(OppenheimerFunds logo)
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Oppenheimer Total Return Fund, Inc.
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Prospectus dated April 30, 1999
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Oppenheimer Total Return Fund is a mutual fund that seeks high total return,
which includes capital appreciation in the value of its shares as well as
income. The Fund invests mainly in equity securities and also buys debt
securities.
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.
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.
Contents
About the Fund
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3 The Fund's Objective and Investment Strategies
4 Main Risks of Investing in the Fund
7 The Fund's Past Performance
8 Fees and Expenses of the Fund
9 About the Fund's Investments
14 How the Fund is Managed
About Your Account
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14 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
23 Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
25 How to Sell Shares
By Mail
By Telephone
27 How to Exchange Shares
28 Shareholder Account Rules and Policies
30 Dividends, Capital Gains and Taxes
31 Financial Highlights
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139
A B O U T T H E F U N D
The Fund's Objective and Investment Strategies
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What Is the Fund's Investment Objective? The Fund seeks high total return.
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What Does the Fund Invest In? The Fund's investments mainly include equity
securities to seek capital appreciation and also include debt securities to seek
income. At times the Fund may pursue its goal by emphasizing investments that
offer opportunities for capital growth, primarily equity securities such as
common stocks, preferred stocks and securities convertible into common stocks.
Most of the Fund's equity investments are common stocks. At other times the Fund
may pursue its goal by increasing its emphasis on investments that offer income,
mainly stocks that pay dividends or debt securities such as corporate bonds,
notes and debentures and U.S. government securities.
What is "Total Return?" Total return is the change in the value of your
investment in the Fund over time, from any copital appreciation and the
reinvestment of dividends and distributions the Fund pays.
The Fund does not allocate its investments among equity and debt
securities in any fixed ratio, and the relative allocation will vary over time,
depending on where the best opportunities are to pursue total return according
to the judgment of the Fund's investment Manager, OppenheimerFunds, Inc. While
the Fund does not limit its investments to securities of issuers in a particular
capitalization range or ranges, the Fund's equity investments mainly are in
medium and large capitalization issuers. The Fund can buy foreign securities,
but currently emphasizes investments in U.S. securities.
The Fund's investments in debt securities, including convertible debt
securities, can be either investment-grade or below investment-grade (these are
sometimes called "junk bonds"), and can have short-, medium- or long-term
maturities. The Fund uses short-term debt securities for cash management as well
as temporary defensive purposes.
The Fund can also use hedging instruments, such as options, and certain
derivative investments, such as structured notes, to try to increase income or
manage investment risks. These investments are more fully explained in "About
the Fund's Investments," below.
n 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
an investment process that combines both "value" and "growth" investment styles.
They use a value strategy to find issuers whose securities are believed to be
undervalued in the marketplace, in relation to factors such as the ratio of the
stock's price to the issuer's earnings. A lower price/earnings ratio would
suggest an undervalued stock. A growth investing style encompasses a search for
companies whose stock price is expected to increase at a greater rate than the
overall market. These issuers may be entering a growth phase, marked by
increases in earnings, sales, cash flows, or other factors, which suggest that
the stock may increase in value over time.
The portfolio managers construct the portfolio using a "bottom up"
approach, focused on the fundamental prospects of individual companies and
issuers, rather than on broad economic trends affecting entire markets and
industries. 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 selection process currently employs the following techniques and
considerations: o Selecting individual stocks for relative attractiveness by
analyzing
fundamental stock and company characteristics.
o Looking for growth stocks having high earnings potential and earnings
and sales momentum.
o Selecting dividend-paying common stocks of established companies for
income.
o Finding convertible bonds to take advantage of the stock market's
growth potential while providing income as a hedge against market
volatility.
o Maintaining a longer time horizon (three to five years) in considering
stocks for investment.
o Monitoring individual issuers for changes in profit margins or slowing
revenues that might affect future cash flows or growth and might
trigger a decision to sell the security.
Who Is the Fund Designed For? The Fund is designed primarily for investors
seeking total investment return from capital appreciation and income 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
having substantial investments in stocks. Since the Fund's income level will
fluctuate, it is not designed for investors needing an assured level of current
income. Because of its focus on long-term growth, the Fund may be appropriate
for retirement plans. 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 bond and stock market movements (this is
referred to as "market risk"), or the change in value of particular stocks or
bonds because of an event affecting the issuer (in the case of bonds, this is
known as "credit risk"). Lower-grade high-yield bonds are subject to greater
risks of default than investment-grade bonds.
At times, the Fund may increase the relative emphasis of its investments
in a particular industry compared to the weighting of that industry in the S&P
500 Index, which the Fund uses as a performance benchmark. Therefore, it may be
subject to the risks that economic, political or other events can have a
negative effect on the values of securities of issuers in that particular
industry (this is referred to as "industry risk"). 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 percentage of the stock of any one company
and by not investing too great a percentage of the Fund's assets in any one
company. Also, the Fund does not concentrate 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.
n Risks of Investing in Stocks. Stocks fluctuate in price, and their short-term
volatility at times may be great. Because the Fund typically invests a
substantial portion of its assets in common stocks and other equity securities,
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 focuses its stock investments
in U.S. issuers, it will be primarily affected by changes in U.S.
stock markets.
Additionally, stocks of issuers in a particular industry may be affected
by changes in economic conditions, or by changes in government regulations,
availability of basic resources or supplies, or other events that affect that
industry more than others. To the extent that the Fund increases 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- and medium-size companies but it can also buy
stocks of small companies, which may have more volatile stock prices than stocks
of larger 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 might be reduced, and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might 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.
|_| Special Risks of Lower-Grade Securities. 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 (commonly called "junk bonds") may be subject
to greater market fluctuations and greater risks of loss of income and principal
than investment-grade 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. These risks can reduce the
Fund's share prices and the income it earns.
|X| 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| 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, interest rate swaps and structured notes 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. Also, the underlying security or investment on
which the derivative is based, and the derivative itself, might not perform the
way the Manager expected it to perform. If that happens, the Fund's share prices
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.
How Risky is the Fund Overall? The Fund invests in both equity and debt
securities for total return. 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'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 and
can change in value when interest rates change. In the OppenheimerFunds
spectrum, the Fund may be less volatile than funds that invest only in stocks,
but may be more volatile than funds that focus on government securities and
investment-grade bond funds.
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]
For the period from 1/1/99 through 3/31/99, the cumulative return (not
annualized) for Class A shares was 3.27%. 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 18.30%
(4Q'98) and the lowest return (not annualized) for a calendar quarter was
- -11.43% (3Q'90).
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Average Annual Total 5 Years 10 Years
Returns for the periods (or life of (or life of
ended December 31, 1998 1 Year class, if less) class, if less)
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Class A Shares 14.19% 15.87% 16.13%
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S&P 500 Index 28.60% 24.05% 19.19%
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Class B Shares 15.25% 16.05% 16.66%
(inception: 5/3/93)
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S&P 500 Index 28.60% 24.05% 22.60%*
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Class C Shares 19.20% 22.32% N/A
(inception: 8/29/95)
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S&P 500 Index 28.60% 28.91%* N/A
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Class Y Shares 21.33% 20.38% N/A
(inception: 6/1/94)
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S&P 500 Index 28.60% 26.73%* N/A
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* The "life-of-class" index performance is shown from 4/30/93 for Class B,
8/31/95 for Class C and 5/31/94 for Class Y. The Fund's average annual total
returns in the table include the applicable sales charge for Classes A, B and C
shares: for Class A, the current maximum initial sales charge of 5.75%; for
Class B, the contingent deferred sales charges of 5% (1-year), 2% (5 years) and
1% (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, it must be remembered
that the index performance reflects the reinvestment of income but does not
consider the effects of transaction costs, and the index does not measure the
performance of debt securities.
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
December 31, 1998.
<PAGE>
Shareholder Fees (charges paid directly from your investment):
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Class A Class C Class Y
Shares Class B Shares Shares Shares
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Maximum Sales Charge
(Load) on purchases
(as % of offering 5.75% None None None
price)
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Maximum Deferred
Sales Charge (Load)
(as % of the lower of
the original offering None1 5%2 1%3 None
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 Class B Class C Class Y
Shares Shares Shares Shares
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Management Fees 0.52% 0.52% 0.52% 0.52%
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Distribution and/or 0.19% 1.00% 1.00% None
Service (12b-1) Fees
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Other Expenses 0.15% 0.15% 0.15% 0.28%
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Total Annual Operating 0.86% 1.67% 1.67% 0.80%
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 $658 $834 $1,024 $1,575
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Class B Shares $670 $826 $1,107 $1,562
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Class C Shares $270 $526 $907 $1,976
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Class Y Shares $82 $255 $444 $990
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<PAGE>
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If shares are not
redeemed: 1 Year 3 Years 5 Years 10 Years1
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Class A Shares $658 $834 $1,024 $1,575
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Class B Shares $170 $526 $907 $1,562
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Class C Shares $170 $526 $907 $1,976
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Class Y Shares $82 $255 $444 $990
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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.
n Stocks and Other Equity Investments. Equity securities include common
stocks, preferred stocks and debt securities convertible into common stock. The
Fund's equity investments can include interests in real estate investment
trusts. Those securities may be sensitive to changes in interest rates, and
because the real estate market can be very volatile at times, the prices of
those securities may change substantially. Because total return has two
components, capital appreciation and income, the Manager might select stocks
that offer the potential for either or both of those elements.
While many convertible securities are debt securities, the Manager
considers some of them to be "equity equivalents" because of the conversion
feature. In that case their rating has less impact on the investment decision
than in the case of other debt securities. However, they are subject to credit
risks, discussed below in "Debt Securities," and interest rate risk. These
securities might be selected for the Fund because they offer the ability to
participate in stock market movements while offering some current income.
Preferred stocks, while a form of equity security, typically have a fixed
dividend that may cause their prices to behave more like those of debt
securities.
o Growth Stocks. The types of growth companies the Manager focuses
on are larger, more established growth companies. Growth companies, for example,
may be developing new products or services, such as companies in the technology
sector, or they may be expanding into new markets for their products, such as
companies in the energy sector. Newer growth companies tend to retain a large
part of their earnings for research, development or investment in capital
assets. Therefore, they do not tend to emphasize paying dividends and may not
pay any dividends for some time. If they are selected for the Fund's portfolio,
it is because the Manager believes the price of the stock will increase over
time.
|_| Value Stocks. These are stocks that appear to be temporarily
undervalued, by various measures such as price/earnings ratios. Value investing
seeks stocks with prices that are low relative to their real worth or future
prospects. The hope is that the Fund will realize appreciation in the value of
its holdings when other investors realize the intrinsic value of the stock.
However, there is the risk that the stock will not appreciate in value as
anticipated.
n Debt Securities. The Fund's investments in debt securities include
securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities, and foreign and domestic corporate bonds, notes and
debentures. These are selected primarily for their income possibilities and to
help cushion fluctuations in the Fund's net asset value.
A debt security is essentially a loan by the buyer to the issuer of the
debt security. The issuer promises to pay back the principal amount of the loan
and normally pays interest at a fixed or variable rate while the loan is
outstanding. The debt securities the Fund buys may be rated by
nationally-recognized rating organizations such as Moody's Investors Services or
Standard & Poor's Ratings Service or they may be unrated securities assigned an
equivalent rating by the Manager. The Fund's investments may be above or below
investment grade in credit quality.
o Special Risks of Lower-Grade Securities. All corporate debt
securities (whether foreign or domestic) are subject to some degree of credit
risk. The Fund can invest without limit in "lower-grade" securities, commonly
known as "junk bonds." These are securities rated below "BBB" by Standard &
Poor's or "Baa" by Moody's, or unrated securities assigned a comparable rating
by the Manager. However, the Fund currently does not invest a substantial amount
of its assets in lower-grade securities, including convertible debt securities.
While investment-grade securities are subject to risks of non-payment of
interest and principal, in general high-yield, lower-grade bonds, whether rated
or unrated, have greater risks 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. These risks mean that the Fund may not achieve the expected
income from lower-grade securities, and that the Fund's net asset value per
share could be affected by declines in the value of these securities.
o U.S. Government Securities. The Fund can invest in securities
issued or guaranteed by the U.S. Treasury or other U.S. government agencies or
federally-chartered corporate entities referred to as "instrumentalities." These
are referred to as "U.S. government securities" in this Prospectus. They include
Treasury bills (having maturities of one year or less when issued), Treasury
notes (having maturities of from one to ten years when issued), and Treasury
bonds (having 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 repayment of principal. The Fund
can buy U. S. Treasury securities that have been "stripped" of their interest
coupons 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 prior to their
maturity are subject to interest rate risk.
n 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 fundamental policy. 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.
n Portfolio Turnover. The Fund may engage in short-term trading to try to
achieve its objective. It might have a turnover rate in excess of 100% annually.
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 at the end of this Prospectus 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| 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.
Zero-coupon and stripped securities are subject to greater fluctuations in price
from interest rate changes than interest-bearing securities. The Fund may have
to pay out the imputed income on zero-coupon securities without receiving the
actual cash currently. Interest-only securities are particularly sensitive to
changes in interest rates.
n Foreign Investing. The Fund can buy securities of companies or
governments in any country, developed or underdeveloped. However, the Fund does
not expect to invest significant amounts of its assets in emerging markets.
While there is no limit on the amount of the Fund's assets that may be invested
in foreign securities, the Manager does not currently plan to invest a
substantial amount of the Fund's assets in foreign securities.
o Special Risks of Foreign Investing. While foreign securities offer
special investment opportunities, there are also special risks, such as 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. Foreign issuers are not subject to the same accounting
and disclosure requirements that U.S. companies are subject to. The value of
foreign investments may be affected by exchange control regulations,
expropriation or nationalization of a company's assets, foreign taxes, delays in
settlement of transactions, changes in governmental economic or monetary policy
in the U.S. or abroad, or other political and economic factors.
n Illiquid and Restricted Securities. Investments may be illiquid because
they have no active trading market, making it difficult to value them or dispose
of them promptly at an acceptable price. A restricted security is one that has a
contractual restriction on its resale or which cannot be sold publicly until it
is registered under the Securities Act of 1933. The Fund will not invest more
than 10% of its net assets in illiquid or restricted securities (the Board can
increase that limit to 15%). Certain restricted securities that are eligible for
resale to qualified institutional purchasers may not be subject to that limit.
The Manager monitors holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity.
n Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In the broadest sense, exchange-traded
options, futures contracts, and other hedging instruments the Fund might use may
be considered to be "derivative investments." Other derivatives the Fund can use
include debt exchangeable for common stock of an issuer, index-linked and
currency-linked notes and equity-linked debt securities.
n Hedging. The Fund can buy and sell certain kinds of futures contracts,
put and call options, swaps, and forward contracts. These are all referred to as
"hedging instruments." The Fund does not use hedging instruments for speculative
purposes, and limits its use of them. The Fund is not required to use hedging
instruments to seek its goal and currently does not use them to a significant
degree.
The Fund could buy and sell options, futures and forward contracts for a
number of purposes. It might do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or to
establish a position in the securities market as a temporary substitute for
purchasing individual securities. It might do so to try to manage its exposure
to changing interest rates.
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.
Temporary Defensive Investments. In times of unstable or adverse market or
economic conditions, the Fund can invest up to 100% of its assets in temporary
defense investments. Generally they would be cash equivalents (such as
commercial paper), money market instruments, short-term debt securities, U.S.
government securities, or repurchase agreements and may include other
investment-grade debt securities. The Fund could 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.
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
might 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 bank 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 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 advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $100 billion as of March 31, 1999,
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.
n Portfolio Managers. The portfolio managers of the Fund are Bruce
Bartlett and John Doney. They are the persons primarily responsible for
selecting the securities for the Fund's portfolio. Each is a portfolio manager
and officer of other Oppenheimer funds. Mr. Bartlett has been a Vice President
and portfolio manager of the Fund since June 1995, and Mr. Doney since July
1997. Prior to joining the Manager as a Vice President in April 1995, Mr.
Bartlett was a Vice President and Senior Portfolio Manager of First of America
Investment Corp. Mr. Doney has been a Vice President of the Manager since June
1992.
n 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: 0.75% of the first $100 million of average annual net assets
of the Fund, 0.70% of the next $100 million, 0.65% of the next $100 million.
0.60% of the next $100 million, 0.55% of the next $100 million and 0.50% of
average annual net assets in excess of $500 million. The Fund's management fee
for its last fiscal year ended December 31, 1998 was 0.52% of average annual net
assets for each class of shares.
<PAGE>
A B O U T Y O U R A C C O U N T
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
on exchanges that operate on weekends and U.S. holidays, the values of some of
the Fund's foreign investments might 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.
<PAGE>
- ------------------------------------------------------------------------------
What Classes of Shares Does the Fund Offer? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
|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.
n 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 Shorter 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 Net Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
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- --------------------------------------------------------------------------------
$25,000 or more but 5.50% 5.82% 4.75%
less than $50,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$50,000 or more but 4.75% 4.99% 4.00%
less than $100,000
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- --------------------------------------------------------------------------------
$100,000 or more
but less than 3.75% 3.90% 3.00%
$250,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$250,000 or more
but less than 2.50% 2.56% 2.00%
$500,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$500,000 or more
but less than $1 2.00% 2.04% 1.60%
million
- --------------------------------------------------------------------------------
|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 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.
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%
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- -------------------------------------------------------------------------------
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 presented by Class A shares of the Fund that were acquired on
or after April 1, 1988. The rate is 0.15% on average annual net assets
representing Class A shares acquired before that date. 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 pay the Distributor for its services 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 on-going 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.
n 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.
n 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.
n 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:
n Individual Retirement Accounts (IRAs), including regular IRAs, Roth
IRAs, SIMPLE IRAs, rollover and Education IRAs.
n SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for small
business owners or self-employed individuals.
n 403(b)(7) Custodial Plans, that are tax deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and charitable
organizations.
n 401(k) Plans, which are special retirement plans for businesses.
n 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: by 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 value has fallen below $500 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|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.
<PAGE>
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. The Fund intends to pay
dividends to shareholders in March, June, September and December on a date
selected by the Board of Directors.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Directors may
change the targeted dividend rate at any time without notice to shareholders.
Dividends and other 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 cannot
guarantee that it will pay any dividends or other 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
prices fluctuate, you may have a capital gain or loss when you sell or exchange
your shares. A capital gain or loss is the difference between the price you paid
for the shares and the price you received when you sold them.
Any capital gain is subject to capital gains tax.
|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 income 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 Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
- ----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998
1997 1996 1995 1994
=================================================================================================================
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $11.00
$9.77 $ 9.35 $7.80 $8.69
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16
.16 .20 .23 .23
Net realized and unrealized gain (loss) 2.09
2.49 1.63 2.09 (.91)
---------- -----------
- ----------- --------- ---------
Total income (loss) from investment
operations 2.25
2.65 1.83 2.32 (.68)
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.15)
(.14) (.20) (.22) (.21)
Distributions from net realized gain (.87)
(1.28) (1.21) (.55) -
---------- -----------
- ----------- --------- ---------
Total dividends and distributions to
shareholders (1.02)
(1.42) (1.41) (.77) (.21)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.23
$11.00 $ 9.77 $9.35 $7.80
========== ===========
=========== ========= =========
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 21.16%
27.39% 19.73% 30.12% (7.86)%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $2,594,324 $2,237,603
$1,826,599 $1,550,710 $1,235,637
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,387,815 $2,045,166
$1,684,726 $1,394,245 $1,261,729
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.31%
1.43% 1.96% 2.53% 2.88%
Expenses 0.86%
0.89% 0.90% 0.92% 1.01%
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 38.1%
91.7% 117.5% 84.8 %117.2%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to December 31,
1994.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. 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.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1998 were $1,253,379,444 and $1,600,426,044, respectively.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS B
- ----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998
1997 1996 1995 1994
=================================================================================================================
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $10.89 $
9.70 $ 9.29 $7.76 $8.66
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .06
.07 .12 .15 .17
Net realized and unrealized gain (loss) 2.08
2.45 1.62 2.08 (.91)
---------- -----------
- ----------- --------- ---------
Total income (loss) from investment
operations 2.14
2.52 1.74 2.23 (.74)
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.06)
(.05) (.12) (.15) (.16)
Distributions from net realized gain (.87)
(1.28) (1.21) (.55) -
---------- -----------
- ----------- --------- ---------
Total dividends and distributions to
shareholders (.93)
(1.33) (1.33) (.70) (.16)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.10
$10.89 $ 9.70 $9.29 $7.76
========== ===========
=========== ========= =========
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 20.25%
26.17% 18.78% 29.03% (8.64)%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $1,201,741
$986,713 $754,918 $589,804 $429,427
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,080,395
$877,911 $671,593 $510,744 $360,773
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.50%
0.62% 1.15% 1.70% 2.11%
Expenses 1.67%
1.71% 1.71% 1.75% 1.87%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 38.1%
91.7% 117.5% 84.8% 117.2%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to December 31,
1994.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. 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.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1998 were $1,253,379,444 and $1,600,426,044, respectively.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS C
- ------------------------------------------------
YEAR ENDED
DECEMBER 31,
1998 1997 1996 1995(2)
=================================================================================================================
<S>
<C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period
$10.92 $ 9.72 $ 9.33 $9.19
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income
.06 .07 .16 .07
Net realized and unrealized gain (loss)
2.08 2.46 1.57 .73
----------
- ---------- ---------- ---------
Total income (loss) from investment
operations
2.14 2.53 1.73 .80
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income
(.06) (.05) (.13) (.11)
Distributions from net realized gain
(.87) (1.28) (1.21) (.55)
----------
- ---------- ---------- ---------
Total dividends and distributions to
shareholders
(.93) (1.33) (1.34) (.66)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period
$12.13 $10.92 $ 9.72 $9.33
===========
=========== ========= =========
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3)
20.20% 26.23% 18.67% 8.82%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)
$58,082 $36,657 $17,554 $1,655
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)
$46,558 $27,349 $ 8,277 $ 784
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income
0.50% 0.63% 1.05% 1.42%(4)
Expenses
1.67% 1.72% 1.76% 1.77%(4)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5)
38.1% 91.7% 117.5% 84.8%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to December 31,
1994.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. 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.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1998 were $1,253,379,444 and $1,600,426,044, respectively.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS Y
- -------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998
1997 1996 1995 1994(1)
=================================================================================================================
PER SHARE OPERATING DATA
<S> <C>
<C> <C> <C> <C>
Net asset value, beginning of period $11.00 $
9.77 $ 9.35 $7.80 $8.23
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17
.18 .23 .20 .15
Net realized and unrealized gain (loss) 2.10
2.48 1.61 2.13 (.41)
---------- ----------
- ---------- --------- ---------
Total income (loss) from investment
operations 2.27
2.66 1.84 2.33 (.26)
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.16)
(.15) (.21) (.23) (.17)
Distributions from net realized gain (.87)
(1.28) (1.21) (.55) -
---------- ----------
- ---------- --------- ---------
Total dividends and distributions to
shareholders (1.03)
(1.43) (1.42) (.78) (.17)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.24
$11.00 $ 9.77 $9.35 $7.80
========== ==========
========== ========= ==========
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 21.33%
27.53% 19.88% 30.23% (3.15)%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $38,874
$26,546 $18,252 $6,709 $1,074
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $33,687
$21,977 $13,083 $3,944 $ 320
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.39%
1.60% 2.08% 2.51% 4.07%(4)
Expenses 0.80%
0.74% 0.77% 0.87% 0.96%(4)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 38.1%
91.7% 117.5% 84.8% 117.2%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to December 31,
1994.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. 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.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1998 were $1,253,379,444 and $1,600,426,044, respectively.
<PAGE>
For More Information About Oppenheimer Total Return Fund, Inc.: 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:
OppenheimerFunds Distributor,
Inc.
SEC File No. 811-490
PR0420.001.0499 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Total Return Fund, Inc.
Graphic material included in the Prospectus of Oppenheimer Total Return
Fund, Inc. (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 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:
- --------------------------------------------------------------------------------
Year Ended: Annual Total Return
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/89 19.25%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/90 -3.86%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31//91 36.26%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/92 12.83%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/93 21.24%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/94 -7.86%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/95 30.12%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/96 19.73%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/97 27.39%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/98 21.16%
- --------------------------------------------------------------------------------
<PAGE>
Oppenheimer Total Return Fund, Inc.
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated April 30,1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated April 30, 1999. It should be read together
with the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or
by calling the Transfer Agent at the toll-free number shown above, or by
downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
- ------------------------------------------------------------------------------
Page
About the Fund
- ------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies......................... 7
Investment Restrictions............................................ 23
How the Fund is Managed ............................................... 25
Organization and History........................................... 25
Directors and Officers............................................. 26
The Manager........................................................ 31
Brokerage Policies of the Fund......................................... 32
Distribution and Service Plans......................................... 34
Performance of the Fund................................................ 38
About Your Account
- ------------------------------------------------------------------------------
How To Buy Shares...................................................... 42
How To Sell Shares..................................................... 50
How To Exchange Shares................................................. 55
Dividends, Capital Gains and Taxes..................................... 57
Additional Information About the Fund.................................. 59
Financial Information About the Fund
- ------------------------------------------------------------------------------
Independent Auditors' Report........................................... 60
Financial Statements................................................... 61
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Industry Classifications................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
- ------------------------------------------------------------------------------
<PAGE>
A B O U T T H E F U N D
- ------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective, 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 Manager 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.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of securities primarily through the exercise of its own investment
analysis. That analysis includes a number of factors, some of which are
discussed in the Prospectus. Additionally, the Manager may evaluate
o the strength of an issuer's management and the history of its
operations,
o the soundness of its financial and accounting policies and its
financial condition,
o the issuer's pending product developments and developments by
competitors,
o the effect of general market conditions on the issuer's business and
the prospects for the industry of which the issuer is a part, and
o legislative proposals that might affect the issuer.
n 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 focus its equity
investments in securities of one or more capitalization ranges, based upon the
Manager's 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 is focusing on, or 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.
o Growth Companies. Growth companies are those companies that the
Manager believes are entering into a growth cycle in their business, with the
expectation that their stock will increase in value. They may be established
companies as well as newer companies in the development stage.
Growth companies may have a variety of characteristics that in the
Manager's view define them as "growth" issuers. They may be generating or
applying new technologies, new or improved distribution techniques or new
services. They may own or develop natural resources. They may be companies that
can benefit from changing consumer demands or lifestyles, or companies that have
projected earnings in excess of the average for their sector or industry. In
each case, they have prospects that the Manager believes are favorable for the
long term. The portfolio managers of the Fund look for growth companies with
strong, capable management, sound financial and accounting policies, successful
product development and marketing and other factors.
o Value Investing. In using a value approach, the portfolio managers
look for stock and other equity securities that appear to be temporarily
undervalued, by various measures, such as price/earnings ratios. This approach
is subject to change and may not necessarily be used in all cases. 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:
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.
o Convertible Securities. Convertible securities are debt securities
that are convertible into an issuer's common stock. Convertible securities rank
senior to common stock in a corporation's capital structure and therefore are
subject to less risk than common stock in case of the issuer's bankruptcy or
liquidation.
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease when
interest rates rise. If the conversion value exceeds the investment value, the
security will behave more like an equity security. In that case, it will likely
sell at a premium over its conversion value, and its price will tend to
fluctuate directly with the price of the underlying security.
While some convertible securities are a form of debt security, in certain
cases the Manager regards them more as "equity equivalents" or "equity
substitutes" because of their conversion feature (allowing conversion into
common stock or other equity securities). 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 debt securities. Convertible debt securities are subject
to credit risks and interest rate risks described below in "Investments in Debt
Securities."
To determine whether convertible securities should be regarded as
"equity equivalents," the Manager examines the following factors:
o 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,
o 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
o 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 Stock. 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 dividends can be paid to the issuer's common stock.
"Participating" preferred stock may be entitled to a dividend exceeding the
stated dividend in certain cases.
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 allowing the
stock to be called or redeemed prior to its maturity, which can have a negative
impact on the stock's price when interest rates decline. Preferred stock
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation. The rights
of preferred stock on distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
n Investments in Debt Securities. The Fund can invest in bonds, debentures
and other debt securities to seek income as part of its investment objective.
When the Fund emphasizes investments for growth, it focuses on equity
securities, such as stocks, and it is not anticipated that significant amounts
of the Fund's assets will be invested in debt securities in that case. However,
if market conditions suggest that debt securities may offer better total return
opportunities than stocks, or if the Manager determines to seek a higher amount
of current income to distribute to shareholders, the Manager may shift more of
the Fund's investments into debt securities.
|_| Interest Rate Risk. Interest rate risk refers to the
fluctuations in value of debt 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 debt securities, 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 debt securities after the Fund buys
them will not affect the interest income payable on those securities (unless the
coupon rate is a floating rate pegged to an index or other measure) . 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.
|_| Credit Risk. Credit risk relates to the ability of the issuer of
a debt security to meet interest or principal payments, or both, as they become
due. In general, lower-grade, high-yield bonds are subject to greater credit
risk than lower-yielding, higher-quality bonds. The Fund's debt investments can
include investment-grade and non-investment-grade bonds (commonly referred to as
"junk bonds"). 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. Investment-grade bonds are
bonds rated at least "Baa" by Moody's Investors Service, Inc., or at least "BBB"
by Standard & Poor's Ratings Service or Duff & Phelps, Inc., or that have
comparable ratings by another nationally-recognized rating organization. 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. While it is not
anticipated that the Fund will invest a substantial portion of its assets in
debt securities, the Fund can do so to seek current income. Because lower-rated
securities tend to offer higher yields than investment-grade securities, the
Fund may invest in lower-grade securities to try to achieve higher income (and,
in some cases, the appreciation possibilities of lower-grade securities may be a
reason they are selected for the Fund's portfolio).
The Fund can invest without limit in "lower-grade" debt securities.
However, the Fund does not currently intend to invest a substantial amount of
its assets in lower-grade debt securities. "Lower-grade" debt securities are
those rated below "investment grade." The Fund can invest in securities rated as
low as "C" or "D" or which are in default at the time the Fund buys them.
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 current limitations on buying these investments may
reduce the effect of those 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 special risks and have some speculative
characteristics. Definitions of the debt security ratings categories of Moody's,
Standard & Poors, Fitch IBCA and Duff & Phelps are included in Appendix A to
this Statement of Additional Information.
o U.S. Government Securities. The Fund can buy securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities.
Securities issued by the U.S. Treasury are backed by the full faith and credit
of the U.S. government and are subject to very little credit risk. Obligations
of U.S. government agencies or instrumentalities (including mortgage-backed
securities) may or may not be guaranteed or supported by the "full faith and
credit" of the United States. Some are backed by the right of the issuer to
borrow from the U.S. Treasury; others, by discretionary authority of the U.S.
government to purchase the agencies' obligations; while others are supported
only by the credit of the instrumentality. 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 and might not be
able to assert a claim against the United States in the event that the agency or
instrumentality does not meet its commitment.
|_| U.S. Treasury Obligations. These include Treasury bills (having
maturities of one year or less when issued), Treasury notes (having maturities
of from one to ten years), and Treasury bonds (having maturities of more than
ten years). Treasury securities are backed by the full faith and credit of the
United States as to timely payments of interest and repayments of principal.
Other U.S. Treasury securities the Fund can buy include U. S. Treasury
securities that have been "stripped" by a Federal Reserve Bank, zero-coupon U.S.
Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS").
|_| Treasury Inflation-Protection Securities. The Fund can buy these
U.S. Treasury securities, called "TIPS," that are designed to provide an
investment vehicle that is not vulnerable to inflation. The interest rate paid
by TIPS is fixed. The principal value rises or falls semi-annually based on
changes in the published Consumer Price Index. If inflation occurs, the
principal and interest payments on TIPS are adjusted to protect investors from
inflationary loss. If deflation occurs, the principal and interest payments will
be adjusted downward, although the principal will not fall below its face amount
at maturity.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| Real Estate Investment Trust (REITs). The Fund may invest in
real estate investment trusts, as well as real estate development companies and
operating companies. It may also buy shares of companies engaged in other real
estate businesses. REITs are trusts that sell shares to investors and use the
proceeds to invest in real estate. A REIT may focus on a particular project,
such as a shopping center or apartment complex, or may buy many properties or
properties located in a particular geographic region.
n Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund
traded its portfolio securities during its last fiscal year. For example, if a
fund sold all of its securities during the year, its portfolio turnover rate
would have been 100%. The Fund's portfolio turnover rate will fluctuate from
year to year, and the Fund may have a portfolio turnover rate of 100% or more.
Increased portfolio turnover may result in higher brokerage and
transaction costs for the Fund, which may reduce its overall performance.
Additionally, the realization of capital gains from selling portfolio securities
may result in distributions of taxable long-term capital gains to shareholders,
since the Fund will normally distribute all of its capital gains realized each
year, to avoid excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times
and at times may not use them.
n Foreign Securities. The Fund may 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. The debt obligations of a
foreign government and its agencies and instrumentalities may or may not be
supported by the full faith and credit of the foreign government.
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 or income
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 securities 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.
o Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency
blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, securities 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 bank (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 has upgraded (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 managers will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs. n Zero-Coupon Securities. The Fund may buy
zero-coupon and delayed-interest securities and "stripped" securities. Stripped
securities are debt securities whose interest coupons are separated from the
security and sold separately. The Fund can buy the following types of
zero-coupon or stripped securities, among other: U.S. Treasury notes or bonds
that have been stripped of their interest coupons, U.S. Treasury bills issued
without interest coupons, and certificates representing interests in stripped
securities.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value. 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. In the absence of threats to
the issuer's credit quality, the discount typically decreases as the maturity
date approaches. Some zero-coupon securities are convertible, in that they are
zero-coupon securities until a predetermined date, at which time they convert to
a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their prices are generally more
volatile than the prices of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
n 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" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture have been created, but the securities
are not available for immediate delivery even though the market for them exists.
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 120
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
until it receives the security at settlement.
The Fund may engage in when-issued transactions to secure what the Manager
considers to be an advantageous price and yield at the time the Fund enters into
the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Participation Interests. The Fund may invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made by
the issuing financial institution in the proportion that the buyer's
participation interest bears to the total principal amount of the loan. No more
than 5% of the Fund's net assets can be invested in participation interests of
the same borrower. The issuing financial institution may have no obligation to
the Fund other than to pay the Fund the proportionate amount of the principal
and interest payments it receives.
Participation interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of principal
and interest on the loan. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
n 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.
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 limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Manager will monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
n Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Directors, the Manager determines the
liquidity of certain of the Fund's illiquid or restricted investments. To enable
the Fund to sell its holdings of a restricted security not registered under the
Securities Act of 1933, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may be negotiated
by the Fund with the issuer at the time the Fund buys the securities. When the
Fund must arrange registration because the Fund wishes to sell the security, a
considerable period may elapse between the time the decision is made to sell the
security and the time the security is registered so that the Fund could sell it.
The Fund would bear the risks of any downward price fluctuation during that
period.
The Fund can acquire restricted securities through private placements.
Those securities have contractual restrictions on their public resale. Those
restrictions might limit the Fund's ability to dispose of the securities and
might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
n Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Directors. It might do so to try to provide income or to raise cash for
liquidity purposes. These loans are limited to not more than 10% of the value of
the Fund's net 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 lend its securities, but if it does so, it is not
anticipated that loans will exceed 5% of the Fund's total assets.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder's, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
n Derivatives. The Fund can invest in a variety of derivative investments
for income, for capital appreciation or for hedging purposes. Some derivative
investments the Fund can use are the hedging instruments described below in this
Statement of Additional Information.
The Fund can invest in "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.
Other derivative investments the Fund can use include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or it
is payable in an amount based on the price of the issuer's common stock at the
time of maturity. Both alternatives present a risk that the amount payable at
maturity will be less than the principal amount of the debt because the price of
the issuer's common stock might not be as high as the Manager expected.
n Hedging. The Fund can use hedging to attempt to protect against declines
in the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate selling securities for investment reasons. To do so, the Fund
could:
o sell futures contracts, o buy puts on futures or on securities, or
o write covered calls on securities or futures. Covered calls can also be
used to increase the Fund's income, but the Manager does not expect to
engage extensively in that practice.
The Fund might 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:
o buy futures, or
o buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
o Futures. The Fund can buy and sell futures contracts that relate
to (1) broadly-based stock indices (these are called "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)
commodities (these are referred to as "commodity futures").
A broadly-based stock index is used as the basis for trading stock index
futures. In some cases an index may 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.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4)
industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts and
options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as
other types of commodities.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions, except forward contracts,
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
o Put and Call Options. The Fund can buy and sell certain kinds of
put options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
o Writing Covered Call Options. The Fund can write (that is,
sell) calls. If the Fund sells a call option, it must be covered. That means the
Fund must own the security subject to the call while the call is outstanding,
or, for certain types of calls, the call may be covered by segregating liquid
assets to enable the Fund to satisfy its obligations if the call is exercised.
Up to 25% of the Fund's total assets may be subject to calls the Fund writes.
When the Fund writes a call, it receives cash (a premium). In writing
calls on a security, 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 also receives 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 bank, will act as the Fund's escrow agent, through the facilities of
the Options Clearing Corporation ("OCC"), as to the investments on which the
Fund has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets on its books. The Fund will identify
additional liquid assets on its books to cover the call if the value of the
identified assets drops below 100% of the current value of the future. Because
of this segregation requirement, in no circumstances would the Fund's receipt of
an exercise notice as to that future require the Fund to deliver a futures
contract. It would simply put the Fund in a short futures position, which is
permitted by the Fund's hedging policies.
o Writing Put Options. The Fund can sell put options. A put
option on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Fund will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price. If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will identify on its books liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. The Fund therefore forgoes the opportunity of investing the
identified assets or writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund can purchase calls to
protect against the possibility that the Fund's portfolio will not participate
in an anticipated rise in the securities market. When the Fund buys a call
(other than in a closing purchase transaction), it pays a premium. The Fund then
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if it sells the call at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts whether or not it holds the underlying investment in
its portfolio. When the Fund purchases a put, it pays a premium and, except as
to puts on indices, has the right to sell the underlying investment to a seller
of a put on a corresponding investment during the put period at a fixed exercise
price. Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
o Buying and Selling Options on Foreign Currencies. The Fund can buy
and sell calls and puts on foreign currencies. They include puts and calls that
trade on a securities or commodities exchange or in the over-the-counter markets
or are quoted by major recognized dealers in such options. The Fund could use
these calls and puts to try to protect against declines in the dollar value of
foreign securities and increases in the dollar cost of foreign securities the
Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by 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 exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund may also use "cross-hedging" where
the Fund hedges against changes in currencies other than the currency in which a
security it holds is denominated.
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 might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount.
Alternatively, the Fund could enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold
pursuant to its forward contract will fall whenever there is a decline in the
U.S. dollar value of the currency in which portfolio securities of the Fund
are denominated. That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying on
its books liquid assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
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 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 or hold may be affected by options
written or held by other entities, including other investment companies having
the same advisor as the Fund (or an advisor that is an affiliate of the Fund's
advisor). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
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.
|X| Temporary Defensive Investments. The Fund's temporary defensive
investments can include (i) obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; (ii) commercial paper rated in
the highest category by an established rating organization; (iii) certificates
of deposit or bankers' acceptances of domestic banks with assets of $1 billion
or more; (iv) any of the foregoing securities that mature in one year or less
(generally known as "cash equivalents"); (v) other short-term corporate debt
obligations; and (vi) repurchase agreements.
Investment Restrictions
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n What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or o more than 50% of the
outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of 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 most significant investment policies are described in
the Prospectus.
n Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities issued or guaranteed by any one issuer if
more than 5% of its total assets would be invested in securities of that issuer
or if it would then own more than 10% of that issuer's voting securities. This
limitation applies to 75% of the Fund's total assets. The limit does not apply
to securities issued by the U.S. government or any of its agencies or
instrumentalities.
o The Fund cannot concentrate investments in any industry or group of
industries. That means it cannot purchase securities of companies in any one
industry if more than 25% of its total assets would consist of securities of
companies in that industry. As a non-fundamental operating policy, the Fund
interprets this restriction to apply to 25% or more of its total assets.
o The Fund cannot make loans except that it can buy debt securities. The
Fund may also make loans of portfolio securities, enter into repurchase
agreements or when-issued or delayed-delivery transactions (or similar
securities transactions).
o The Fund cannot pledge, mortgage or hypothecate securities. However, the
Fund can enter into escrow arrangements contemplated by writing covered call
options or other collateral or margin arrangements in connection with any of its
investments.
o The Fund cannot invest in or hold securities of any issuer if officers
and directors of the Fund or the Manager beneficially own more than 1/2 of 1% of
the securities of that issuer and together own more than 5% of the securities of
that issuer.
o The Fund cannot borrow money except for temporary emergency purposes or
under other unusual circumstances.
o The Fund cannot purchase securities on margin or sell securities short.
However, the Fund can make margin deposits in connection with any of its
investments.
o The Fund cannot invest in other companies for the purpose of exercising
control or management of those companies.
o The Fund cannot invest in real estate or in interests in real estate.
However, the Fund can purchase securities of issuers holding real estate or
interests in real estate.
o The Fund cannot invest in physical commodities or physical commodity
contracts or buy securities for speculative short-term purposes. However, the
Fund can buy and sell any of the hedging instruments permitted by any of its
other policies. It can also buy and sell options, futures, securities or other
instruments backed by physical commodities or whose investment return is linked
to changes in the price of physical commodities.
o The Fund cannot accept the purchase price for any of its shares without
immediately issuing an appropriate number of shares.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
o The Fund cannot issue "senior securities." This restriction does not
prohibit the Fund from borrowing money as described in the Prospectus or this
Statement of Additional Information. It does not prohibit the Fund from entering
into margin, collateral, segregation or escrow arrangements, or options,
futures, hedging transactions or from buying and selling other investments
permitted by its other investment policies.
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 an open-end, diversified management
investment company that was organized in 1944. Since 1979 the Fund has been a
Maryland corporation.
The Fund is governed by a Board of Directors, which is responsible for
protecting the interests of shareholders under Maryland law. The Directors meet
periodically throughout the year to oversee the Fund's activities, review its
performance, and review the actions of the Manager.
n Classes of Shares. The Board of Directors has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has 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 series or classes
into additional series or classes of shares. The Directors also may divide or
combine the shares of a class into a greater or lesser number of shares without
changing the proportionate beneficial interest of a shareholder in the Fund.
Shares do not have cumulative voting rights or preemptive or subscription
rights. Shares may be voted in person or by proxy at shareholder meetings.
n Meetings of Shareholders. Although the Fund is not required by Maryland
law to hold annual meetings, it may hold shareholder meetings from time to time
on important matters. The shareholders of the Fund have the right to call a
meeting to remove a Director or to take certain other action described in the
Fund's 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
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 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 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 class vote separately on proposals that affect that class.
Shareholders of a class that is not affected by a proposal are not entitled to
vote on the proposal. Only shareholders of a particular class 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 and officers of the Fund 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 under the Investment Company Act. All of the
Directors are also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds2:
<PAGE>
Oppenheimer Cash Reserves Oppenheimer Total Return Fund,
Inc.
Oppenheimer Capital Income Fund Oppenheimer Variable Account Funds
Oppenheimer Champion Income Fund Panorama Series Fund, Inc.
Oppenheimer High Yield Fund Centennial America Fund, L. P.
Oppenheimer International Bond Fund Centennial California Tax Exempt
Trust
Oppenheimer Integrity Funds Centennial Government Trust
Oppenheimer Limited-Term Government Fund Centennial Money Market Trust
Oppenheimer Main Street Funds, Inc. Centennial New York Tax Exempt
Trust
Oppenheimer Municipal Fund Centennial Tax Exempt Trust
Oppenheimer Real Asset Fund
Oppenheimer Strategic Income Fund
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of March 31, 1999, the Directors and officers
of the Fund as a group owned less than 1% of the outstanding shares of the Fund.
The foregoing statement does not reflect shares held of record by an employee
benefit plan for employees of the Manager other than shares beneficially owned
under that plan by the officers of the Fund listed below. Ms. Macaskill and Mr.
Donohue, are trustees of that plan.
2. Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund, Panorama Series Fund, Inc.
or Oppenheimer Variable Account Funds. Mr. Fossel and Mr. Bowen are not Trustees
of Centennial New York Tax Exempt Trust or Managing General Partners of
Centennial America Fund, L.P.
Robert G. Avis*, Director; Age 67
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment advisor
and trust company, respectively).
William A. Baker, Director; Age 83
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen*, Director; Age 62 6803
South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions: 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 ; Senior Vice President (since February
1992), Treasurer (since July 1991) and a director (since December 1991) of
Centennial Asset Management; President, Treasurer and a director of Centennial
Capital Corporation (since June 1989); Vice President and Treasurer (since
August 1978) and Secretary (since April 1981) of 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); Chief Executive Officer, Treasurer;
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997).
Jon S. Fossel, Director; Age 57
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding company,
and Shareholder Services, Inc. ("SSI") and Shareholder Financial Services,
Inc. ("SFSI"), transfer agent subsidiaries of the Manager.
Sam Freedman, Director; Age: 58
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholders Services, Inc.,
Chairman, Chief Executive and Officer and director of Shareholder Financial
Services, Inc., Vice President and director of Oppenheimer Acquisition Corp. and
a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Director; Age 69
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products
training company), self-employed consultant (securities matters).
C. Howard Kast, Director; Age 77
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Director; Age 77
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Director; Age: 50
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corp., an investment advisor
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund management
subsidiary of the Manager and of Oppenheimer Millennium Funds plc; President and
a director of other Oppenheimer funds; a director of Hillsdown Holdings plc (a
U.K. food company).
Ned M. Steel, Director; Age 83
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
James C. Swain*, Chairman, Chief Executive Officer and Director; Age 65 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation, an investment advisor subsidiary of the Manager
("Centennial"), and Chairman of the Board of SSI.
Bruce Bartlett, Vice President and Portfolio Manager; Age 49 Two World Trade
Center, New York, New York 10048-0203 Vice President of the Manager (April
1995); an officer of other Oppenheimer funds, formerly a Vice President and
Senior Portfolio Manager at First of America Investment Corp.
John P. Doney, Vice President and Portfolio Manager; Age 69
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager (since June 1992); formerly Senior Vice President
and Chief Investment Officer - Equities of National Securities & Research
Corporation (mutual fund advisor) and Vice President of the National Affiliated
Investment Companies.
Andrew J. Donohue, Vice President and Secretary; Age 48
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corp., Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and (since September 1995) Oppenheimer
Partnership Holdings, Inc.; President and a director of Centennial Asset
Management Corporation (since September 1995); President, General Counsel and a
director of Oppenheimer Real Asset Management, Inc. (since July 1996); General
Counsel (since May 1996) and Secretary (since April 1997) of Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
Brian W. Wixted, Treasurer; Age: 39.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; formerly
Principal and Chief Operating Officer, Bankers Trust Company Mutual Fund
Services Division (1995-1999); Vice President and Chief Financial Officer of CS
First Boston Investment Management Corp. (1991-1995); and Vice President and
Accounting Manager, Merrill Lynch Asset Management (1987-1991).
Robert 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 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 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.
Robert G. Zack, Assistant Secretary; Age 50
Two World Trade Center, 34th Floor, New York, New York 10048-0203 Senior Vice
President (since May 1985) and Associate General Counsel (since May 1981) of the
Manager, Assistant Secretary of Shareholder Services, Inc. (since May 1985), and
Shareholder Financial Services, Inc. (since November 1989); Assistant Secretary
(since October 1997) of Oppenheimer Millennium Funds plc and OppenheimerFunds
International Ltd.; an officer of other Oppenheimer funds.
n Remuneration of Directors. The officers of the Fund and three Directors of
the Fund (Ms. Macaskill and Messrs. Bowen and Swain) are affiliated with the
Manager and receive no salary or fee from the Fund. The remaining Directors of
the Fund received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended December 31, 1998. The compensation from
all of the Denver-based Oppenheimer funds includes the compensation from the
Fund and represents compensation received as a director, trustee, managing
general partner or member of a committee of the Board during the calendar year
1998.
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Aggregate Total Compensation
Director's Name and Other Compensation from Denver-Based
Positions from Fund Oppenheimer Funds1
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Robert G. Avis $8,701 $67,998
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William A. Baker $8,957 $69,998
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Charles Conrad, Jr. $8,701 $67,998
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Jon. S. Fossel $8,637 $67,496
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Sam Freedman
Audit and Review Committee
Member $9,468 $73,998
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Raymond J. Kalinowski
Audit and Review
Committee Member $9,469 $73,998
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C. Howard Kast
Audit and Review
Committee Chairman $9,852 $76,998
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Robert M. Kirchner $8,701 $67,998
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Ned M. Steel $8,701 $67,998
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1. For the 1998 calendar year. Compensation is only from funds on whose Board
a Director served, as described above.
<PAGE>
n Deferred Compensation Plan. The Board of Directors has adopted a Deferred
Compensation Plan for disinterested directors that enables them to elect to
defer receipt of all or a portion of the annual fees they are entitled to
receive from the Fund. Under the plan, the compensation deferred by a Director
is periodically adjusted as though an equivalent amount had been invested in
shares of one or more Oppenheimer funds selected by the Director. The amount
paid to the Director under the plan will be determined based upon the
performance of the selected funds.
Deferral of Director's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the Fund to retain the services of any Director or to pay any particular level
of compensation to any Director. Pursuant to an Order issued by the Securities
and Exchange Commission, the Fund may invest in the funds selected by the
Director under the plan without shareholder approval for the limited purpose of
determining the value of the Director's deferred fee account.
n Major Shareholders. As of April 1, 1999 the only person 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 was:
Massachusetts Mutual Life Insurance Co., 1295 State Street, Springfield, MA
01111, which owned 3,573,195.522 Class Y shares (representing 99.49% of the
Fund's then-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.
<PAGE>
- -------------------------------------------------------------------------------
Fiscal Year ended 12/31: Management Fees Paid to OppenheimerFunds, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1996 $12,631,975
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $15,602,793
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $18,483,834
- -------------------------------------------------------------------------------
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 the Fund sustains for any
investment, adoption of any investment policy, or the purchase, sale or
retention of any security.
The agreement permits the Manager to act as investment advisor 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
advisor or general distributor. If the Manager shall no longer act as investment
advisor to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
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 advisor.
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 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 broaden the scope and supplement
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 12/31: Total Brokerage Commissions Paid by the Fund1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1996 $4,700,205
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $4,298,092
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $2,842,3122
- -------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. In the fiscal year ended 12/31/98, the amount of transactions directed to
brokers for research services was $1,154,951,457 and the amount of the
commissions paid to broker-dealers for those services was $1,603,850.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the 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
Front-End Front-End on Class A on Class B on Class C
Fiscal Sales Sales Shares Shares Shares
Year Charges on Charges Advanced by Advanced by Advanced by
Ended Class A Retained by Distributor1 Distributor1 Distributor1
12/31: Shares Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1996 $4,329,798 $1,401,145 $75,916 $4,468,914 $142,701
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $4,143,424 $1,483,220 $36,045 $4,481,926 $158,724
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $3,975,257 $1,342,124 $75,535 $4,675,603 $187,049
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Fiscal Class A Contingent Class B Contingent
Year Deferred Sales Deferred Sales Class C Contingent
Ended Charges Retained by Charges Retained by Deferred Sales Charges
12/31 Distributor Distributor Retained by Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 None $1,193,722 $17,665
- -------------------------------------------------------------------------------
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.
3. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Directors" in this Statement of Additional Information refers to
those Directors who are not "interested persons" of the Fund (or its parent
corporation) and who do not have any direct or indirect financial interest in
the operation of the distribution plan or any agreement under the plan.
Under the plans, the Manager and the Distributor may make payments to
affiliates and, 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 who are not "interested persons" of 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 plans 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.
n 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 purchased on or after April 1,
1988. The rate is 0.15% for shares purchased before that date. 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 purchased on or after April 1,
1988, and 0.15% on shares purchased before that date.
For the fiscal year ended December 31, 1998 payments under the Class A
Plan totaled $4,589,529, all of which was paid by the Distributor to recipients.
That included $370,901 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.
n 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 at a flat rate for its services, whether
its 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 for 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.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board
of 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.
- --------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 12/31/98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distributor's
Distributor's Unreimbursed
Total Amount Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Class: Under Plan Distributor Expenses Under Plan of Class
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Plan $10,798,037 $8,406,2701 $13,282,499 1.23%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Plan $464,989 $293,0612 $496,032 1.07%
- --------------------------------------------------------------------------------
1. Includes $167,204 paid to and affiliate of the Distributor's parent company.
2. Includes $8,841 paid to and affiliate of the Distributor's parent company.
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.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o 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 12/31/98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cumulative
Total Returns
Class of (10 years or
Shares Life of Class) Average Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5-Year 10-Year
(or (or
1-Year life-of-class) life-of-class)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A 346.21% 373.43% 14.19% 21.16% 15.87% 17.25% 16.13%1 16.82%1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B 139.25% 140.25% 15.25% 20.25% 16.05% 16.26% 16.66%2 16.75%2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C N/A 95.96% 19.20% 20.20% N/A 22.32%3 N/A N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class Y N/A 133.97% N/A 21.33% N/A 20.38%4 N/A N/A
- --------------------------------------------------------------------------------
1. Inception of Class A: 10/2/47. Performance is for 10 years.
2. Inception of Class B: 5/3/93.
3. Inception of Class C: 8/29/95.
4. Inception of Class Y: 6/1/94.
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
n Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other growth and income funds. The Lipper performance rankings are based on
total returns that include the reinvestment of capital gain distributions and
income dividends but do not take sales charges or taxes into consideration.
Lipper also publishes "peer-group" indices of the performance of all mutual
funds in a category that it monitors and averages of the performance of the
funds in particular categories.
n Morningstar Ratings and Rankings. From time to time the Fund may publish
the ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the domestic stock funds category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one-,
three-, five- and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk is measured by a
fund's (or class's) performance below 90-day U.S. Treasury bill returns. Risk
and investment return are combined to produce star ratings reflecting
performance relative to the other funds in the fund's category. Five stars is
the "highest" ranking (top 10% of funds in a category), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is "below
average" (next 22.5%) and one star is "lowest" (bottom 10%). The current star
rating is the fund's (or class's) overall rating, which is the fund's 3-year
rating or its combined 3- and 5-year ranking (weighted 60%/40% respectively), or
its combined 3-, 5-, and 10-year rating (weighted 40%/30%/30%, respectively),
depending on the inception date of the fund (or class). Ratings are subject to
change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star rating. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk-adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
n Performance Rankings and Comparisons by Other Entities and Publications.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, The Wall Street Journal, Barron's, or
similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's
classes of shares may be compared in publications to the performance of various
market indices or other investments, and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
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A B O U T Y O U R A C C O U N T
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How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix 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.
n The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Bond Fund Oppenheimer Large Cap Growth Fund
Oppenheimer California Municipal Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Champion Income Fund Oppenheimer MidCap Fund Oppenheimer Convertible
Securities Fund Oppenheimer Multiple Strategies Fund Oppenheimer Developing
Markets Fund Oppenheimer Municipal Bond Fund Oppenheimer Disciplined Allocation
Fund Oppenheimer New York Municipal Fund Oppenheimer Disciplined Value Fund
Oppenheimer New Jersey Municipal Fund Oppenheimer Discovery Fund Oppenheimer
Pennsylvania Municipal Fund Oppenheimer Enterprise Fund Oppenheimer Quest
Balanced Value Fund Oppenheimer Europe Fund Oppenheimer Quest Capital Value
Fund,
Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value Fund,
Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Gold & Special Minerals Oppenheimer Quest Value Fund, Inc.
Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Fund Limited-Term New York Municipal Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
n 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.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which
may be counted toward completion of a Letter) include: (a) Class A shares sold
with a front-end sales charge or subject to a Class
A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. The amount of the
Asset Builder investment may be changed or the automatic investments may be
terminated at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the Plan's applicable investments
reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
n Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class B
shares would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
n Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian bank 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 bank 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 U.S.
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days and the values of some of the Fund's
portfolio securities may change significantly on these days, when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Manager determines that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.
n Securities Valuation. The Fund's Board of Directors has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on Nasdaq are
valued as follows: (1) if last sale information is regularly reported, they are
valued at the
last reported sale price on the principal exchange on which they
are traded or on Nasdaq, as applicable, on that day, or
(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:
o Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
o Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
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 aggregate
net asset value of those shares is less than $500 or such lesser amount as the
Board may fix. The Board will not cause the involuntary redemption of shares in
an account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred. 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 wish 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's practice of attempting to pay dividends
on Class A shares at a constant level requires the Manager to monitor the Fund's
portfolio and, if necessary, to select higher-yielding securities when it is
deemed appropriate to seek income at the level needed to meet the target. Those
securities must be within the Fund's investment parameters, however. The Fund
expects to pay dividends at a targeted level from its net investment income and
other distributable income without any impact on the net asset value per share.
The Fund has no fixed dividend rate for Class B, Class C and Class Y, and
the rate can change for Class A shares. There can be no assurance as to the
payment of any dividends or the realization of any capital gains. The dividends
and distributions paid by a class of shares will vary from time to time
depending on market conditions, the composition of the Fund's portfolio, and
expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time, and on the same day for each
class of shares. However, dividends on Class B and Class C shares are expected
to be lower than dividends on Class A and Class Y shares. That is because of the
effect of the asset-based sales charge on Class B and Class C shares. Those
dividends will also differ in amount as a consequence of any difference in the
net asset values of the different classes of shares.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility
of the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Directors and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
<PAGE>
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer Agent
at the address and toll-free numbers shown on the back cover.
The Custodian. The Bank of New York is the custodian of the Fund's assets. The
custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the custodian bank in
a manner uninfluenced by any banking relationship the custodian bank 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. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and certain other funds
advised by the Manager and its affiliates.
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
================================================================================
The Board of Directors and Shareholders of
Oppenheimer Total Return Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Total Return Fund, Inc. as of
December 31, 1998, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended December 31, 1998
and 1997, and the financial highlights for the period January 1, 1994, to
December 31, 1998. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1998, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Oppenheimer
Total Return Fund, Inc. as of December 31, 1998, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Denver, Colorado
January 25, 1999
40 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments December 31, 1998
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
================================================================================
Common Stocks--75.2%
- --------------------------------------------------------------------------------
Basic Materials--1.1%
- --------------------------------------------------------------------------------
Chemicals--0.3%
International Flavors & Fragrances, Inc. 260,000 $
11,488,750
- --------------------------------------------------------------------------------
Paper--0.8%
Sonoco Products Co. 330,000
9,776,250
- --------------------------------------------------------------------------------
Union Camp Corp. 310,000
20,925,000
- --------------
30,701,250
- --------------------------------------------------------------------------------
Capital Goods--7.3%
- --------------------------------------------------------------------------------
Aerospace/Defense--0.5%
Goodrich (B.F.) Co. 200,000
7,175,000
- --------------------------------------------------------------------------------
Precision Castparts Corp. 268,600
11,885,550
- --------------------------------------------------------------------------------
Raytheon Co., Cl. A 12,754
659,222
- --------------
19,719,772
- --------------------------------------------------------------------------------
Electrical Equipment--0.7%
AMP, Inc. 370,706
19,299,881
- --------------------------------------------------------------------------------
Honeywell, Inc. 100,000
7,531,250
- --------------
26,831,131
- --------------------------------------------------------------------------------
Industrial Services--1.9%
Allied Waste Industries, Inc. (New)(1) 860,790
20,336,164
- --------------------------------------------------------------------------------
Republic Services, Inc., Cl. A(1) 1,151,000
21,221,562
- --------------------------------------------------------------------------------
ServiceMaster Co. (The) 702,150
15,491,184
- --------------------------------------------------------------------------------
Waste Management, Inc. (New) 359,250
16,750,031
- --------------
73,798,941
- --------------------------------------------------------------------------------
Manufacturing--4.2%
AlliedSignal, Inc. 300,000
13,293,750
- --------------------------------------------------------------------------------
American Standard Cos., Inc.(1) 285,300
10,270,800
- --------------------------------------------------------------------------------
Hillenbrand Industries, Inc. 400,000
22,750,000
- --------------------------------------------------------------------------------
Tenneco, Inc. (New) 300,000
10,218,750
- --------------------------------------------------------------------------------
Tyco International Ltd. 1,410,000
106,366,875
- --------------
162,900,175
- --------------------------------------------------------------------------------
Consumer Cyclicals--11.1%
- --------------------------------------------------------------------------------
Autos & Housing--0.6%
Lear Corp.(1) 271,800
10,464,300
- --------------------------------------------------------------------------------
Maytag Corp. 220,000
13,695,000
- --------------
24,159,300
15 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Leisure & Entertainment--1.0%
Carnival Corp. 500,000 $
24,000,000
- --------------------------------------------------------------------------------
Circus Circus Enterprises, Inc.(1) 200,000
2,287,500
- --------------------------------------------------------------------------------
Hasbro, Inc. 200,000
7,225,000
- --------------------------------------------------------------------------------
Mirage Resorts, Inc.(1) 300,000
4,481,250
- --------------
37,993,750
- --------------------------------------------------------------------------------
Media--0.7%
Donnelley (R.R.) & Sons Co. 375,000
16,429,687
- --------------------------------------------------------------------------------
Fox Entertainment Group, Inc., A Shares(1) 381,000
9,596,437
- --------------------------------------------------------------------------------
R.H. Donnelley Corp. 100,000
1,456,250
- --------------
27,482,374
- --------------------------------------------------------------------------------
Retail: General--2.9%
Federated Department Stores, Inc.(1) 300,000
13,068,750
- --------------------------------------------------------------------------------
Kohl's Corp.(1) 440,000
27,032,500
- --------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 895,000
72,886,562
- --------------
112,987,812
- --------------------------------------------------------------------------------
Retail: Specialty--5.9%
Abercrombie & Fitch Co., Cl. A(1) 350,012
24,763,349
- --------------------------------------------------------------------------------
AutoZone, Inc.(1) 500,000
16,468,750
- --------------------------------------------------------------------------------
General Nutrition Cos., Inc.(1) 400,000
6,500,000
- --------------------------------------------------------------------------------
Home Depot, Inc.(2) 1,457,000
89,150,187
- --------------------------------------------------------------------------------
Intimate Brands, Inc., Cl. A 400,000
11,950,000
- --------------------------------------------------------------------------------
Linens 'N Things, Inc.(1) 555,800
22,023,575
- --------------------------------------------------------------------------------
OfficeMax, Inc.(1) 1,900,000
23,275,000
- --------------------------------------------------------------------------------
Republic Industries, Inc.(1) 1,900,000
28,025,000
- --------------------------------------------------------------------------------
Sherwin-Williams Co. 302,200
8,877,125
- --------------
231,032,986
- --------------------------------------------------------------------------------
Consumer Staples--7.9%
- --------------------------------------------------------------------------------
Beverages--0.5%
Anheuser-Busch Cos., Inc. 300,000
19,687,500
- --------------------------------------------------------------------------------
Consumer Services--0.7%
Dun & Bradstreet Corp. (New) 600,000
18,937,500
- --------------------------------------------------------------------------------
Young & Rubicam, Inc.(1) 307,000
9,939,125
- --------------
28,876,625
- --------------------------------------------------------------------------------
Entertainment--0.8%
Brinker International, Inc.(1) 500,000
14,437,500
- --------------------------------------------------------------------------------
Starbucks Corp.(1) 330,000
18,521,250
- --------------
32,958,750
16 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Food--0.6%
General Mills, Inc. 100,000 $
7,775,000
- --------------------------------------------------------------------------------
RJR Nabisco Holdings Corp. 552,000
16,387,500
- --------------
24,162,500
- --------------------------------------------------------------------------------
Food & Drug Retailers--3.4%
CVS Corp. 1,604,364
88,240,020
- --------------------------------------------------------------------------------
Kroger Co.(1) 200,000
12,100,000
- --------------------------------------------------------------------------------
U.S. Foodservice, Inc.(1) 196,900
9,648,100
- --------------------------------------------------------------------------------
Walgreen Co. 385,000
22,546,562
- --------------
132,534,682
- --------------------------------------------------------------------------------
Household Goods--0.5%
Newell Co. 400,000
16,500,000
- --------------------------------------------------------------------------------
Tupperware Corp. 125,000
2,054,687
- --------------
18,554,687
- --------------------------------------------------------------------------------
Tobacco--1.4%
Philip Morris Cos., Inc. 1,025,000
54,837,500
- --------------------------------------------------------------------------------
Energy--1.9%
- --------------------------------------------------------------------------------
Energy Services & Producers--0.3%
Schlumberger Ltd. 253,600
11,697,300
- --------------------------------------------------------------------------------
Oil: Domestic--1.6%
Conoco, Inc., Cl. A(1) 624,600
13,038,525
- --------------------------------------------------------------------------------
Exxon Corp. 300,000
21,937,500
- --------------------------------------------------------------------------------
Mobil Corp. 100,000
8,712,500
- --------------------------------------------------------------------------------
Unocal Corp. 300,000
8,756,250
- --------------------------------------------------------------------------------
USX-Marathon Group 300,000
9,037,500
- --------------
61,482,275
- --------------------------------------------------------------------------------
Financial--18.0%
- --------------------------------------------------------------------------------
Banks--6.0%
Bank One Corp. 330,000
16,850,625
- --------------------------------------------------------------------------------
BankAmerica Corp. (New) 582,900
35,046,862
- --------------------------------------------------------------------------------
Chase Manhattan Corp. (New) 350,000
23,821,875
- --------------------------------------------------------------------------------
East West Bancorp, Inc.(1)(3) 1,000,000
9,250,000
- --------------------------------------------------------------------------------
Fifth Third Bancorp 150,000
10,696,875
- --------------------------------------------------------------------------------
First Tennessee National Corp. 427,000
16,252,687
- --------------------------------------------------------------------------------
First Union Corp. 713,000
43,359,313
- --------------------------------------------------------------------------------
Fleet Financial Group, Inc. 200,600
8,964,313
- --------------------------------------------------------------------------------
KeyCorp 400,000
12,800,000
17 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Banks (continued)
National City Corp. 360,000 $
26,100,000
- --------------------------------------------------------------------------------
PNC Bank Corp. 270,000
14,613,750
- --------------------------------------------------------------------------------
Summit Bancorp 360,000
15,727,500
- --------------
233,483,800
- --------------------------------------------------------------------------------
Diversified Financial--8.0%
American Express Co. 225,000
23,006,250
- --------------------------------------------------------------------------------
Anthracite Capital, Inc. 400,000
3,125,000
- --------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A 618,000
26,187,750
- --------------------------------------------------------------------------------
Citigroup, Inc. 849,999
42,074,975
- --------------------------------------------------------------------------------
Countrywide Credit Industries, Inc. 250,000
12,546,875
- --------------------------------------------------------------------------------
Freddie Mac 1,298,800
83,691,425
- --------------------------------------------------------------------------------
Household International, Inc. 759,990
30,114,604
- --------------------------------------------------------------------------------
Imperial Credit Commercial Mortgage
Investment Corp. 500,000
4,687,500
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 100,000
7,100,000
- --------------------------------------------------------------------------------
Providian Financial Corp. 615,000
46,125,000
- --------------------------------------------------------------------------------
Schwab (Charles) Corp. 590,700
33,189,956
- --------------
311,849,335
- --------------------------------------------------------------------------------
Insurance--3.1%
Allstate Corp. 250,000
9,656,250
- --------------------------------------------------------------------------------
American General Corp. 300,000
23,400,000
- --------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 400,000
21,950,000
- --------------------------------------------------------------------------------
NAC Re Corp. 161,700
7,589,794
- --------------------------------------------------------------------------------
St. Paul Cos., Inc. 400,000
13,900,000
- --------------------------------------------------------------------------------
SunAmerica, Inc. 532,500
43,199,063
- --------------
119,695,107
- --------------------------------------------------------------------------------
Real Estate Investment Trusts--0.5%
AMB Property Corp. 216,100
4,754,200
- --------------------------------------------------------------------------------
Arden Realty, Inc. 222,500
5,159,219
- --------------------------------------------------------------------------------
Avalonbay Communities, Inc. 45,000
1,541,250
- --------------------------------------------------------------------------------
Correctional Properties Trust 83,000
1,499,188
- --------------------------------------------------------------------------------
Health Care Property Investors, Inc. 91,000
2,798,250
- --------------------------------------------------------------------------------
Kilroy Realty Corp. 184,400
4,241,200
- --------------
19,993,307
- --------------------------------------------------------------------------------
Savings & Loans--0.4%
Local Financial Corp.(1) 400,000
3,600,000
- --------------------------------------------------------------------------------
Washington Mutual, Inc. 300,000
11,456,250
- --------------
15,056,250
18 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Healthcare--10.5%
- --------------------------------------------------------------------------------
Healthcare/Drugs--6.1%
Abbott Laboratories 375,000 $
18,375,000
- --------------------------------------------------------------------------------
American Home Products Corp. 300,000
16,893,750
- --------------------------------------------------------------------------------
Amgen, Inc.(1) 125,000
13,070,313
- --------------------------------------------------------------------------------
Biogen, Inc.(1) 250,000
20,750,000
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 485,000
64,899,063
- --------------------------------------------------------------------------------
Lynx Therapeutics, Inc. (New)(1)(3) 15,390
176,985
- --------------------------------------------------------------------------------
Merck & Co., Inc. 100,000
14,768,750
- --------------------------------------------------------------------------------
Mylan Laboratories, Inc. 300,000
9,450,000
- --------------------------------------------------------------------------------
Pfizer, Inc. 210,000
26,341,875
- --------------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 450,000
25,481,250
- --------------------------------------------------------------------------------
Warner Lambert Co. 350,000
26,315,625
- --------------
236,522,611
- --------------------------------------------------------------------------------
Healthcare/Supplies & Services--4.4%
Bausch & Lomb, Inc. 200,000
12,000,000
- --------------------------------------------------------------------------------
Cardinal Health, Inc. 947,400
71,883,975
- --------------------------------------------------------------------------------
Guidant Corp. 269,200
29,679,300
- --------------------------------------------------------------------------------
HealthSouth Corp.(1) 646,548
9,981,085
- --------------------------------------------------------------------------------
McKesson Corp. 370,000
29,253,125
- --------------------------------------------------------------------------------
Medtronic, Inc. 239,100
17,753,175
- --------------
170,550,660
- --------------------------------------------------------------------------------
Technology--9.3%
- --------------------------------------------------------------------------------
Computer Hardware--4.0%
3Com Corp.(1) 50,000
2,240,625
- --------------------------------------------------------------------------------
Cisco Systems, Inc.(1) 522,000
48,448,125
- --------------------------------------------------------------------------------
Dell Computer Corp.(1) 970,000
70,991,875
- --------------------------------------------------------------------------------
EMC Corp.(1) 410,000
34,850,000
- --------------
156,530,625
- --------------------------------------------------------------------------------
Computer Software/Services--2.9%
Compuware Corp.(1) 680,000
53,125,000
- --------------------------------------------------------------------------------
HBO & Co. 270,000
7,745,625
- --------------------------------------------------------------------------------
J.D. Edwards & Co.(1) 130,500
3,702,938
- --------------------------------------------------------------------------------
Microsoft Corp.(1) 354,200
49,123,113
- --------------
113,696,676
- --------------------------------------------------------------------------------
Communications Equipment--0.7%
General Instrument Corp.(1) 100,000
3,393,750
- --------------------------------------------------------------------------------
Lucent Technologies, Inc. 200,000
22,000,000
- --------------
25,393,750
19 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Electronics--1.7%
Motorola, Inc. 275,000 $
16,792,188
- --------------------------------------------------------------------------------
Uniphase Corp.(1)(2) 525,000
36,421,875
- --------------------------------------------------------------------------------
Waters Corp.(1) 150,000
13,087,500
- --------------
66,301,563
- --------------------------------------------------------------------------------
Telecommunications--5.3%
- --------------------------------------------------------------------------------
Telephone Utilities--3.5%
Bell Atlantic Corp. 896,800
50,949,450
- --------------------------------------------------------------------------------
BellSouth Corp. 400,000
19,950,000
- --------------------------------------------------------------------------------
GTE Corp. 500,000
33,718,750
- --------------------------------------------------------------------------------
SBC Communications, Inc. 600,000
32,175,000
- --------------
136,793,200
- --------------------------------------------------------------------------------
Telecommunications/Technology--1.8%
Airtouch Communications, Inc.(1) 100,000
7,212,500
- --------------------------------------------------------------------------------
MCI WorldCom, Inc.(1) 712,800
51,143,400
- --------------------------------------------------------------------------------
Qwest Communications International, Inc.(1) 268,203
13,410,150
- --------------
71,766,050
- --------------------------------------------------------------------------------
Utilities--2.8%
- --------------------------------------------------------------------------------
Electric Utilities--2.3%
Allegheny Energy, Inc. 210,000
7,245,000
- --------------------------------------------------------------------------------
Carolina Power & Light Co. 110,000
5,176,875
- --------------------------------------------------------------------------------
CINergy Corp. 134,800
4,633,750
- --------------------------------------------------------------------------------
DQE, Inc. 144,100
6,331,394
- --------------------------------------------------------------------------------
Illinova Corp. 300,000
7,500,000
- --------------------------------------------------------------------------------
New Century Energies, Inc. 400,000
19,500,000
- --------------------------------------------------------------------------------
Southern Co. 298,500
8,675,156
- --------------------------------------------------------------------------------
Texas Utilities Co. 200,000
9,337,500
Unicom Corp. 500,000
19,281,250
- --------------
87,680,925
- --------------------------------------------------------------------------------
Gas Utilities--0.5%
Enron Corp. 325,000
18,545,313
- --------------
Total Common Stocks (Cost $1,863,977,330)
2,927,747,232
20 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Preferred Stocks--1.8%
- --------------------------------------------------------------------------------
Big Flower Press Holdings, Inc., $3.00 Cv
Preferred Stock(4) 100,000 $
4,712,500
- --------------------------------------------------------------------------------
Dollar General Corp., 8.50% Cv. Preferred Stock 271,100
9,657,937
- --------------------------------------------------------------------------------
Microsoft Corp., $2.196 Cv., Series A 205,000
20,038,750
- --------------------------------------------------------------------------------
Newell Financial Trust I, 5.25% Cv. Preferred
Stock(4) 163,000
8,598,250
- --------------------------------------------------------------------------------
TCI Communications, Inc., $2.125 Cv. Cum., Series A 100,000
11,725,000
- --------------------------------------------------------------------------------
TCI Pacific Communications, Inc., 5% Cv. Cum. Sr
Preferred, Cl. A 50,000
14,068,750
- --------------
Total Preferred Stocks (Cost $49,412,656)
68,801,187
================================================================================
Other Securities--2.3%
- --------------------------------------------------------------------------------
Cooper Industries, Inc., 6% Debt Exchangeable
Nts. for Common Stock of Wyman-Gordon Co., 1/1/99 365,000
3,558,750
- --------------------------------------------------------------------------------
Houston Industries, Inc., 7% Automatic Common
Exchange Securities, Exchangeable for Time
Warner, Inc. Common Stock, 7/1/00 211,000
22,445,125
- --------------------------------------------------------------------------------
MediaOne Group, Inc., 6.25% Cv. Premium Income
Exchangeable Securities for Airtouch
Communications, Inc. common stock 430,100
28,601,650
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6.25% Structured
Yield Product Exchangeable for Stock of IMC
Global, Inc. 90,900
2,158,875
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 7.25% Structured
Yield Product Exchangeable for Common Stock of
SunAmerica, Inc., 6/15/99 75,000
5,587,500
- --------------------------------------------------------------------------------
Premier Parks, Inc., 7.50% Cum. Cv. Premium
Income Equity Securities, Non-Vtg 232,000
13,746,000
- --------------------------------------------------------------------------------
St. George Bank, ADR $1.35 Cv. Structured
Yield Product Exchangeable for Common Stock
of St. George Bank, ADR(4) 90,000
4,275,000
- --------------------------------------------------------------------------------
Texas Utilities Co., 9.25% Cv. Preferred
Redeemable Increased Dividend Equity Securities 117,600
6,629,700
- --------------------------------------------------------------------------------
Union Pacific Capital Trust, 6.25% Cum. Term
Income Deferrable Equity Securities, Non-Vtg 87,600
4,073,400
- --------------------------------------------------------------------------------
Total Other Securities (Cost $75,335,511)
91,076,000
- --------------
Units
================================================================================
Rights, Warrants and Certificates--0.0%
- --------------------------------------------------------------------------------
American Satellite Network, Inc. Wts., Exp. 6/99 100,000
- --
- --------------------------------------------------------------------------------
Iwerks Entertainment, Inc. Wts., Exp. 7/99 48,379
- --
- --------------
Total Rights, Warrants and Certificates (Cost $0)
- --
21 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Face Market Value
Amount(5) See Note 1
================================================================================
U.S. Government Obligations--5.2%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.625%, 2/15/27 $ 25,675,000 $
30,376,734
- --------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.92%, 11/15/18(6) 54,000,000
17,994,582
- --------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.17%, 2/15/20(6) 100,000,000
30,965,500
- --------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.51%, 8/15/19(6) 100,000,000
31,836,700
- --------------------------------------------------------------------------------
U.S. Treasury Nts., 6.25%, 2/15/07 31,200,000
34,232,266
- --------------------------------------------------------------------------------
U.S. Treasury Nts., 6.25%, 3/31/99 10,000,000
10,040,630
- --------------------------------------------------------------------------------
U.S. Treasury Nts., 6.625%, 3/31/02 30,050,000
31,768,499
- --------------------------------------------------------------------------------
U.S. Treasury Nts., 7.75%, 11/30/99 10,000,000
10,275,000
- --------------------------------------------------------------------------------
U.S. Treasury Nts., 7.75%, 12/31/99 5,000,000
5,151,565
- --------------
Total U.S. Government Obligations
(Cost $178,460,468)
202,641,476
================================================================================
Non-Convertible Corporate Bonds and Notes--0.0%
- --------------------------------------------------------------------------------
Dresdner Finance BV, 5.50% Gtd. Nts., 4/30/04DEM
(Cost $279,377) 417,000
395,587
================================================================================
Convertible Corporate Bonds and Notes--3.1%
- --------------------------------------------------------------------------------
Affiliated Computer Services, Inc., 4% Cv. Sub.
Nts., 3/15/05(4) 5,000,000
6,025,000
- --------------------------------------------------------------------------------
EMC Corp., 3.25% Cv. Sub. Nts., 3/15/02(4) 5,000,000
18,712,500
- --------------------------------------------------------------------------------
HealthSouth Corp., 3.25% Cv. Sub. Nts., 4/1/03 10,000,000
8,550,000
- --------------------------------------------------------------------------------
Home Depot, Inc., 3.25% Cv. Sub. Nts., 10/1/01 18,600,000
49,104,000
- --------------------------------------------------------------------------------
IRSA-Inversiones y Representaciones SA, 4.50%
Puttable & Redeemable Cv. Knockout Securities,
8/2/03(4) 7,758,000
7,583,445
- --------------------------------------------------------------------------------
Level One Communications, Inc., 4% Cv. Sub. Nts.,
9/1/04(4) 3,500,000
5,166,875
- --------------------------------------------------------------------------------
Offshore Logistics, Inc., 6% Cv. Sub. Nts.,
12/15/03(4) 5,000,000
4,318,750
- --------------------------------------------------------------------------------
Sanifill, Inc., 5% Cv. Sub. Debs., 3/1/06 2,000,000
3,342,500
- --------------------------------------------------------------------------------
Scandinavian Broadcasting System SA,
7.25% Cv. Sub. Debs., 8/1/05 3,000,000
3,101,250
- --------------------------------------------------------------------------------
Sunrise Assisted Living, Inc., 5.50% Cv. Nts.,
6/15/02(4) 3,409,000
5,062,365
- --------------------------------------------------------------------------------
Tower Automotive, Inc., 5% Cv. Sub. Nts.,
8/1/04(4) 3,340,000
3,740,800
- --------------------------------------------------------------------------------
United Waste Systems, Inc., 4.50% Cv. Sub.
Nts., 6/1/01 4,333,000
6,797,394
- --------------
Total Convertible Corporate Bonds and Notes
(Cost $75,144,248)
121,504,879
22 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Market Value
Amount(5) See Note 1
===============================================================================
Short-Term Notes--7.1%(7)
- -------------------------------------------------------------------------------
CIESCO LP, 5.20%, 1/12/99 $ 25,000,000 $
24,960,278
- -------------------------------------------------------------------------------
CIT Group Holdings, Inc., 5.17%, 1/14/99 25,000,000
24,953,326
- -------------------------------------------------------------------------------
CIT Group Holdings, Inc., 5.19%, 1/8/99 50,000,000
49,949,542
- -------------------------------------------------------------------------------
Ford Motor Credit Co., 5.41%, 1/6/99 50,000,000
49,962,431
- -------------------------------------------------------------------------------
Goldman Sachs Group, LP, 5.01%, 1/7/99 50,000,000
49,958,250
- -------------------------------------------------------------------------------
Household Finance Corp., 5.41%, 1/5/99 25,000,000
24,984,972
- -------------------------------------------------------------------------------
Prudential Funding Corp., 5.17%, 1/4/99 50,000,000
49,978,458
- --------------
Total Short-Term Notes (Cost $274,747,257)
274,747,257
===============================================================================
Repurchase Agreements--5.4%
- -------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets, 4.75%, dated 12/31/98,
to be repurchased at $208,810,147 on 1/4/99, collateralized by U.S. Treasury
Nts., 4%--8.875%, 2/15/99--7/15/06, with a value of $212,958,322 (Cost
$208,700,000) 208,700,000
208,700,000
- -------------------------------------------------------------------------------
Total Investments, at Value (Cost $2,726,056,847) 100.1%
3,895,613,618
- -------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (0.1)
(2,592,031)
-----------
- --------------
Net Assets 100.0%
$3,893,021,587
===========
==============
1. Non-income producing security.
2. A sufficient amount of liquid assets has been designated to cover outstanding
written call options, as follows:
Shares Expiration Exercise Premium Market
Value
Subject to Call Date Price Received See Note 1
- --------------------------------------------------------------------------------
Home Depot, Inc. 300,000 1/99 $60 $568,230
$750,000
- --------------------------------------------------------------------------------
Uniphase Corp. 41,200 1/99 70 103,739
97,850
--------
- --------
$671,969
$847,850
========
========
3. Identifies issues considered to be illiquid or restricted--See Note 7 of
Notes to Financial Statements.
4. 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 $68,195,485 or 1.75% of the Fund's net
assets as of December 31, 1998.
5. Face amount is reported in U.S. Dollars, except for those denoted in the
following currency: DEM--German Mark
6. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
7. 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.
23 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1998
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value (cost $2,726,056,847)--see
accompanying statement $
3,895,613,618
- -------------------------------------------------------------------------------
Cash
131,816
- -------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends 6,536,698 Shares of capital stock sold 4,019,327
Investments sold 1,251,158 Other 61,883
- ---------------
Total assets
3,907,614,500
===============================================================================
Liabilities
Options written, at value (premiums received $671,969)--
see accompanying statement--Note 6
847,850
- -------------------------------------------------------------------------------
Payables and other liabilities: Shares of capital stock redeemed 10,746,750
Distribution and service plan fees 1,854,588 Shareholder reports 404,495
Transfer and shareholder servicing agent fees 282,651 Custodian fees 52,740
Other 403,839
- ---------------
Total liabilities
14,592,913
===============================================================================
Net Assets $
3,893,021,587
===============
===============================================================================
Composition of Net Assets
Par value of shares of capital stock $
31,931,393
- -------------------------------------------------------------------------------
Additional paid-in capital
2,691,179,033
- -------------------------------------------------------------------------------
Undistributed net investment income
846,860
- -------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions
(316,931)
- -------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies
1,169,381,232
- ---------------
Net assets $
3,893,021,587
===============
24 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $2,594,323,957 and 212,058,856
shares of capital stock outstanding) $
12.23
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $
12.98
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $1,201,740,764 and
99,290,242 shares of capital
stock outstanding) $
12.10
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $58,082,426 and
4,788,118
shares of capital stock outstanding) $
12.13
- --------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price
per share (based on net assets of $38,874,440 and 3,176,712
shares of capital stock outstanding) $
12.24
See accompanying Notes to Financial Statements.
25 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
===============================================================================
Investment Income
Dividends (net of foreign withholding taxes of $66,486) $
42,750,608
- -------------------------------------------------------------------------------
Interest
34,268,156
- -------------
Total income
77,018,764
===============================================================================
Expenses
Management fees--Note 4
18,483,834
- -------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A
4,589,529
Class B
10,798,037
Class C
464,989
- -------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4:
Class A
2,614,545
Class B
1,181,708
Class C
50,663
Class Y
78,349
- -------------------------------------------------------------------------------
Shareholder reports
744,134
- -------------------------------------------------------------------------------
Custodian fees and expenses
133,216
- -------------------------------------------------------------------------------
Legal, auditing and other professional fees
81,333
- -------------------------------------------------------------------------------
Directors' fees and expenses
81,187
- -------------------------------------------------------------------------------
Insurance expenses
29,396
- -------------------------------------------------------------------------------
Registration and filing fees:
Class A 62,630 Class B 56,441 Class C 6,063 Class Y 3,336
- -------------------------------------------------------------------------------
Other
79,332
- -------------
Total expenses
39,538,722
===============================================================================
Net Investment Income
37,480,042
===============================================================================
Realized and Unrealized Gain (Loss) Net realized gain (loss) on:
Investments (including premiums on options exercised) 244,260,875 Closing and
expiration of option contracts written--Note 6 556,961 Foreign currency
transactions (1,385,983)
- -------------
Net realized gain
243,431,853
- -------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments
395,617,079
Translation of assets and liabilities denominated in
foreign currencies
1,429,964
- -------------
Net change
397,047,043
- -------------
Net realized and unrealized gain
640,478,896
===============================================================================
Net Increase in Net Assets Resulting from Operations $
677,958,938
=============
See accompanying Notes to Financial Statements.
26 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December
31,
1998
1997
==========================================================================================
<S> <C>
<C>
Operations
Net investment income $ 37,480,042
$ 35,274,289
- ------------------------------------------------------------------------------------------
Net realized gain
243,431,853 344,889,410
- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
397,047,043 324,212,131
---------------
- ---------------
Net increase in net assets resulting from operations
677,958,938 704,375,830
==========================================================================================
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A
(30,566,836) (25,899,439)
Class B
(5,719,175) (4,145,345)
Class C
(263,905) (125,521)
Class Y
(455,751) (304,885)
- ------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (172,164,137)
(233,156,326)
Class B (80,057,166)
(103,661,283)
Class C
(3,815,686) (3,743,308)
Class Y
(2,532,986) (2,706,730)
==========================================================================================
Capital Stock Transactions Net increase in net assets resulting from capital
stock transactions--Note 2:
Class A
96,918,666 179,892,536
Class B
100,622,566 136,818,203
Class C
16,796,414 16,813,077
Class Y
8,780,891 6,041,378
==========================================================================================
Net Assets
Total increase
605,501,833 670,198,187
- ------------------------------------------------------------------------------------------
Beginning of period 3,287,519,754
2,617,321,567
---------------
- ---------------
End of period (including undistributed net investment
income of $846,860 and $460,757, respectively) $ 3,893,021,587 $
3,287,519,754
===============
===============
</TABLE>
See accompanying Notes to Financial Statements.
27 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
A
- -------------------------------------------
Year Ended December
31,
1998
1997 1996
============================================================================================
<S> <C>
<C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 11.00 $
9.77 $ 9.35
- --------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .16
.16 .20
Net realized and unrealized gain (loss) 2.09
2.49 1.63
-----------
- ----------- -----------
Total income (loss) from investment operations 2.25
2.65 1.83
- --------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.15)
(.14) (.20)
Distributions from net realized gain (.87)
(1.28) (1.21)
-----------
- ----------- -----------
Total dividends and distributions
to shareholders (1.02)
(1.42) (1.41)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.23 $
11.00 $ 9.77
===========
=========== ===========
============================================================================================
Total Return, at Net Asset Value(3) 21.16%
27.39% 19.73%
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 2,594,324 $
2,237,603 $ 1,826,599
- --------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,387,815 $
2,045,166 $ 1,684,726
- --------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.31%
1.43% 1.96%
Expenses 0.86%
0.89% 0.90%
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 38.1%
91.7% 117.5%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to December 31,
1994.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. 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.
28 Oppenheimer Total Return Fund, Inc.
<PAGE>
<TABLE>
<CAPTION>
Class B
- ----------------------------
- ----------------------------------------------------------------------
Year Ended December 31,
1995 1994 1998 1997 1996
1995 1994
======================================================================================================
<S> <C> <C> <C> <C>
<C> <C>
$ 7.80 $ 8.69 $ 10.89 $ 9.70 $ 9.29
$ 7.76 $ 8.66
- ------------------------------------------------------------------------------------------------------
.23 .23 .06 .07
.12 .15 .17
2.09 (.91) 2.08 2.45
1.62 2.08 (.91)
- ----------- ----------- ----------- --------- ----------
- ---------- ----------
2.32 (.68) 2.14 2.52
1.74 2.23 (.74)
- ------------------------------------------------------------------------------------------------------
(.22) (.21) (.06) (.05)
(.12) (.15) (.16)
(.55) -- (.87) (1.28)
(1.21) (.55) --
- ----------- ----------- ----------- --------- ----------
- ---------- ----------
(.77) (.21) (.93) (1.33)
(1.33) (.70) (.16)
- ------------------------------------------------------------------------------------------------------
$ 9.35 $ 7.80 $ 12.10 $ 10.89 $ 9.70
$ 9.29 $ 7.76
=========== =========== =========== ========= ==========
========== ==========
======================================================================================================
30.12% (7.86)% 20.25% 26.17%
18.78% 29.03% (8.64)%
======================================================================================================
$ 1,550,710 $ 1,235,637 $ 1,201,741 $ 986,713 $ 754,918
$ 589,804 $ 429,427
- ------------------------------------------------------------------------------------------------------
$ 1,394,245 $ 1,261,729 $ 1,080,395 $ 877,911 $ 671,593
$ 510,744 $ 360,773
- ------------------------------------------------------------------------------------------------------
2.53% 2.88% 0.50% 0.62%
1.15% 1.70% 2.11%
0.92% 1.01% 1.67% 1.71%
1.71% 1.75% 1.87%
- ------------------------------------------------------------------------------------------------------
84.8% 117.2% 38.1% 91.7%
117.5% 84.8% 117.2%
</TABLE>
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1998, were $1,253,379,444 and $1,600,426,044, respectively.
29 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
C
- -------------------------------------------------
Year Ended December
31,
1998 1997
1996 1995(2)
==================================================================================================
<S> <C> <C>
<C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 10.92 $ 9.72
$ 9.33 $ 9.19
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .06
.07 .16 .07
Net realized and unrealized gain (loss) 2.08
2.46 1.57 .73
-------- --------
- -------- --------
Total income (loss) from investment operations 2.14
2.53 1.73 .80
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.06)
(.05) (.13) (.11)
Distributions from net realized gain (.87) (1.28)
(1.21) (.55)
-------- --------
- -------- --------
Total dividends and distributions
to shareholders (.93) (1.33)
(1.34) (.66)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.13 $ 10.92
$ 9.72 $ 9.33
======== ========
======== ========
==================================================================================================
Total Return, at Net Asset Value(3) 20.20% 26.23%
18.67% 8.82%
==================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 58,082 $ 36,657 $
17,554 $ 1,655
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 46,558 $ 27,349 $
8,277 $ 784
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.50%
0.63% 1.05% 1.42%(4)
Expenses 1.67%
1.72% 1.76% 1.77%(4)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 38.1% 91.7%
117.5% 84.8%
</TABLE>
1. For the period from June 1, 1994 (inception of offering) to December 31,
1994.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
30 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class Y
- --------------------------------------------------------------
Year Ended December 31,
1998 1997 1996 1995 1994(1)
==============================================================
$ 11.00 $ 9.77 $ 9.35 $ 7.80 $ 8.23
- --------------------------------------------------------------
.17 .18 .23 .20 .15
2.10 2.48 1.61 2.13 (.41)
- -------- -------- -------- -------- --------
2.27 2.66 1.84 2.33 (.26)
- --------------------------------------------------------------
(.16) (.15) (.21) (.23) (.17)
(.87) (1.28) (1.21) (.55) --
- -------- -------- -------- -------- --------
(1.03) (1.43) (1.42) (.78) (.17)
- --------------------------------------------------------------
$ 12.24 $ 11.00 $ 9.77 $ 9.35 $ 7.80
======== ======== ======== ======== ========
==============================================================
21.33% 27.53% 19.88% 30.23% (3.15)%
==============================================================
$ 38,874 $ 26,546 $ 18,252 $ 6,709 $ 1,074
- --------------------------------------------------------------
$ 33,687 $ 21,977 $ 13,083 $ 3,944 $ 320
- --------------------------------------------------------------
1.39% 1.60% 2.08% 2.51% 4.07%(4)
0.80% 0.74% 0.77% 0.87% 0.96%(4)
- --------------------------------------------------------------
38.1% 91.7% 117.5% 84.8% 117.2%
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1998, were $1,253,379,444 and $1,600,426,044, respectively.
See accompanying Notes to Financial Statements.
31 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Oppenheimer Total Return Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to seek high
total return. The Fund intends to seek its investment objective through
investment in securities which it believes will provide a high return, including
investments which are expected to provide opportunities for growth or to produce
income, or both. 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. Forward foreign currency exchange contracts are valued
based on the closing prices of the forward currency contract rates in the London
foreign exchange markets on a daily basis as provided by a reliable bank or
dealer. Options are valued based upon the last sale price on the principal
exchange on which the option is traded or, in the absence of any transactions
that day, the value is based upon the last sale price on the prior trading date
if it is within the spread between the closing bid and asked prices. If the last
sale price is outside the spread, the closing bid is used.
32 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
33 Oppenheimer Total Return Fund, Inc.
<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 the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for 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 December 31, 1998, amounts have been reclassified to reflect a
decrease in paid-in capital of $872,248, a decrease in undistributed net
investment income of $88,272, and a decrease in accumulated net realized loss on
investments of $960,520.
- --------------------------------------------------------------------------------
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 options written and unrealized
appreciation and depreciation are determined on an identified cost basis, which
is the same basis used for federal income tax purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
34 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
2. Capital Stock
The Fund has authorized 450 million, 200 million, 200 million and 10 million
shares of $.10 par value Class A, Class B, Class C and Class Y capital stock,
respectively. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended
December 31, 1997
----------------------------
- ----------------------------
Shares Amount Shares
Amount
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C>
Class A:
Sold 20,090,100 $ 238,366,108 18,977,566
$ 206,996,029
Dividends and
distributions reinvested 16,639,080 191,036,172
22,473,543 244,366,731
Redeemed (28,120,324) (332,483,614)
(24,890,415) (271,470,224)
----------- ------------- ------------
- -------------
Net increase 8,608,856 $ 96,918,666 16,560,694
$ 179,892,536
=========== ============= ============
=============
- -------------------------------------------------------------------------------------------
Class B:
Sold 13,699,912 $ 160,764,683 12,559,650
$ 135,933,408
Dividends and
distributions reinvested 7,233,729 82,019,204
9,542,266 102,769,569
Redeemed (12,211,618) (142,161,321)
(9,385,924) (101,884,774)
----------- ------------- ------------
- -------------
Net increase 8,722,023 $ 100,622,566 12,715,992
$ 136,818,203
=========== ============= ============
=============
- -------------------------------------------------------------------------------------------
Class C:
Sold 2,117,847 $ 24,988,182 1,650,829
$ 17,900,517
Dividends and
distributions reinvested 344,352 3,914,027
345,135 3,728,540
Redeemed (1,031,386) (12,105,795)
(444,581) (4,815,980)
----------- ------------- ------------
- -------------
Net increase 1,430,813 $ 16,796,414 1,551,383
$ 16,813,077
=========== ============= ============
=============
- -------------------------------------------------------------------------------------------
Class Y:
Sold 1,821,738 $ 21,338,887 1,064,357
$ 11,578,084
Dividends and
distributions reinvested 260,255 2,988,737
276,903 3,011,615
Redeemed (1,318,484) (15,546,733)
(796,261) (8,548,321)
----------- ------------- ------------
- -------------
Net increase 763,509 $ 8,780,891 544,999
$ 6,041,378
=========== ============= ============
=============
</TABLE>
35 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
3. Unrealized Gains and Losses on Investments
As of December 31, 1998, net unrealized appreciation on investments and options
written of $1,169,380,890 was composed of gross appreciation of
$1,237,456,000,
and gross depreciation of $68,075,110.
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.75% of the first
$100 million of net assets, 0.70% of the next $100 million, 0.65% of the next
$100 million, 0.60% of the next $100 million, 0.55% of the next $100 million,
and 0.50% of net assets in excess of $500 million. The Fund's management fee for
the year ended December 31, 1998 was 0.52% of the average annual net assets for
Class A, Class B, Class C and Class Y shares.
For the year ended December 31, 1998, commissions (sales charges
paid by investors) on sales of Class A shares totaled $3,975,257, of which
$1,342,124 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 $75,535, $4,675,603 and
$187,049, respectively. Amounts paid to an affiliated broker/dealer for Class B
and Class C shares were $482,203 and $10,755, respectively. During the year
ended December 31, 1998, OFDI received contingent deferred sales charges of
$1,193,722 and $17,665, 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 December 31, 1998, OFDI paid $379,901
to an affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
36 Oppenheimer Total Return Fund, Inc.
<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 and Class C shares, determined as of
the close of each regular business day. During the year ended December 31, 1998,
OFDI paid $167,204 and $8,841, respectively, to an affiliated broker/dealer as
compensation for Class B and Class C personal service and maintenance expenses
and retained $8,406,270 and $293,061, 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 December 31, 1998,
OFDI had incurred excess distribution and servicing costs of $13,282,499 for
Class B and $496,032 for Class C.
================================================================================
5. Forward Contracts
A forward foreign currency exchange contract (forward contract) is a commitment
to purchase or sell a foreign currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency
risks. They may also be used to tactically shift portfolio currency risk. The
Fund generally enters into forward contracts as a hedge upon the purchase or
sale of a security denominated in a foreign currency. In addition, the Fund may
enter into such contracts as a hedge against changes in foreign currency
exchange rates on portfolio positions.
Forward contracts are valued based on the closing prices of the
forward currency contract rates in the London foreign exchange markets on a
daily basis as provided by a reliable bank or dealer. The Fund will realize a
gain or loss upon the closing or settlement of the forward transaction.
Securities held in segregated accounts to cover net exposure on
outstanding forward contracts are noted in the Statement of Investments where
applicable. Unrealized appreciation or depreciation on forward contracts is
reported in the Statement of Assets and Liabilities. Realized gains and losses
are reported with all other foreign currency gains and losses in the Fund's
Statement of Operations.
Risks include the potential inability of the counterparty to meet
the terms of the contract and unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
37 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
6. Option Activity
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call
options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Fund receives a premium and becomes obligated to
sell or purchase the underlying security at a fixed price, upon exercise of the
option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in
the Statement of Investments where applicable. Shares subject to call,
expiration date, exercise price, premium received and market value are detailed
in a footnote to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the year ended December 31, 1998 was as follows:
Call Options
- ------------------------------
Number of Amount of
Options Premiums
- --------------------------------------------------------------------------------
Options outstanding as of December 31, 1997 -- $
- --
Options written 11,362
1,620,446
Options closed or expired (7,450)
(887,479)
Options exercised (500)
(60,998)
------
- ----------
Options outstanding as of December 31, 1998 3,412 $
671,969
======
==========
38 Oppenheimer Total Return Fund, Inc.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
7. Illiquid and Restricted Securities
As of December 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 and 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 December 31, 1998 was $9,426,985, which
represents 0.24% of the Fund's net assets.
================================================================================
8. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended
December 31, 1998.
39 Oppenheimer Total Return Fund, Inc.
<PAGE>
<PAGE>
A-5
Appendix A
- ------------------------------------------------------------------------------
RATINGS DEFINITIONS
- ------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- ------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
- ------------------------------------------------------------------------------
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- ------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
- ------------------------------------------------------------------------------
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- ------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
<PAGE>
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
- ------------------------------------------------------------------------------
Industry Classifications
- ------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads
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>
C-12
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans2 (4)
Group Retirement Plans3 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,
Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
special arrangement or waiver in a particular case is in the sole discretion of
the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
1. Certain waivers also apply to Class M. shares of Oppenheimer
Convertible Securities Fund.
2. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
3. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."4 This waiver provision applies to:
4 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
o Purchases of Class A shares aggregating $1 million or more.
o Purchases by a Retirement Plan (other than an IRA or 403(b)(7) custodial plan)
that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a) mutual
funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a
Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or
managed by MLAM (the funds described in (a) and (b) are referred
to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and
Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have
$3 million or more of its assets (excluding assets invested in
money market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
o Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1,
1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any
Class A sales charges (and no commissions are paid by the Distributor on such
purchases):
o The Manager or its affiliates.
o Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse, a
spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are
included.
o Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
o Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
o Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and
which are identified as such to the Distributor) or with the
Distributor. The purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children).
o Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
o Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
o "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
o Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of
their investment advisor or financial planner on the books and
records of the broker, agent or financial intermediary with which
the Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
o Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons.
o Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company
or trust which is the beneficial owner of such accounts.
o A unit investment trust that has entered into an appropriate agreement
with the Distributor.
o Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
o
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code),
in each case if those purchases are made through a broker, agent or
other financial intermediary that has made special arrangements with
the Distributor for those purchases.
o A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
o A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases): o Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
o Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts for
which reinvestment arrangements have been made with the Distributor.
o Shares purchased through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's
customers to purchase and pay for shares of Oppenheimer funds using
the proceeds of shares redeemed in the prior 30 days from a mutual
fund (other than a fund managed by the Manager or any of its
subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid. This waiver also applies to shares
purchased by exchange of shares of Oppenheimer Money Market Fund,
Inc. that were purchased and paid for in this manner. This waiver
must be requested when the purchase order is placed for shares of
the Fund, and the Distributor may require evidence of qualification
for this waiver.
o Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
o Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate
acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases: o To make Automatic Withdrawal Plan payments that are limited
annually to
no more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
o Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
o For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.
5 This provision does not apply to IRAs.
5 Under a Qualified Domestic Relations Order, as defined in the Internal Revenue
Code, or, in the case of an IRA, a divorce or separation agreement described in
Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.6
6 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10)Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of
the Manager) if the plan has made special arrangements with the
Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored
IRA.
o For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
o For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: o Shares redeemed involuntarily,
as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
o Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must
provide evidence of a determination of disability by the Social
Security Administration.
o Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
o Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
o Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
o Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.7
7 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic Relations Order
or, in the case of an IRA, a divorce or separation agreement described in
Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.8
8 This provision does not apply to loans from 403(b)(7) custodial plans.
(9) On account of the participant's separation from service.9
9 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual fund (other
than a fund managed by the Manager or a subsidiary of the Manager) offered as an
investment option in a Retirement Plan if the plan has made special arrangements
with the Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are
rolled over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the
Plan's elimination as investment options under the Plan of all
of the Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age
59, as long as the aggregate value of the distributions
does not exceed 10% of the account's value annually (measured
from the establishment of the Automatic Withdrawal Plan).
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
o Shares sold to the Manager or its affiliates.
o Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
o Shares issued in plans of reorganization to which the Fund is a party.
<PAGE>
IV. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap Value
Fund
Oppenheimer Quest Balanced Value Oppenheimer Quest Global Value Fund
Fund
Oppenheimer Quest Opportunity
Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Income Quest for Value New York Tax-Exempt
Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: o acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
o purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of
the Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with: o withdrawals under an
automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10%
of the initial value of the account, and
o liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value
of such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: o redemptions following the
death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
o withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
o liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Connecticut Mutual Investment
Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section): o Oppenheimer U. S. Government Trust, o Oppenheimer Bond Fund, o
Oppenheimer Disciplined Value Fund and o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
n Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual
Funds that were purchased at net asset value prior to March 18, 1996, remain
subject to the prior Class A CDSC, or if any additional shares are purchased
by those shareholders at net asset value pursuant to this arrangement they
will be subject to the prior Class A CDSC.
n Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1)
<PAGE>
anypurchaser, provided the total initial amount invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8)
<PAGE>
in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
o the Manager and its affiliates,
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
o registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
o employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
o dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
o dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
<PAGE>
15
13
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<PAGE>
Oppenheimer Total Return Fund, Inc.
- ------------------------------------------------------------------------------
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
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
67890
PX420.0499
