a portion of its
costs incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Class A shares of the Fund. The Distributor
currently uses all of those fees to pay dealers, brokers, banks and other
financial institutions quarterly for providing personal service and
maintenance of accounts of their customers that hold Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate the Distributor for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the
plans, the Fund pays the Distributor an annual asset-based sales charge of
0.75% per year on Class B shares and on Class C shares. The Distributor also
receives a service fee of 0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
other types of sales charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or Class C
shares. The Distributor pays the 0.25% service fees to dealers in advance
for the first year after the shares were sold by the dealer. After the
shares have been held for a year, the Distributor pays the service fees to
dealers on a quarterly basis.
The Distributor currently pays sales commission of 3.75% of the
purchase price of Class B shares to dealers from its own resources at the
time of sale. Including the advance of the service fee, the total amount
paid by the Distributor to the dealer at the time of sale of Class B shares
is therefore 4.00% of the purchase price. The Distributor retains the Class
B asset-based sales charge.
The Distributor currently pays sales commissions of 0.75% of the
purchase price of Class C shares to dealers from its own resources at the
time of sale. Including the advance of the service fee, the total amount
paid by the Distributor to the dealer at the time of sale of Class C shares
is therefore 1.00% of the purchase price. The Distributor pays the
asset-based sales charge as an ongoing commission to the dealer on Class C
shares that have been outstanding for a year or more.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone
(through a service representative or by PhoneLink) or automatically
under Asset Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit
dividends and distributions directly to your bank account. Please call
the Transfer Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer.
After your account is established, you can request AccountLink privileges by
sending signature-guaranteed instructions to the Transfer Agent. AccountLink
privileges will apply to each shareholder listed in the registration on your
account as well as to your dealer representative of record unless and until
the Transfer Agent receives written instructions terminating or changing
those privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-guaranteed
instructions to the Transfer Agent signed by all shareholders who own the
account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number, 1-800-533-3310.
|X| Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund to pay for
these purchases.
|X| Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already established
by calling the special PhoneLink number.
|X| Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below
for details.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions may be
handled this way. Transaction requests submitted by fax are subject to the
same rules and restrictions as written and telephone requests described in
this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the
Fund, as well as your account balance, on the OppenheimerFunds Internet web
site, at http://www.oppenheimerfunds.com. Additionally, shareholders listed
in the account registration (and the dealer of record) may request certain
account transactions through a special section of that web site. To perform
account transactions, you must first obtain a personal identification number
(PIN) by calling the Transfer Agent at 1-800-533-3310. If you do not want to
have Internet account transaction capability for your account, please call
the Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis. Please call the Transfer Agent
or consult the Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class
B shares on which you paid a contingent deferred sales charge when you
redeemed them. This privilege does not apply to Class C shares. You must be
sure to ask the Distributor for this privilege when you send your payment.
Retirement Plans. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be
used by individuals and employers:
|X| Individual Retirement Accounts (IRAs), including regular IRAs, Roth
IRAs, SIMPLE IRAs, rollover and Education IRAs.
|X| SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for
small business owners or self-employed individuals.
|X| 403(b)(7) Custodial Plans, that are tax deferred plans for
employees of eligible tax-exempt organizations, such as schools, hospitals
and charitable organizations.
|X| 401(k) Plans, which are special retirement plans for businesses.
|X| Pension and Profit-Sharing Plans, designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular
business day. Your shares will be sold at the next net asset value
calculated after your order is received in proper form (which means that it
must comply with the procedures described below) and is accepted by the
Transfer Agent. The Fund lets you sell your shares by writing a letter or by
telephone. You can also set up Automatic Withdrawal Plans to redeem shares
on a regular basis. If you have questions about any of these procedures, and
especially if you are redeeming shares in a special situation, such as due to
the death of the owner or from a retirement plan account, please call the
Transfer Agent first, at 1-800-525-7048, for assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, the following redemption requests must be in writing and
must include a signature guarantee (although there may be other situations
that also require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check
|_| The redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial institutions,
including: a U.S. bank, trust company, credit union or savings association,
or by a foreign bank that has a U.S. correspondent bank, or by a U.S.
registered dealer or broker in securities, municipal securities or government
securities, or by a U.S. national securities exchange, a registered
securities association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business or as a fiduciary, you must also
include your title in the signature.
|X| Retirement Plan Accounts. There are special procedures to sell
shares in an OppenheimerFunds retirement plan account. Call the Transfer
Agent for a distribution request form. Special income tax withholding
requirements apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting your
money and if you do not want tax withheld. If your employer holds your
retirement plan account for you in the name of the plan, you must ask the
plan trustee or administrator to request the sale of the Fund shares in your
plan account.
|X| Sending Redemption Proceeds by Wire. While the Fund normally sends
your money by check, you can arrange to have the proceeds of the shares you
sell sent by Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The
minimum redemption you can have sent by wire is $2,500. There is a $10 fee
for each wire. To find out how to set up this feature on your account or to
arrange a wire, call the Transfer Agent at 1-800-852-8457.
How Do I Sell Shares by Mail? Write a letter of instructions that includes:
|_| Your name
|_| The Fund's name
|_| Your Fund account number (from your account statement)
|_| The dollar amount or number of shares to be redeemed
|_| Any special payment instructions
|_| Any share certificates for the shares you are selling
|_| The signatures of all registered owners exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure
proper authorization of the person asking to sell the shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
Send courier or express mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell Shares by Telephone? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is normally
4:00 P.M., but may be earlier on some days. You may not redeem shares held
in an OppenheimerFunds retirement plan account or under a share certificate
by telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone in any 7-day period. The check must be payable to all owners of
record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the
address on an account.
|X| Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are waiting
to be transferred.
Can I Sell Shares Through My Dealer? The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. If your shares
are held in the name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available for sale
in your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them. After the account is open 7
days, you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example, you
can exchange Class A shares of this Fund only for Class A shares of another
fund. In some cases, sales charges may be imposed on exchange transactions.
For tax purposes, exchanges of shares involve a sale of the shares of the
fund you own and a purchase of the shares of the other fund, which may result
in a capital gain or loss. Please refer to "How to Exchange Shares" in the
Statement of Additional Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the Transfer
Agent at the address on the back cover. Exchanges of shares held under
certificates cannot be processed unless the Transfer Agent receives the
certificates with the request.
|X| Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457, or by
using PhoneLink for automated exchanges by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain one by calling
a service representative at 1-800-525-7048. That list can change from time
to time.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on
which the Transfer Agent receives an exchange request that conforms to the
policies described above. It must be received by the close of The New York
Stock Exchange that day, which is normally 4:00 P.M. but may be earlier on
some days. However, either fund may delay the purchase of shares of the fund
you are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day exchange. For example, the receipt of multiple
exchange requests from a "market timer" might require the Fund to sell
securities at a disadvantageous time or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
it believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
|_| The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever it
is reasonably able to do so, it may impose these changes at any time.
|_| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange
will be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying,
selling, and exchanging shares is contained in the Statement of Additional
Information.
|X| The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may be
suspended by the Board of Directors at any time the Board believes it is in
the Fund's best interest to do so.
|X| Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time.
If an account has more than one owner, the Fund and the Transfer Agent may
rely on the instructions of any one owner. Telephone privileges apply to each
owner of the account and the dealer representative of record for the account
unless the Transfer Agent receives cancellation instructions from an owner of
the account.
|X| The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time to
time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
|X| Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions, and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction erroneously
or improperly.
|X| The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates. The
redemption price, which is the net asset value per share, will normally
differ for each class of shares. The redemption value of your shares may be
more or less than their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink or by Federal Funds wire (as
elected by the shareholder) within seven days after the Transfer Agent
receives redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission, payment
may be delayed or suspended. For accounts registered in the name of a
broker-dealer, payment will normally be forwarded within three business days
after redemption.
|X| The Transfer Agent may delay forwarding a check or processing a
payment via AccountLink for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days from the
date the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank to
provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund
if the account has fewer than 100 shares. In some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such
as a lack of liquidity in the Fund's portfolio to meet redemptions). This
means that the redemption proceeds will be paid with liquid securities from
the Fund's portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund your correct, certified Social
Security or Employer Identification Number when you sign your application, or
if you under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048 to
ask that copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on a quarterly basis in March, June,
September and December on a date selected by the Board of Directors.
Dividends and distributions paid on Class A shares will generally be higher
than dividends for Class B and Class C shares, which normally have higher
expenses than Class A. The Fund has no fixed dividend rate and cannot
guarantee that it will pay any dividends or distributions.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term
or long-term capital gains in December of each year. The Fund may make
supplemental distributions of dividends and capital gains following the end
of its fiscal year. There can be no assurance that the Fund will pay any
capital gains distributions in a particular year.
What Choices Do I Have for Receiving Distributions? When you open your
account, specify on your application how you want to receive your dividends
and distributions. You have four options:
|X| Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional shares
of the Fund.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends
by check or having them sent to your bank account through AccountLink.
|X| Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state
or local taxes. Dividends paid from short-term capital gains and net
investment income are taxable as ordinary income. Long-term capital gains
are taxable as long-term capital gains when distributed to shareholders. It
does not matter how long you have held your shares. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information
the Fund sends you after the end of the calendar year.
|X| Avoid "Buying a Dividend". If you buy shares on or just before the
ex-dividend date or just before the Fund declares a capital gain
distribution, you will pay the full price for the shares and then receive a
portion of the price back as a taxable dividend or capital gain.
|X| Remember, There May Be Taxes on Transactions. Because the Fund's
share price fluctuates, you may have a capital gain or loss when you sell or
exchange your shares. A capital gain or loss is the difference between the
price you paid for the shares and the price you received when you sold them.
Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. In certain cases, distributions made
by the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser about the
effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, the Fund's
independent auditors, whose report, along with the Fund's financial
statements, is included in the Statement of Additional Information, which is
available on request.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Class A
--------------------------------------------------------------------
Year Ended October 31, Year Ended December 31,
1998 1997 1996(/3/) 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value,
beginning of period $16.81 $16.00 $15.46 $13.44 $14.54 $13.81
- -----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .45 .51(/4/) .46 .60 .55 .48
Net realized and
unrealized gain (loss) .45 2.25(/4/) .49 2.59 (.86) 1.70
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations .90 2.76 .95 3.19 (.31) 2.18
- -----------------------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.45) (.56) (.36) (.60) (.55) (.48)
Distributions from net
realized gain (1.81) (1.39) (.05) (.57) (.24) (.97)
------ ------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders (2.26) (1.95) (.41) (1.17) (.79) (1.45)
- -----------------------------------------------------------------------------------------------
Net asset value, end of
period $15.45 $16.81 $16.00 $15.46 $13.44 $14.54
====== ====== ====== ====== ====== ======
- -----------------------------------------------------------------------------------------------
Total Return, at Net
Asset Value(/5/) 5.93% 18.82% 6.27% 23.95% (2.11)% 15.89%
- -----------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of
period (in thousands) $298,558 $243,267 $233,289 $218,099 $177,904 $171,205
- -----------------------------------------------------------------------------------------------
Average net assets (in
thousands) $268,715 $238,821 $228,203 $200,172 $187,655 $138,629
- -----------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 2.96% 3.17% 3.52%(/6/) 4.00% 3.80% 3.40%
Expenses 1.04% 1.11% 1.11%(/6/) 1.17% 0.96% 1.02%
- -----------------------------------------------------------------------------------------------
Portfolio turnover
rate(/7/) 96.9% 98.0% 85.4% 55.2% 115.0% 115.2%
</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.
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.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Class B
(continued) -------------------------------------------------
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>
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.
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.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (continued) 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>
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.
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.
<PAGE>
36
For More Information About Oppenheimer Disciplined Allocation Fund:
The following additional information about the Fund is available without
charge upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into
this Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is
available in the Fund's Annual and Semi-Annual Reports to shareholders.
The Annual Report includes a discussion of market conditions and
investment strategies that significantly affected the Fund's performance
during its last fiscal year.
- ---------------------------------------------------------------------------
How to Get More Information:
- ---------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and
other Fund documents and reports by visiting the SEC's Public Reference
Room in Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web
site at http://www.sec.gov. Copies may be obtained upon payment of a
duplicating fee by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or
to make any representations about the Fund other than what is contained
in this Prospectus. This Prospectus is not an offer to sell shares of the
Fund, nor a solicitation of an offer to buy shares of the Fund, to any
person in any state or other jurisdiction where it is unlawful to make
such an offer.
The Fund's shares are distributed by:
SEC File No. 811-3346
PR0205.001.0398 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Disciplined Allocation Fund
Graphic material included in the Prospectus of the Oppenheimer
Disciplined Allocation Value Fund (the "Fund") under the heading, "Annual
Total Returns (Class A)(as of 12/31 each year)":
A bar chart will be included in the Prospectus of Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the
Fund for each of the ten most recent calendar years, without deducting sales
charges. Set forth below are the relevant data points that will appear in the
bar chart:
-----------------------------------------------------------
Calendar Year Ended 12/31 Annual Total Return
-----------------------------------------------------------
1989 22.61%
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1990 -0.21%
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1991 28.21%
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1992 9.90%
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1993 15.89%
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1994 -2.11%
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1995 23.95%
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1996 9.59%
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1997 17.90%
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1998 10.85%
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<PAGE>
Oppenheimer Disciplined Allocation Fund
- ------------------------------------------------------------------------------
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated March 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..
The Fund's Investment Policies.....................................
Other Investment Techniques and Strategies.........................
Investment Restrictions............................................
How the Fund is Managed ...............................................
Organization and History...........................................
Directors and Officers.............................................
The Manager........................................................
Brokerage Policies of the Fund.........................................
Distribution and Service Plans.........................................
Performance of the Fund................................................
About Your Account
How To Buy Shares......................................................
How To Sell Shares.....................................................
How To Exchange Shares.................................................
Dividends, Capital Gains and Taxes.....................................
Additional Information About the Fund..................................
Financial Information About the Fund
Independent Auditors' Report...........................................
Financial Statements...................................................
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Corporate Industry Classifications......................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
<PAGE>
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ABOUT THE FUND
- ------------------------------------------------------------------------------
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.
|X| 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.
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.
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.
|X| 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
have 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").
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 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.
|X| 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.
|X| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer
loans. They are issued by trusts or special-purpose corporations. They are
similar to mortgage-backed securities, described above, and are backed by a
pool of assets that consist of obligations of individual borrowers. The
income from the pool is passed through to the holders of participation
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 :
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.
|_| 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.
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.
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.
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.
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.
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.
"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.
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.
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.
|X| When-Issued and Delayed-Delivery Transactions. The Fund can 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.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet
anticipated redemptions of Fund shares, or pending the investment of the
proceeds from sales of Fund shares, or pending the settlement of portfolio
securities transactions, or for 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.
|X| 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.
|X| 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.
|X| 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.
|X| 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
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
|X| 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.
|X| Classes of Shares. The Board of Directors has the power,
withoutshareholder 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.
|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
funds2:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Developing Markets Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Discovery Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Enterprise 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 Fund Oppenheimer Series Fund, Inc.
Oppenheimer Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer World Bond Fund
Oppenheimer International Small Company
Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Bowen, 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.
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.
George C. Bowen, Treasurer, Age 62
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985)
of the Manager; Vice President (since June 1983) and Treasurer (since March
1985) of the Distributor; Vice President (since October 1989) and Treasurer
(since April 1986) of HarbourView Asset Management Corp.; Senior Vice
President (since February 1992), Treasurer (since July 1991) and a director
(since December 1991) of Centennial Asset Management Corp.; Vice President
and Treasurer (since August 1978) and Secretary (since April 1981) of
Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services, Inc. (since November 1989); Assistant
Treasurer of Oppenheimer Acquisition Corp. (since March 1998); Treasurer of
Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice President
and Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996);
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); a trustee or director and an officer of other
Oppenheimer funds; formerly Treasurer of Oppenheimer Acquisition Corp. (June
1990 - March 1998).
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 $6,044 $810 $162,600
Chairman
------------------------------------------------------------------------------
Robert G. Galli $1,976 None $113,383
Study Committee Member3
------------------------------------------------------------------------------
Benjamin Lipstein $ 5,661 $1,137 $140,550
Study Committee Chairman,
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 $2,890 None $89,800
Proxy Committee Chairman,
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
------------------------------------------------------------------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Director.
2 For the 1998 calendar year.
3 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.
4 Includes $465 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.
|X| 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.
|X| 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.
|X| 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 Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Sales Shares Shares Shares
Ended Charges on Charges Advanced by Advanced by Advanced by
10/31: Class A Retained by Distributor1 Distributor1 Distributor1
Shares Distributor
- -------------------------------------------------------------------------------
1996 2 $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
Year Class A Contingent Class B Contingent Class C Contingent
Ended Deferred Sales Deferred Sales Deferred Sales Charges
10/31 Charges Retained by Charges Retained by Retained by Distributor
Distributor 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 Directors3, 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.
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 Average Annual Total Returns
Returns (10
years
or Life of
Class of Class)
Shares
- -------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or (or
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.
|X| 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.
|X| 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.
|X| 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.
- ------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
- ------------------------------------------------------------------------------
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.
|X| 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.
[_] 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 Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer California Municipal 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 Equity Income Fund Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Europe Fund
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
Oppenheimer Large Cap Growth 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.
|X| 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.
|X| 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.
|X| 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
(2) 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.
|X| 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.
|X| 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.
|X| 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.
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.
/s/ KPMG PEat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
November 20, 1998
<PAGE>
Financials
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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.
<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
============
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<PAGE>
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>
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
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 - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
Appendix C
- ------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- ------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares 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 the Distributor
or the dealers or other financial institutions offering those shares to
certain classes of investors or in certain transactions.
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 plans1
(4) Group Retirement Plans2
(5) 403(b)(7) custodial plan accounts
(6) SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
waiver in a particular case is determined solely by the Distributor or the
Transfer Agent of the fund. These waivers and special arrangements may be
amended or terminated at any time by the applicable Fund and/or the
Distributor. Waivers that apply at the time shares are redeemed must be
requested by the shareholder and/or dealer in the redemption request.
- --------------
1. 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.
2. 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.
- ------------------------------------------------------------------------------
<PAGE>
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 these purchases the
Distributor will pay the applicable commission described in the Prospectus
under "Class A Contingent Deferred Sales Charge":
o Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible participants 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).
<PAGE>
- ------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
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.
|_| 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.
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 and paid for with the proceeds of shares redeemed
in the prior 30 days from a mutual fund (other than a fund managed by the
Manager or any of its subsidiaries) on which an initial sales charge or
contingent deferred sales charge was paid. This waiver also applies to shares
purchased by exchange of shares of Oppenheimer Money Market Fund, Inc. that
were purchased and paid for in this manner. This waiver must be requested
when the purchase order is placed for 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.
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 original account value.
|_| Involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules and
Policies," in the Prospectus).
|_| For distributions from Retirement Plans, deferred compensation
plans or other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability
must occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.
(5) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To establish "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For retirement distributions or loans to participants or beneficiaries.
(9) Separation from service.
(10)Participant-directed redemptions to purchase shares of a mutual
fund other than a fund managed by the Manager or a subsidiary.
The fund must be one that is offered as an investment option in a
Retirement Plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor.
(11) Plan termination or "in-service distributions," if the
redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers
that have entered into a special agreement with the Distributor allowing this
waiver.
- ------------------------------------------------------------------------------
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.
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.
|_| Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(a) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the
account value annually (measured from the date the Transfer Agent
receives the request), or
(b) following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability
must have occurred after the account was established).
|_| 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.
|_| Returns of excess contributions to Retirement Plans.
|_| Distributions from Retirement Plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date
the Transfer Agent receives the request.
|_| Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1) for hardship withdrawals;
(2) under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code;
(3) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(4) to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code;
(5) for separation from service; or
(6) for loans to participants or beneficiaries.
|_| Distributions from 401(k) plans sponsored by broker-dealers that
have 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.
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.
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of the Former Quest for Value Funds
- ------------------------------------------------------------------------------
The initial and contingent deferred sales charge rates and waivers for
Class A, Class B and Class C shares 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 Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund,
Oppenheimer Quest Small Cap Value Fund and
Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds
when they merged into various Oppenheimer funds on November 24, 1995:
Quest for Value U.S. Government Income Fund,
Quest for Value Investment Quality Income Fund,
Quest for Value Global Income Fund,
Quest for Value New York Tax-Exempt Fund,
Quest for Value National Tax-Exempt Fund and
Quest for Value California Tax-Exempt Fund
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.
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.
<PAGE>
- -------------------------------------------------------------------------------
Number of
Eligible Initial Sales Initial Sales
Employees or Charge Charge Commission as %
Members as a % of as a % of Net of Offering Price
Offering Price Amount Invested
- -------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- -------------------------------------------------------------------------------
At least 10 but
not more than 49 2.00% 2.04% 1.60%
- -------------------------------------------------------------------------------
For purchases by 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.
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.
- ------------------------------------------------------------------------------
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 Prospectus or this Appendix
for Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below
for those shareholders who were shareholders of Connecticut Mutual Liquid
Account, Connecticut Mutual Government Securities Account, Connecticut Mutual
Income Account, Connecticut Mutual Growth Account, Connecticut Mutual Total
Return Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan
Balanced Account and CMIA Diversified Income Account (the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of
a Fund and the other Former Connecticut Mutual Funds are entitled to continue
to make additional purchases of Class A shares at net asset value without a
Class A initial sales charge, but subject to the Class A contingent deferred
sales charge that was in effect prior to March 18, 1996 (the "prior Class A
CDSC"). Under the prior Class A CDSC, if any of those shares are redeemed
within one year of purchase, they will be assessed a 1% contingent deferred
sales charge on an amount equal to the current market value or the original
purchase price of the shares sold, whichever is smaller (in such redemptions,
any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's
policies on Combined Purchases or Rights of Accumulation, who still
hold those shares in that Fund or other Former Connecticut Mutual
Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the
Class A initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this
arrangement they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund
may be purchased without a sales charge, by a person who was in one (or more)
of the categories below and acquired Class A shares prior to March 18, 1996,
and still holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the
Combined Purchases, Statement of Intention and Rights of
Accumulation features available at the time of the initial purchase
and such investment is still held in one or more of the Former
Connecticut Mutual Funds or a Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the
Fund or any one or more of the Former Connecticut Mutual Funds,
provided the institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State
by Connecticut Mutual Life Insurance Company through the Panorama Separate
Account which is beyond the applicable surrender charge period and which was
used to fund a qualified plan, if that holder exchanges the variable annuity
contract proceeds to buy Class A shares of the Fund.
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) 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.
- ------------------------------------------------------------------------------
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%.
<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
PX205.0398
<PAGE>
- ------------------------------------------------------------------------------
Oppenheimer Disciplined Value Fund
- ------------------------------------------------------------------------------
Prospectus dated March 1, 1999
Oppenheimer Disciplined Value Fund is a mutual fund that seeks
long-term growth of capital. It invests mainly in common stocks with low
price-earnings ratios and better-than-anticipated earnings.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. It also contains
important information about how to buy and sell shares of the Fund and other
account features. Please read this Prospectus carefully before you invest and
keep it for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
- ------------------------------------------------------------------------------
The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
- ------------------------------------------------------------------------------
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
- ------------------------------------------------------------------------------
About the Fund
- ------------------------------------------------------------------------------
The Fund's Objective and Investment Strategies
- ------------------------------------------------------------------------------
What Is the Fund's Investment Objective? The Fund's 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.
- ------------------------------------------------------------------------------
What Does the Fund Invest In? The Fund invests mainly in common stocks. The
Fund can buy other equity investments, including preferred stocks, rights and
warrants and convertible securities. The Fund can buy securities of U.S. and
foreign companies of different capitalization ranges, although there are
limits on the Fund's investments in foreign securities.
The Fund can also invest (normally, not more than 10% of its net
assets) in debt securities, such as U.S. government securities and corporate
debt obligations, including corporate bonds rated below investment grade. The
Fund can hold up to 15% of its net assets under normal market conditions in
cash and cash equivalents for liquidity purposes. The Fund can also use
hedging instruments and certain derivative investments to try to manage
investment risks. These investments are more fully explained in "About the
Fund's Investments," below.
|X| How Does the Manager Decide What Securities to Buy or Sell? In
selecting securities for purchase or sale by the Fund, the Fund's portfolio
managers use a disciplined value style. While this process and the
inter-relationship of the factors used may change over time and its
implementation may vary in particular cases, in general the investment
selection process includes the strategies described below:
o The portfolio managers use a quantitative valued-oriented investment
discipline to identify undervalued stocks or stocks out of
favor in the market that they believe have potential for
improved performance. They conduct "fundamental" analysis of
an issuer's business prospects and financial condition to
search for stocks that they believe have the best growth
potential.
First they use quantitative tools to identify a universe of
stocks that have low price/earnings (P/E) ratios compared, for
example, to the P/E ratio of the S&P 500 Index. Next they
search that universe for stocks having characteristics
suggesting the potential for improved price performance (for
example, better than expected earnings reports).
o The portfolio managers use internal research and analysis by other
market analysts to identify stocks within the selected
universe that may provide growth opportunities. The
expectation is that the stock will increase in value when the
market re-evaluates the issuer's earnings expectations and
price/earnings ratio.
|_| If the P/E ratio of a stock held by the Fund moves
significantly above the P/E ratio of the broad market
benchmark the portfolio managers use, or if there is evidence
an issuer's business prospects are deteriorating (for example,
the issuer reports a material earnings disappointment), the
portfolio managers will consider selling the stock.
Who Is the Fund Designed For? The Fund is designed primarily for investors
seeking capital growth in their investment over the long term. Those
investors should be willing to assume the risks of short-term share price
fluctuations that are typical for a moderately aggressive fund focusing on
stock investments. Since the Fund's income level will fluctuate and will
likely be small, it is not designed for investors needing current income.
Because of its focus on long-term growth, the Fund may be appropriate for a
portion of a retirement plan investment. The Fund is not a complete
investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks are subject to changes in their value from a number of factors. They
include changes in general stock market movements (this is referred to as
"market risk"), or the change in value of particular stocks because of an
event affecting the issuer.
At times, the Fund may increase the relative 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"). The Fund's value selection strategy might not produce the
desired investment results if the securities selected do not appreciate in
value over time. Changes in interest rates can also affect stock and bond
prices (this is known as "interest rate risk").
These risks collectively form the risk profile of the Fund and can
affect the value of the Fund's investments, its investment performance and
its price per share. These risks mean that you can lose money by investing in
the Fund. When you redeem your shares, they may be worth more or less than
what you paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., tries to reduce
risks by carefully researching securities before they are purchased. The Fund
attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial amount of stock of any one
company and by not investing too great a percentage of the Fund's assets in
any one company. Also, the Fund does not concentrate 25% or more of its
investments in any one industry. However, changes in the overall market
prices of securities and the income they pay can occur at any time.
The share price of the Fund will change daily based on changes in
market prices of securities and market conditions, and in response to other
economic events. There is no assurance that the Fund will achieve its
investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and
their short-term volatility at times may be great. Because the Fund currently
focuses its investments in stocks, the value of the Fund's portfolio will be
affected by changes in the stock markets. Market risk will affect the Fund's
net asset value per share, which will fluctuate as the values of the Fund's
portfolio securities change.
A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other. In particular, because the Fund currently emphasizes investments in
stocks of U.S. issuers, it will be affected primarily by changes in U.S.
stock markets.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more
than others, or by changes in government regulations, availability of basic
resources or supplies, or other events. To the extent that the Fund has
increased the relative emphasis of its investments in a particular industry,
its share values may fluctuate in response to events affecting that industry.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the
issuer. The Fund can invest in securities of large companies but it can also
buy stocks of small and medium-size companies, which may have more volatile
stock prices than stocks of large companies.
How Risky is the Fund Overall? The Fund focuses its investments on stocks for
long-term growth. In the short term, the stock markets can be volatile, and
the price of the Fund's shares will go up and down. The Fund generally does
not use income-oriented investments to help cushion the Fund's total return
from changes in stock prices, except for defensive purposes. In the
OppenheimerFunds spectrum, the Fund is generally more conservative than
aggressive growth stock funds, but more aggressive than funds that invest in
stocks and bonds.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the last ten calendar years and by showing how
the average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]
Sales charges are not included in the calculations of return in this bar
chart, and if those charges were included, the returns would be less than
those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 18.26% (4Q'98) and the lowest return (not
annualized) for a calendar quarter was -18.20% (3Q'90).
- ---------------------------------------------------------------
Average Annual
Total 5 Years 10 Years
Returns for the 1 Year (or life of (or life of
periods class, if less) class, if less)
ended December 31,
1998
- ---------------------------------------------------------------
Class A Shares 2.29% 15.27% 16.69%
- ---------------------------------------------------------------
S&P 500 Index 28.60% 24.05% 19.19%
- ---------------------------------------------------------------
Class B Shares 2.69% 16.61% N/A
(inception
10/02/1995)
- ---------------------------------------------------------------
S&P 500 Index 28.60% 28.08%* N/A
- ---------------------------------------------------------------
Class C Shares 6.68% 15.88% N/A
(inception
05/01/1996)
- ---------------------------------------------------------------
S&P 500 Index 28.60% 28.96%* N/A
- ---------------------------------------------------------------
Class Y Shares 8.91% 17.53% N/A
(inception
12/16/1996)
- ---------------------------------------------------------------
S&P 500 Index 28.60% 30.95%* N/A
- ---------------------------------------------------------------
* The "life-of-class" index performance is shown from 9/30/95 for Class B,
4/30/96 for Class C and 12/31/96 for Class Y.
The Fund's average annual total returns in the table include the applicable
sales charge: for Class A, the current maximum initial sales charge of 5.75%;
for Class B, the contingent deferred sales charges of 5% (1-year) and 3%
(life of class); and for Class C, the 1% contingent deferred sales charge for
the 1-year period. There is no sales charge for Class Y shares.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in
additional shares. Because the Fund invests primarily in stocks, the Fund's
performance is compared to the S&P 500 Index, an unmanaged index of equity
securities that is a measure of the general domestic stock market. However,
the index performance reflects the reinvestment of income but does not
consider the effects of transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset value
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
October 31, 1998.
Shareholder Fees (charges paid directly from your investment):
- -------------------------------------------------------------------------------
Class A Shares Class B Class C Class Y
Shares Shares Shares
- -------------------------------------------------------------------------------
Maximum Sales Charge
(Load) on purchases 5.75% None None None
(as % of offering
price)
- -------------------------------------------------------------------------------
Maximum Deferred Sales
Charge (Load) (as % of
the lower of the None1 5%2 1%3 None
original offering
price or redemption
proceeds)
- -------------------------------------------------------------------------------
1. A contingent deferred sales charge may apply to redemptions of
investments of $1 million or more ($500,000 for retirement plan accounts)
of Class A shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
- -------------------------------------------------------------------------------
Class A Class B Class C Class Y
Shares Shares Shares Shares
- -------------------------------------------------------------------------------
Management Fees 0.53% 0.53% 0.53% 0.53%
- -------------------------------------------------------------------------------
Distribution and/or 0.25% 1.00% 1.00% None
Service (12b-1) Fees
- -------------------------------------------------------------------------------
Other Expenses 0.20% 0.20% 0.20% 0.09%
- -------------------------------------------------------------------------------
Total Annual Operating 0.98% 1.73% 1.73% 0.62%
Expenses
- -------------------------------------------------------------------------------
Expenses may vary in future years. "Other expenses" include transfer agent
fees, custodial expenses, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for
the time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that
the class's operating expenses remain the same. Your actual costs may be
higher or lower because expenses will vary over time. Based on these
assumptions your expenses would be as follows:
- -------------------------------------------------------------------------------
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
- -------------------------------------------------------------------------------
Class A Shares $669 $869 $1,086 $1,707
- -------------------------------------------------------------------------------
Class B Shares $676 $845 $1,139 $1,660
- -------------------------------------------------------------------------------
Class C Shares $276 $545 $939 $2,041
- -------------------------------------------------------------------------------
Class Y Shares $63 $199 $346 $774
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
- -------------------------------------------------------------------------------
Class A Shares $669 $869 $1,086 $1,707
- -------------------------------------------------------------------------------
Class B Shares $176 $545 $939 $1,660
- -------------------------------------------------------------------------------
Class C Shares $176 $545 $939 $2,041
- -------------------------------------------------------------------------------
Class Y Shares $63 $199 $346 $774
- -------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A
and the applicable Class B or Class C contingent deferred sales charges. In
the second example, the Class A expenses include the sales charge, but Class
B and Class C expenses do not include the contingent deferred sales charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's
portfolio among the different types of permitted investments will vary over
time based upon the evaluation of economic and market trends by the Manager.
The Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
|X| Stock Investments. The Fund invests primarily in a diversified
portfolio of common stocks of issuers that may be of small, medium or large
capitalization, to seek capital growth. The Fund can invest in other equity
securities, including preferred stocks, rights and warrants, and securities
convertible into common stock. The Fund can buy securities issued by domestic
or foreign companies. However, the Fund currently emphasizes investments in
stocks of U.S. issuers.
Although many convertible securities are debt securities, the Manager
considers some of them to be "equity equivalents" because of their conversion
feature. In those cases, their rating has less impact on the investment
decision than in the case of other debt securities. The Fund can buy
convertible securities rated as low as "B" by Moody's Investor Services, Inc.
or Standard & Poor's Rating Service or having comparable ratings by other
national rating organizations (or, if they are unrated, having a comparable
rating assigned by the Manager). Those ratings are below "investment grade"
and the securities are subject to greater risk of default by the issuer than
investment grade securities. Additionally, these investments are subject to
the Fund's limit on investing not more than 10% of its net assets in debt
securities.
|X| Can the Fund's Investment Objective and Policies Change? The
Fund's Board of Directors can change non-fundamental investment policies
without shareholder approval, although significant changes will be described
in amendments to this Prospectus. Fundamental policies are those that cannot
be changed without the approval of a majority of the Fund's outstanding
voting shares. The Fund's investment objective is a not a fundamental policy,
but will not be changed by the Fund's Board of Directors without advance
notice to shareholders.
Investment restrictions that are fundamental policies are listed in the
Statement of Additional Information. An investment policy is not fundamental
unless this Prospectus or the Statement of Additional Information says that
it is.
|X| Portfolio Turnover. The Fund ordinarily does not engage in
short-term trading to try to achieve its objective. Portfolio turnover
affects brokerage costs the Fund pays. If the Fund realizes capital gains
when it sells its portfolio investments, it must generally pay those gains
out to shareholders, increasing their taxable distributions. The Financial
Highlights table below shows the Fund's portfolio turnover rates during prior
fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use
the investment techniques and strategies described below. The Manager might
not always use all of the different types of techniques and investments
described below. These techniques involve certain risks, although some are
designed to help reduce investment or market risks.
|X| Debt Securities. Under normal market conditions, the Fund can
invest in debt securities, such as securities issued or guaranteed by the
U.S. government or its agencies and instrumentalities, foreign government
securities, and foreign and domestic corporate bonds and debentures. Normally
these investments are limited to not more than 10% of the Fund's net assets,
including convertible debt securities.
The debt securities the Fund buys may be rated by nationally recognized
rating organizations or they may be unrated securities assigned an equivalent
rating by the Manager. The Fund's debt investments may be "investment grade"
(that is, in the four highest rating categories of a national rating
organization) or may be lower-grade securities (sometimes called "junk
bonds") rated as low as "B," as described above.
|_| Special Credit Risks of Lower-Grade Securities. All corporate
debt securities (whether foreign or domestic) are subject to some degree of
credit risk. Credit risk relates to the ability of the issuer to meet
interest or principal payments on a security as they become due. While
investment grade securities are subject to risks of non-payment of interest
and principal, generally, higher yielding, lower-grade bonds, whether rated
or unrated, have greater risks than investment grade securities.
These securities may be subject to greater market fluctuations and risk
of loss of income and principal than investment grade securities. There may
be less of a market for them and therefore they may be harder to sell at an
acceptable price when the Manager wants to dispose of them. There is a
relatively greater possibility that the issuer's earnings may be insufficient
to make the payments of interest and principal due on the bonds. These risks
mean that the Fund's net asset value per share could be reduced by declines
in value of these securities.
|_| Interest Rate Risks. The values of debt securities are
subject to change when prevailing interest rates change. When interest rates
fall, the values of already-issued debt securities generally rise. When
interest rates rise, the values of already-issued debt securities generally
fall. The magnitude of these fluctuations will often be greater for
longer-term debt securities than shorter-term debt securities. The Fund's
share prices can go up or down when interest rates change because of the
effect of the changes on the value of the Fund's investments in debt
securities.
|X| Cash and Cash Equivalents. Under normal market conditions the Fund
can invest up to 15% of its net assets in cash and cash equivalents of the
types described below in "Temporary Defensive Investments." This strategy
would be used primarily for cash management or liquidity purposes. To the
extent that the Fund uses this strategy, it might reduce its opportunities to
seek its objective of long-term growth.
|X| Risks of Foreign Investing. The Fund can buy securities of
companies or governments in any country, developed or underdeveloped. As a
fundamental policy, the Fund cannot invest more than 10% of its total assets
in foreign securities. As an exception to that restriction the Fund can
invest up to 25% of its total assets in foreign equity or debt securities
that are:
|_| issued, assumed or guaranteed by foreign governments
or their political subdivisions or instrumentalities, or
|_| assumed or guaranteed by domestic issuers (including
Eurodollar securities), or
|_| issued, assumed or guaranteed by foreign issuers that
have a class of securities listed for trading on The New York
Stock Exchange.
While foreign securities offer special investment opportunities, there
are also special risks, such as foreign taxation, risks of delays in
settlements of securities transactions, and the effects of a change in value
of a foreign currency against the U.S. dollar, which will result in a change
in the U.S. dollar value of securities denominated in that foreign currency.
|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In general terms, a derivative
investment is an investment contract whose value depends on (or is derived
from) the value of an underlying asset, interest rate or index. In the
broadest sense, exchange-traded options, futures contracts, and other hedging
instruments the Fund might use may be considered "derivative investments."
The Fund has limits on the amount of particular types of derivatives it can
hold. Currently the Fund does not use those types of investments to a
significant degree.
|_| There are Special Risks in Using Derivative Investments.
Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the
U.S. and abroad may also influence the performance of derivatives. As a
result of these risks the Fund could realize less principal or income from
the investment than expected. Certain derivative investments held by the
Fund may be illiquid. If the issuer of the derivative does not pay the amount
due, the Fund can lose money on the investment. If that happens, the Fund's
share price could decline or the Fund could get less income than expected.
However, using derivatives can cause the Fund to lose money on its
investments and/or increase the volatility of its share prices.
|X| Hedging. The Fund can write covered calls on securities, futures
and stock indices, and can buy and sell certain kinds of futures contracts
and forward contracts. These are all referred to as "hedging instruments."
The Fund does not use hedging instruments for speculative purposes, and has
limits on its use of them. The Fund is not required to use hedging
instruments in seeking its goal and currently does not use them to a
significant degree.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised
on an investment that has increased in value, the Fund will be required to
sell the investment at the call price and will not be able to realize any
profit if the investment has increased in value above the call price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return.
The Fund could also experience losses if the prices of its futures and
options positions were not correlated with its other investments or if it
could not close out a position because of an illiquid market.
|X| Temporary Defensive Investments. In times of unstable market or
economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. Generally they would be high-quality,
short-term money market instruments, such as U.S. government securities,
highly-rated commercial paper, short-term corporate debt obligations, bank
deposits or repurchase agreements. The Fund can also hold these types of
securities pending the investment of proceeds from the sale of Fund shares or
portfolio securities or to meet anticipated redemptions of Fund shares. To
the extent the Fund invests defensively in these securities, it might not
achieve its investment objective of capital growth.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and
other investors. That failure could have a negative impact on handling
securities trades, pricing and accounting services. Data processing errors by
government issuers of securities could result in economic uncertainties, and
those issuers may incur substantial costs in attempting to prevent or fix
such errors, all of which could have a negative effect on the Fund's
investments and returns.
The Manager, the Distributor and the Transfer Agent have been working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although
there cannot be assurance of success. Additionally, the services they
provide depend on the interaction of their computer systems with those of
brokers, information services, the Fund's Custodian and other parties.
Therefore, any failure of the computer systems of those parties to deal with
the year 2000 might also have a negative effect on the services they provide
to the Fund. The extent of that risk cannot be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., chooses
the Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board of
Directors, under an Investment Advisory Agreement that states the Manager's
responsibilities. The Agreement sets forth the fees paid by the Fund to the
Manager and describes the expenses that the Fund is responsible to pay to
conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| Portfolio Managers. The Fund has a portfolio management team
consisting of three portfolio managers. The principal portfolio manager,
Peter M. Antos, is a Vice President of the Fund and a Senior Vice President
of the Manager. He has been the Fund's senior portfolio manager since 1989
and is an officer and portfolio manager of other Oppenheimer funds. Prior to
joining the Manager in 1996, he was employed by the G.R. Phelps & Co., Inc.,
the Fund's prior investment adviser.
Portfolio managers Michael C. Strathearn and Kenneth B. White are also
Vice Presidents of the Fund and the Manager and serve as officers and
portfolio managers of other Oppenheimer funds. Before joining the Manager in
1996, each was employed by Connecticut Mutual Life Insurance Company, the
then-parent of G.R. Phelps. They have been portfolio managers of the Fund
since 1989.
|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on
additional assets as the Fund grows: 0.625% of the first $300 million of
average annual net assets of the Fund, 0.500% of the next $100 million, and
0.450% of average annual net assets in excess of $400 million. The Fund's
management fee for its last fiscal year ended October 31, 1998, was 0.53% of
average annual net assets for each class of shares.
- ------------------------------------------------------------------------------
About Your Account
- ------------------------------------------------------------------------------
How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Fund's Distributor, or directly through the Distributor, or automatically
through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents to accept
purchase (and redemption) orders. The Distributor, in its sole discretion,
may reject any purchase order for the Fund's shares.
|X| Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X| Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
Colorado 80217. If you don't list a dealer on the application, the
Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment with a financial advisor before
you make a purchase to be sure that the Fund is appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With
AccountLink, shares are purchased for your account on the regular business
day the Distributor is instructed by you to initiate the Automated Clearing
House (ACH) transfer to buy the shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by telephone
instructions using OppenheimerFunds PhoneLink, also described below. Please
refer to "AccountLink," below for more details.
|X| Buying Shares Through Asset Builder Plans. You may purchase shares
of the Fund (and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder Application
and the Statement of Additional Information.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
|_| With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans
and military allotment plans, you can make initial and subsequent investments
for as little as $25. Subsequent purchases of at least $25 can be made by
telephone through AccountLink.
|_| Under retirement plans, such as IRAs, pension and profit-sharing
plans and 401(k) plans, you can start your account with as little as $250. If
your IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
|_| The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them appears in
the Statement of Additional Information, or you can ask your dealer or call
the Transfer Agent), or reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the
net asset value per share plus any initial sales charge that applies). The
offering price that applies to a purchase order is based on the next
calculation of the net asset value per share that is made after the
Distributor receives the purchase order at its offices in Denver, Colorado,
or after any agent appointed by the Distributor receives the order and sends
it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier
on some days. (All references to time in this Prospectus mean "New York
time").
The net asset value per share is determined by dividing the value of
the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. To determine net asset value, the Fund's Board
of Directors has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures for
valuing illiquid and restricted securities and obligations for which market
values cannot be readily obtained. Because some foreign securities trade in
markets and exchanges that operate on U.S. holidays and weekends, the values
of some of the Fund's foreign investments may change significantly on days
when investors cannot buy or redeem shares.
|_| To receive the offering price for a particular day, in most cases
the Distributor or its designated agent must receive your order by the time
of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the
order will receive the next offering price that is determined after your
order is received.
|_| If you buy shares through a dealer, your dealer must receive the
order by the close of The New York Stock Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of business
on a regular business day (normally 5:00 P.M.) to receive that day's offering
price. Otherwise, the order will receive the next offering price that is
determined.
- ------------------------------------------------------------------------------
What Classes of Shares Does the Fund Offer? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
|X| Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million for regular accounts or
$500,000 for certain retirement plans). The amount of that sales charge will
vary depending on the amount you invest. The sales charge rates are listed in
"How Can I Buy Class A Shares?" below.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That contingent deferred
sales charge varies depending on how long you own your shares, as described
in "How Can I Buy Class B Shares?" below.
- ------------------------------------------------------------------------------
|X| Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within 12 months of buying them, you will
normally pay a contingent deferred sales charge of 1%, as described in "How
Can I Buy Class C Shares?" below.
|X| Class Y Shares. Class Y shares are offered only to certain
institutional investors that have special agreements with the Distributor.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
best suited to your needs depends on a number of factors that you should
discuss with your financial advisor. Some factors to consider are how much
you plan to invest and how long you plan to hold your investment. If your
goals and objectives change over time and you plan to purchase additional
shares, you should re-evaluate those factors to see if you should consider
another class of shares. The Fund's operating costs that apply to a class of
shares and the effect of the different types of sales charges on your
investment will vary your investment results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are
different. You should review these factors with your financial advisor. The
discussion below assumes that you will purchase only one class of shares, and
not a combination of shares of different classes.
|X| How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the appropriate
class of shares. Because of the effect of class-based expenses, your choice
will also depend on how much you plan to invest. For example, the reduced
sales charges available for larger purchases of Class A shares may, over
time, offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares of
Class B or Class C.
|_| Investing for the Short Term. If you have a relatively
short-term investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class A or
Class C shares rather than Class B shares. That is because of the effect of
the Class B contingent deferred sales charge if you redeem within six years,
as well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares might be
the appropriate choice (especially for investments of less than $100,000),
because there is no initial sales charge on Class C shares, and the
contingent deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge
available for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more
of Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less
than $100,000 for the longer-term, for example for retirement, and do not
expect to need access to your money for seven years or more, Class B shares
may be appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all
of the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders.
Other features (such as Automatic Withdrawal Plans) may not be advisable
(because of the effect of the contingent deferred sales charge) for Class B
or Class C shareholders. Therefore, you should carefully review how you plan
to use your investment account before deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are
not borne by Class A shares, such as the Class B and Class C asset-based
sales charge described below and in the Statement of Additional Information.
Share certificates are not available for Class B and Class C shares, and if
you are considering using your shares as collateral for a loan, that may be a
factor to consider.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares
than for selling another class. It is important to remember that Class B and
Class C contingent deferred sales charges and asset-based sales charges have
the same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by
the dealer or financial institution for its own account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement
of Additional Information details the conditions for the waiver of sales
charges that apply in certain cases, and the special sales charge rates that
apply to purchases of shares of the Fund by certain groups, or under
specified retirement plan arrangements or in other special types of
transactions.
How Can I Buy Class A Shares? Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales charge.
However, in some cases, described below, purchases are not subject to an
initial sales charge, and the offering price will be the net asset value. In
other cases, reduced sales charges may be available, as described below or in
the Statement of Additional Information. Out of the amount you invest, the
Fund receives the net asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated
to your dealer as commission. The Distributor reserves the right to reallow
the entire commission to dealers. The current sales charge rates and
commissions paid to dealers and brokers are as follows:
------------------------------------------------------------------------------
Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Offering Price
Amount Invested
------------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
------------------------------------------------------------------------------
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
------------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
------------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
------------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
------------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
------------------------------------------------------------------------------
|X| Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more of the
Oppenheimer funds aggregating $1 million or more or for certain purchases by
particular types of retirement plans described in Appendix C to the Statement
of Additional Information. The Distributor pays dealers of record
commissions in an amount equal to 1.0% of purchases of $1 million or more
other than by those retirement accounts. For those retirement plan accounts,
the commission is 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of purchases over $5 million, calculated on a calendar
year basis. In either case, the commission will be paid only on purchases
that were not previously subject to a front-end sales charge and dealer
commission.1
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called
the "Class A contingent deferred sales charge") may be deducted from the
redemption proceeds. That sales charge will be equal to 1.0% of the lesser
of (1) the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or
capital gain distributions) or (2) the original net asset value of the
redeemed shares. However, the Class A contingent deferred sales charge will
not exceed the aggregate amount of the commissions the Distributor paid to
your dealer on all purchases of Class A shares of all Oppenheimer funds you
made that were subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable
when shares are redeemed, the Fund will first redeem shares that are not
subject to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them. The Class A contingent deferred sales
charge is waived in certain cases described in Appendix C to the Statement of
Additional Information.
The Class A contingent deferred sales charge is not charged on
exchanges of shares under the Fund's exchange privilege (described below).
However, if the shares acquired by exchange are redeemed within 18 calendar
months of the end of the calendar month in which the exchanged shares were
originally purchased, then the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be
eligible to buy Class A shares at reduced sales charge rates under the Fund's
"Right of Accumulation" or a Letter of Intent, as described in "Reduced Sales
Charges" in the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and
contingent deferred sales charges are not imposed in the circumstances
described in Appendix C to the Statement of Additional Information. In order
to receive a waiver of the Class A contingent deferred sales charge, you must
notify the Transfer Agent when purchasing shares whether any of the special
conditions apply.
How Can I Buy Class B Shares? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales charge
will be deducted from the redemption proceeds. The Class B contingent
deferred sales charge is paid to compensate the Distributor for its expenses
of providing distribution-related services to the Fund in connection with the
sale of Class B shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the
original net asset value. The contingent deferred sales charge is not
imposed on:
|_| the amount of your account value represented by an increase in
net asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or capital
gains distributions, or
|_| shares redeemed in the special circumstances described in
Appendix C to the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 6 years, and
3. shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<PAGE>
------------------------------------------------------------------------------
Contingent Deferred Sales Charge on
Years Since Beginning of Month in Redemptions in That Year
Which (As % of Amount Subject to Charge)
Purchase Order was Accepted
------------------------------------------------------------------------------
0 - 1 5.0%
------------------------------------------------------------------------------
1 - 2 4.0%
------------------------------------------------------------------------------
2 - 3 3.0%
------------------------------------------------------------------------------
3 - 4 3.0%
------------------------------------------------------------------------------
4 - 5 2.0%
------------------------------------------------------------------------------
5 - 6 1.0%
------------------------------------------------------------------------------
6 and following None
------------------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the sales charge,
all purchases are considered to have been made on the first regular business
day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares
automatically convert to Class A shares 72 months after you purchase them.
This conversion feature relieves Class B shareholders of the asset-based
sales charge that applies to Class B shares under the Class B Distribution
and Service Plan, described below. The conversion is based on the relative
net asset value of the two classes, and no sales load or other charge is
imposed. When Class B shares convert, any other Class B shares that were
acquired by the reinvestment of dividends and distributions on the converted
shares will also convert to Class A shares. The conversion feature is subject
to the continued availability of a tax ruling described in the Statement of
Additional Information.
How Can I Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. The Class C
contingent deferred sales charge is paid to compensate the Distributor for
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the
original net asset value. The contingent deferred sales charge is not
imposed on:
|_| the amount of your account value represented by the increase in
net asset value over the initial purchase price,
|_| shares purchased by the reinvestment of dividends or capital
gains distributions, or
|_| shares redeemed in the special circumstances described in
Appendix C to the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 12 months, and
3. shares held the longest during the 12-month period.
Who Can Buy Class Y Shares? Class Y shares are sold at net asset value per
share without sales charge directly to certain institutional investors that
have special agreements with the Distributor for this purpose. They may
include insurance companies, registered investment companies and employee
benefit plans, for example. Massachusetts Mutual Life Insurance Company, an
affiliate of the Manager, may purchase Class Y shares of the Fund and other
Oppenheimer funds (as well as Class Y shares of funds advised by MassMutual)
for asset allocation programs, investment companies or separate investment
accounts it sponsors and offers to its customers. Individual investors are
not able to buy Class Y shares directly.
An institutional investor that buys Class Y shares for its customers'
accounts may impose charges on those accounts. The procedures for buying,
selling, exchanging and transferring the Fund's other classes of shares and
the special account features available to investors buying those other
classes of shares do not apply to Class Y shares. An exception is that the
time those orders must be received by the Distributor or its agents or by the
Transfer Agent is the same for Class Y as for other share classes. However,
those instructions must be submitted by the institutional investor, not by
its customers for whose benefit the shares are held.
Distribution and Service (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares. It reimburses the Distributor for a portion of its
costs incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Class A shares of the Fund. The Distributor
currently uses all of those fees to pay dealers, brokers, banks and other
financial institutions quarterly for providing personal service and
maintenance of accounts of their customers that hold Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate the Distributor for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the
plans, the Fund pays the Distributor an annual asset-based sales charge of
0.75% per year on Class B shares and on Class C shares. The Distributor also
receives a service fee of 0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may cost
you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or Class C
shares. The Distributor pays the 0.25% service fees to dealers in advance
for the first year after the shares were sold by the dealer. After the
shares have been held for a year, the Distributor pays the service fees to
dealers on a quarterly basis.
The Distributor currently pays sales commission of 3.75% of the
purchase price of Class B shares to dealers from its own resources at the
time of sale. Including the advance of the service fee, the total amount
paid by the Distributor to the dealer at the time of sale of Class B shares
is therefore 4.00% of the purchase price. The Distributor retains the Class
B asset-based sales charge.
The Distributor currently pays sales commissions of 0.75% of the
purchase price of Class C shares to dealers from its own resources at the
time of sale. Including the advance of the service fee, the total amount
paid by the Distributor to the dealer at the time of sale of Class C shares
is therefore 1.00% of the purchase price. The Distributor pays the
asset-based sales charge as an ongoing commission to the dealer on Class C
shares that have been outstanding for a year or more.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone
(through a service representative or by PhoneLink) or automatically
under Asset Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit
dividends and distributions directly to your bank account. Please call
the Transfer Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer.
After your account is established, you can request AccountLink privileges by
sending signature-guaranteed instructions to the Transfer Agent. AccountLink
privileges will apply to each shareholder listed in the registration on your
account as well as to your dealer representative of record unless and until
the Transfer Agent receives written instructions terminating or changing
those privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-guaranteed
instructions to the Transfer Agent signed by all shareholders who own the
account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number, 1-800-533-3310.
|X| Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund to pay for
these purchases.
|X| Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already established
by calling the special PhoneLink number.
|X| Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds directly
to your AccountLink bank account. Please refer to "How to Sell Shares," below
for details.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions may be
handled this way. Transaction requests submitted by fax are subject to the
same rules and restrictions as written and telephone requests described in
this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the
Fund, as well as your account balance, on the OppenheimerFunds Internet web
site, at http://www.oppenheimerfunds.com. Additionally, shareholders listed
in the account registration (and the dealer of record) may request certain
account transactions through a special section of that web site. To perform
account transactions, you must first obtain a personal identification number
(PIN) by calling the Transfer Agent at 1-800-533-3310. If you do not want to
have Internet account transaction capability for your account, please call
the Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis. Please call the Transfer Agent
or consult the Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class
B shares on which you paid a contingent deferred sales charge when you
redeemed them. This privilege does not apply to Class C or Class Y shares.
You must be sure to ask the Distributor for this privilege when you send your
payment.
Retirement Plans. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be
used by individuals and employers:
|X| Individual Retirement Accounts (IRAs), including regular IRAs, Roth
IRAs, SIMPLE IRAs, rollover and Education IRAs.
|X| SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for
small business owners or self-employed individuals.
|X| 403(b)(7) Custodial Plans, that are tax deferred plans for
employees of eligible tax-exempt organizations, such as schools, hospitals
and charitable organizations.
|X| 401(k) Plans, which are special retirement plans for businesses.
|X| Pension and Profit-Sharing Plans, designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular
business day. Your shares will be sold at the next net asset value
calculated after your order is received in proper form (which means that it
must comply with the procedures described below) and is accepted by the
Transfer Agent. The Fund lets you sell your shares by writing a letter or by
telephone. You can also set up Automatic Withdrawal Plans to redeem shares
on a regular basis. If you have questions about any of these procedures, and
especially if you are redeeming shares in a special situation, such as due to
the death of the owner or from a retirement plan account, please call the
Transfer Agent first, at 1-800-525-7048, for assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, the following redemption requests must be in writing and
must include a signature guarantee (although there may be other situations
that also require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check
|_| The redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial institutions,
including: a U.S. bank, trust company, credit union or savings association,
or by a foreign bank that has a U.S. correspondent bank, or by a U.S.
registered dealer or broker in securities, municipal securities or government
securities, or by a U.S. national securities exchange, a registered
securities association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business or as a fiduciary, you must also
include your title in the signature.
|X| Retirement Plan Accounts. There are special procedures to sell
shares in an OppenheimerFunds retirement plan account. Call the Transfer
Agent for a distribution request form. Special income tax withholding
requirements apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting your
money and if you do not want tax withheld. If your employer holds your
retirement plan account for you in the name of the plan, you must ask the
plan trustee or administrator to request the sale of the Fund shares in your
plan account.
|X| Sending Redemption Proceeds by Wire. While the Fund normally sends
your money by check, you can arrange to have the proceeds of the shares you
sell sent by Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The
minimum redemption you can have sent by wire is $2,500. There is a $10 fee
for each wire. To find out how to set up this feature on your account or to
arrange a wire, call the Transfer Agent at 1-800-852-8457.
How Do I Sell Shares by Mail? Write a letter of instructions that includes:
|_| Your name
|_| The Fund's name
|_| Your Fund account number (from your account statement)
|_| The dollar amount or number of shares to be redeemed
|_| Any special payment instructions
|_| Any share certificates for the shares you are selling
|_| The signatures of all registered owners exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure
proper authorization of the person asking to sell the shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
Send courier or express mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell Shares by Telephone? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is normally
4:00 P.M., but may be earlier on some days. You may not redeem shares held
in an OppenheimerFunds retirement plan account or under a share certificate
by telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone in any 7-day period. The check must be payable to all owners of
record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the
address on an account.
|X| Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are waiting
to be transferred.
Can I Sell Shares Through My Dealer? The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. If your shares
are held in the name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available for sale
in your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them. After the account is open 7
days, you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example, you
can exchange Class A shares of this Fund only for Class A shares of another
fund. In some cases, sales charges may be imposed on exchange transactions.
For tax purposes, exchanges of shares involve a sale of the shares of the
fund you own and a purchase of the shares of the other fund, which may result
in a capital gain or loss. Please refer to "How to Exchange Shares" in the
Statement of Additional Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the Transfer
Agent at the address on the back cover. Exchanges of shares held under
certificates cannot be processed unless the Transfer Agent receives the
certificates with the request.
|X| Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457, or by
using PhoneLink for automated exchanges by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain one by calling
a service representative at 1-800-525-7048. That list can change from time
to time.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on
which the Transfer Agent receives an exchange request that conforms to the
policies described above. It must be received by the close of The New York
Stock Exchange that day, which is normally 4:00 P.M. but may be earlier on
some days. However, either fund may delay the purchase of shares of the fund
you are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day exchange. For example, the receipt of multiple
exchange requests from a "market timer" might require the Fund to sell
securities at a disadvantageous time or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
it believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
|_| The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever it
is reasonably able to do so, it may impose these changes at any time.
|_| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange
will be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying,
selling, and exchanging shares is contained in the Statement of Additional
Information.
|X| The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may be
suspended by the Board of Directors at any time the Board believes it is in
the Fund's best interest to do so.
|X| Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time.
If an account has more than one owner, the Fund and the Transfer Agent may
rely on the instructions of any one owner. Telephone privileges apply to each
owner of the account and the dealer representative of record for the account
unless the Transfer Agent receives cancellation instructions from an owner of
the account.
|X| The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time to
time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
|X| Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions, and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction erroneously
or improperly.
|X| The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates. The
redemption price, which is the net asset value per share, will normally
differ for each class of shares. The redemption value of your shares may be
more or less than their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink or by Federal Funds wire (as
elected by the shareholder) within seven days after the Transfer Agent
receives redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission, payment
may be delayed or suspended. For accounts registered in the name of a
broker-dealer, payment will normally be forwarded within three business days
after redemption.
|X| The Transfer Agent may delay forwarding a check or processing a
payment via AccountLink for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days from the
date the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank to
provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund
if the account has fewer than 100 shares. In some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such
as a lack of liquidity in the Fund's portfolio to meet redemptions). This
means that the redemption proceeds will be paid with liquid securities from
the Fund's portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund your correct, certified Social
Security or Employer Identification Number when you sign your application, or
if you under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048 to
ask that copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis and to pay them to
shareholders in December on a date selected by the Board of Directors.
Dividends and distributions paid on Class A and Class Y shares will generally
be higher than dividends for Class B and Class C shares, which normally have
higher expenses than Class A and Class Y. The Fund has no fixed dividend rate
and cannot guarantee that it will pay any dividends or distributions.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term
or long-term capital gains in December of each year. The Fund may make
supplemental distributions of dividends and capital gains following the end
of its fiscal year. There can be no assurance that the Fund will pay any
capital gains distributions in a particular year.
What Choices Do I Have for Receiving Distributions? When you open your
account, specify on your application how you want to receive your dividends
and distributions. You have four options:
|X| Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional shares
of the Fund.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends
by check or having them sent to your bank account through AccountLink.
|X| Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state
or local taxes. Dividends paid from short-term capital gains and net
investment income are taxable as ordinary income. Long-term capital gains
are taxable as long-term capital gains when distributed to shareholders. It
does not matter how long you have held your shares. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information
the Fund sends you after the end of the calendar year.
|X| Avoid "Buying a Dividend". If you buy shares on or just before the
ex-dividend date or just before the Fund declares a capital gain
distribution, you will pay the full price for the shares and then receive a
portion of the price back as a taxable dividend or capital gain.
|X| Remember, There May Be Taxes on Transactions. Because the Fund's
share price fluctuates, you may have a capital gain or loss when you sell or
exchange your shares. A capital gain or loss is the difference between the
price you paid for the shares and the price you received when you sold them.
Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. In certain cases, distributions made
by the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser about the
effect of an investment in the Fund on your particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, the Fund's
independent auditors, whose report, along with the Fund's financial
statements, is included in the Statement of Additional Information, which is
available on request.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Class A
------------------------------------------------------------------
Year Ended October 31, Year Ended December 31,
1998 1997 1996(/4/) 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value,
beginning of period $23.31 $19.65 $17.84 $14.20 $15.14 $14.20
- ---------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .23(/5/) .15 .25 .22 .30
Net realized and
unrealized gain (loss) .32 4.91(/5/) 1.88 4.88 (.32) 2.64
------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations .48 5.14 2.03 5.13 (.10) 2.94
- ---------------------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.12) (.07) (.10) (.25) (.22) (.30)
Distributions from net
realized gain (2.76) (1.41) (.12) (1.24) (.62) (1.70)
------ ------ ------ ------ ------ ------
Total dividends and
distributions to
shareholders (2.88) (1.48) (.22) (1.49) (.84) (2.00)
- ---------------------------------------------------------------------------------------------
Net asset value, end of
period $20.91 $23.31 $19.65 $17.84 $14.20 $15.14
====== ====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------
Total Return, at Net
Asset Value(/6/) 2.24% 27.60% 11.41% 36.40% (0.65)% 20.91%
- ---------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of
period (in thousands) $456,264 $371,810 $180,784 $118,118 $78,390 $64,495
- ---------------------------------------------------------------------------------------------
Average net assets (in
thousands) $442,138 $234,314 $135,940 $ 98,063 $71,956 $54,682
- ---------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 0.84% 1.05% 1.01%(/7/) 1.53% 1.50% 1.95%
Expenses 0.98% 1.07% 1.13%(/7/) 1.22% 1.02% 1.05%
- ---------------------------------------------------------------------------------------------
Portfolio turnover
rate(/8/) 106.3% 103.1% 73.9% 69.7% 98.5% 99.7%
</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.
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.
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.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Class B
(continued) ------------------------------------------------
Period Ended
Year Ended October 31, December 31,
1998 1997 1996(/4/) 1995(/3/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning
of period $23.32 $19.77 $18.08 $17.83
- -------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .02 .09(/5/) .05 .02
Net realized and
unrealized gain (loss) .30 4.91(/5/) 1.83 1.40
----- ------ ------ ------
Total income (loss) from
investment operations .32 5.00 1.88 1.42
- -------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.05) (.04) (.07) (.02)
Distributions from net
realized gain (2.76) (1.41) (.12) (1.15)
------ ------ ------ ------
Total dividends and
distributions to
shareholders (2.81) (1.45) (.19) (1.17)
- -------------------------------------------------------------------------------
Net asset value, end of
period $20.83 $23.32 $19.77 $18.08
====== ====== ====== ======
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(/6/) 1.47% 26.61% 10.43% 8.04%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $123,260 $83,291 $5,854 $717
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $110,240 $30,019 $2,903 $306
- -------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 0.08% 0.22% 0.22%(/7/) 0.21%(/7/)
Expenses 1.73% 1.84% 1.88%(/7/) 1.97%(/7/)
- -------------------------------------------------------------------------------
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.
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.
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.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights Class C Class Y
(continued) ---------------------------- ------------------------
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>
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.
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.
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.
<PAGE>
For More Information About Oppenheimer Disciplined Value Fund:
The following additional information about the Fund is available without
charge upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into
this Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is
available in the Fund's Annual and Semi-Annual Reports to shareholders.
The Annual Report includes a discussion of market conditions and
investment strategies that significantly affected the Fund's performance
during its last fiscal year.
- ---------------------------------------------------------------------------
How to Get More Information:
- ---------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and
other Fund documents and reports by visiting the SEC's Public Reference
Room in Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web
site at http://www.sec.gov. Copies may be obtained upon payment of a
duplicating fee by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or
to make any representations about the Fund other than what is contained
in this Prospectus. This Prospectus is not an offer to sell shares of the
Fund, nor a solicitation of an offer to buy shares of the Fund, to any
person in any state or other jurisdiction where it is unlawful to make
such an offer.
The Fund's shares are distributed by:
SEC File No. 811-3346
PR0375.0298 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Disciplined Value Fund
Graphic material included in the Prospectus of Oppenheimer Disciplined
Value Fund (the "Fund") under the heading: "Annual Total Returns (Class A)(as
of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund (the "Fund")
depicting the annual total returns of a hypothetical investment in Class A
shares of the Fund for each of the ten most recent calendar years, without
deducting sales charges. Set forth below are the relevant data points that
will appear in the bar chart:
- -----------------------------------------------------------
Calendar Year Ended Annual Total Return
12/31
- -----------------------------------------------------------
1989 34.86%
- -----------------------------------------------------------
1990 -7.98%
- -----------------------------------------------------------
1991 36.91%
- -----------------------------------------------------------
1992 11.99%
- -----------------------------------------------------------
1993 20.91%
- -----------------------------------------------------------
1994 -0.65%
- -----------------------------------------------------------
1995 36.40%
- -----------------------------------------------------------
1996 18.38%
- -----------------------------------------------------------
1997 24.00%
- -----------------------------------------------------------
1998 8.54%
- -----------------------------------------------------------
- --------
1 No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
<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
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..
The Fund's Investment Policies.....................................
Other Investment Techniques and Strategies.........................
Investment Restrictions............................................
How the Fund is Managed ...............................................
Organization and History...........................................
Directors and Officers.............................................
The Manager........................................................
Brokerage Policies of the Fund.........................................
Distribution and Service Plans.........................................
Performance of the Fund................................................
About Your Account
How To Buy Shares......................................................
How To Sell Shares.....................................................
How To Exchange Shares.................................................
Dividends, Capital Gains and Taxes.....................................
Additional Information About the Fund..................................
Financial Information About the Fund
Independent Auditors' Report...........................................
Financial Statements...................................................
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Corporate Industry Classifications......................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
<PAGE>
- ------------------------------------------------------------------------------
ABOUT THE FUND
- ------------------------------------------------------------------------------
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.
|X| 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.
|X| 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.
|X| 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.
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.
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.
"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.
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.
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.
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.
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.
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.
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
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.
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."
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
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.
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.
|_| The Fund cannot buy securities of an issuer if as a result of such
purchase, the Fund would hold more than 10% of the outstanding voting securities
of that issuer.
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
funds4:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Developing Markets Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Discovery Fund Oppenheimer Multi-Sector Income Trust
Oppenheimer Enterprise 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 Fund Oppenheimer Series Fund, Inc.
Oppenheimer Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer World Bond Fund
Oppenheimer International Small Company
Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Bowen, 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.
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).
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.
George C. Bowen, Treasurer, Age 62
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985)
of the Manager; Vice President (since June 1983) and Treasurer (since March
1985) of the Distributor; Vice President (since October 1989) and Treasurer
(since April 1986) of HarbourView Asset Management Corp.; Senior Vice
President (since February 1992), Treasurer (since July 1991) and a director
(since December 1991) of Centennial Asset Management Corp.; Vice President
and Treasurer (since August 1978) and Secretary (since April 1981) of
Shareholder Services, Inc.; Vice President, Treasurer and Secretary of
Shareholder Financial Services, Inc. (since November 1989); Assistant
Treasurer of Oppenheimer Acquisition Corp. (since March 1998); Treasurer of
Oppenheimer Partnership Holdings, Inc. (since November 1989); Vice President
and Treasurer of Oppenheimer Real Asset Management, Inc. (since July 1996);
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); a trustee or director and an officer of other
Oppenheimer funds; formerly Treasurer of Oppenheimer Acquisition Corp. (June
1990 - March 1998).
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 $6,973 $3,185 $140,550
Study Committee
Chairman,
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 $2,420 None $89,800
Proxy Committee
Chairman, Audit
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 $None $67,200
Proxy Committee Member
------------------------------------------------------------------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Director.
2 For the 1998 calendar year.
3 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.
4 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.
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.
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.
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 $2,003,638 3
------------------------------------------------------------------------------
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 $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 Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class C
Year Sales Sales Shares Shares Shares
Ended Charges on Charges Advanced by Advanced by Advanced by
10/31: Class A Retained by Distributor1 Distributor1 Distributor1
Shares Distributor
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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
Year Class A Contingent Class B Contingent Class C Contingent
Ended Deferred Sales Deferred Sales Deferred Sales Charges
10/31 Charges Retained by Charges Retained by Retained by Distributor
Distributor 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 Directors5, 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.
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 Average Annual Total Returns
Total
Returns (10
years
Class of or Life of
Shares Class)
- -------------------------------------------------------------------------------
5-Year 10-Year
1-Year (or (or
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.
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.
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.
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.
- ------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
- ------------------------------------------------------------------------------
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.
[_] 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 Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer California Municipal 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 Equity Income Fund Oppenheimer Large Cap Growth 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.
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.
/s/ KPMG PEat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
November 20, 1998
<PAGE>
Financials
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
<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
<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
<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
<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.
<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>
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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>
<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.
<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.
<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.
<PAGE>
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>
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
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 - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
Appendix C
- ------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- ------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares 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 the Distributor
or the dealers or other financial institutions offering those shares to
certain classes of investors or in certain transactions.
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 plans1
(10) Group Retirement Plans2
(11) 403(b)(7) custodial plan accounts
(12) SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
waiver in a particular case is determined solely by the Distributor or the
Transfer Agent of the fund. These waivers and special arrangements may be
amended or terminated at any time by the applicable Fund and/or the
Distributor. Waivers that apply at the time shares are redeemed must be
requested by the shareholder and/or dealer in the redemption request.
- --------------
1 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.
2 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.
- ------------------------------------------------------------------------------
<PAGE>
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 these purchases the
Distributor will pay the applicable commission described in the Prospectus
under "Class A Contingent Deferred Sales Charge":
o Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan that:
(4) buys shares costing $500,000 or more, or
(5) has, at the time of purchase, 100 or more eligible participants 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:
(4) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(5) 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:
(3) 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").
(4) 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).
- ------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
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.
|_| 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.
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 and paid for with the proceeds of shares redeemed
in the prior 30 days from a mutual fund (other than a fund managed by the
Manager or any of its subsidiaries) on which an initial sales charge or
contingent deferred sales charge was paid. This waiver also applies to shares
purchased by exchange of shares of Oppenheimer Money Market Fund, Inc. that
were purchased and paid for in this manner. This waiver must be requested
when the purchase order is placed for 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.
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 original account value.
|_| Involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules and
Policies," in the Prospectus).
|_| For distributions 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.
(14) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code.
(15) To meet the minimum distribution requirements of the Internal Revenue
Code.
(16) To establish "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(17) For retirement distributions or loans to participants or beneficiaries.
(18) Separation from service.
(10)Participant-directed redemptions to purchase shares of a mutual
fund other than a fund managed by the Manager or a subsidiary.
The fund must be one that is offered as an investment option in a
Retirement Plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor.
(11) Plan termination or "in-service distributions," if the
redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers
that have entered into a special agreement with the Distributor allowing this
waiver.
- ------------------------------------------------------------------------------
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.
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.
|_| Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(c) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the
account value annually (measured from the date the Transfer Agent
receives the request), or
(d) following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability
must have occurred after the account was established).
|_| 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.
|_| Returns of excess contributions to Retirement Plans.
|_| Distributions from Retirement Plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date
the Transfer Agent receives the request.
|_| Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(7) for hardship withdrawals;
(8) under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code;
(9) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(10) to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code;
(11) for separation from service; or
(12) for loans to participants or beneficiaries.
|_| Distributions from 401(k) plans sponsored by broker-dealers that
have 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.
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.
- ------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of the Former Quest for Value Funds
- ------------------------------------------------------------------------------
The initial and contingent deferred sales charge rates and waivers for
Class A, Class B and Class C shares 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 Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund,
Oppenheimer Quest Small Cap Value Fund and
Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds
when they merged into various Oppenheimer funds on November 24, 1995:
Quest for Value U.S. Government Income Fund,
Quest for Value Investment Quality Income Fund,
Quest for Value Global Income Fund,
Quest for Value New York Tax-Exempt Fund,
Quest for Value National Tax-Exempt Fund and
Quest for Value California Tax-Exempt Fund
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.
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.
<PAGE>
- -------------------------------------------------------------------------------
Number of Initial Sales Initial Sales
Eligible Employees Charge Charge Commission as %
or Members as a % of as a % of Net of Offering Price
Offering Price Amount Invested
- -------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- -------------------------------------------------------------------------------
At least 10 but
not more than 49 2.00% 2.04% 1.60%
- -------------------------------------------------------------------------------
For purchases by 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.
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.
- ------------------------------------------------------------------------------
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 Prospectus or this Appendix
for Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below
for those shareholders who were shareholders of Connecticut Mutual Liquid
Account, Connecticut Mutual Government Securities Account, Connecticut Mutual
Income Account, Connecticut Mutual Growth Account, Connecticut Mutual Total
Return Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan
Balanced Account and CMIA Diversified Income Account (the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of
a Fund and the other Former Connecticut Mutual Funds are entitled to continue
to make additional purchases of Class A shares at net asset value without a
Class A initial sales charge, but subject to the Class A contingent deferred
sales charge that was in effect prior to March 18, 1996 (the "prior Class A
CDSC"). Under the prior Class A CDSC, if any of those shares are redeemed
within one year of purchase, they will be assessed a 1% contingent deferred
sales charge on an amount equal to the current market value or the original
purchase price of the shares sold, whichever is smaller (in such redemptions,
any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(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.
|_| 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) any purchaser, provided the total initial amount invested in the Fund
or any one or more of the Former Connecticut Mutual Funds totaled
$500,000 or more, including investments made pursuant to the
Combined Purchases, Statement of Intention and Rights of
Accumulation features available at the time of the initial purchase
and such investment is still held in one or more of the Former
Connecticut Mutual Funds or a Fund into which such Fund merged;
(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.
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) 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
(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.
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Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
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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%.
<PAGE>
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Oppenheimer Disciplined Value Fund
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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
PX375.0298
