Oppenheimer Equity Income Fund
Prospectus dated November 1, 1995
Oppenheimer Equity Income Fund (the "Fund") is a mutual fund with the
primary investment objective of seeking as much current income as is
compatible with prudent investment. Its secondary objective is to
conserve principal while providing an opportunity for capital
appreciation. To seek current income, the Fund invests primarily in
common stocks that pay dividends, but the Fund also invests in bonds,
preferred stocks (including convertible stocks), debentures, zero-coupon
securities issued by the U.S. Government or corporations, and other debt
securities. The Fund also uses hedging instruments to try to reduce the
risks of market fluctuations that affect the value of the securities the
Fund holds. To seek its secondary objective, the Fund primarily invests
in stocks that the portfolio manager believes have growth possibilities.
The securities the Fund invests in are described more completely in
"Investment Objectives and Policies." That section of the Prospectus also
explains some of the risks of those investments.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the November 1, 1995 Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objectives and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended June 30, 1995.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account," from
pages 23 through 39, for an explanation of how and when these charges
apply.
Class Class Class
A Shares B Shares C Shares
Maximum Sales Charge
on Purchases
(as a % of
offering price) 5.75% None None
Sales Charge on
Reinvested Dividends None None None
Deferred Sales Charge
(as a % of the
lower of the
original purchase
price or redemption
proceeds) None(1) 5% in the first
1% if
year, declining redeemed
to 1% in the
within 12
sixth year months of
and eliminated purchase(2)
thereafter(2)
Redemption Fee None(3) None(3) None(3)
Exchange Fee None None None
(1) If you invest $1 million or more ($500,000 or more for purchases by
OppenheimerFunds prototype 401(k) plans) in Class A shares, you may
have to pay a sales charge of up to 1% if you sell your shares
within 18 calendar months from the end of the calendar month during
which you purchased those shares. See "How to Buy Shares - Class
A Shares," below.
(2) See "How to Buy Shares - Class B Shares" and "How to Buy Shares -
Class C Shares" below.
(3) There is a $10 transaction fee for redemptions paid by Federal
funds wire, but not for redemptions paid by ACH transfer through
AccountLink. See "How to Sell Shares" below.
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (referred to in this Prospectus as the "Manager").
The rates of the Manager's fees are set forth in "How the Fund is
Managed," below. The Fund has other regular expenses for services, such
as transfer agent fees, custodial fees paid to the bank that holds its
portfolio securities, audit fees and legal expenses. Those expenses are
detailed in the Fund's Financial Statements in the Statement of Additional
Information.
The numbers in the table below are projections of the Fund's
business expenses based on the Fund's expenses in its last fiscal year.
These amounts are shown as a percentage of the average net assets of each
class of the Fund's shares for that year. The 12b-1 Service Plan Fees for
Class A shares are service fees (the maximum fee is 0.25% of average
annual net assets of that class). Currently, the Board of Trustees has
set the maximum fee at 0.15% for assets representing shares sold before
April 1, 1991, and 0.25% for assets representing shares sold on or after
that date. For Class B and Class C shares, the 12b-1 Distribution and
Service Plan Fees are the service fees (the maximum fee is 0.25% of
average annual net assets of those classes) and the annual asset-based
sales charges of 0.75%. These plans are described in greater detail in
"How to Buy Shares." Class C shares were not publicly offered during the
Fund's fiscal year ended June 30, 1995. Accordingly, the Annual Fund
Operating Expenses for Class C shares are estimates based upon amounts
that would have been payable if Class C shares had been outstanding during
that fiscal year.
The actual expenses for each class of shares in future years may be
more or less than the numbers in the table, depending on a number of
factors, including changes in the actual value of the Fund's assets
represented by each class of shares.
Class Class Class
A Shares B Shares C Shares
Management Fees 0.54% 0.54% 0.54%
12b-1 Distribution 0.19% 1.00% 1.00%
Plan Fees
Other Expenses 0.23% 0.25% 0.25%
----- ----- -----
Total Fund Operating
Expenses 0.96% 1.79% 1.79%
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and the Fund's annual return is 5%, and that its operating
expenses for each class are the ones shown in the Annual Fund Operating
Expenses table above. If you were to redeem your shares at the end of
each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
Class A Shares $67 $86 $108 $169
Class B Shares $68 $86 $117 $169
Class C Shares $28 $56 $ 97 $211
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $67 $86 $108 $169
Class B Shares $18 $56 $ 97 $169
Class C Shares $18 $56 $ 97 $211
*The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Because of the asset-based
sales charge and the contingent deferred sales charge on Class B and Class
C shares, long term Class B and Class C shareholders could pay the
economic equivalent of more than the maximum front-end sales charge
allowed under applicable regulations. For Class B shareholders, the
automatic conversion of Class B shares to Class A shares is designed to
minimize the likelihood that this will occur. Please refer to "How to Buy
Shares - Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What are the Fund's Investment Objectives? The Fund's primary
investment objective is to seek as much current income as is compatible
with prudent investment. It has a secondary objective to conserve
principal while making investments that may provide the opportunity to
increase the value of its shares.
- What Does the Fund Invest in? To seek current income, the Fund
primarily invests in dividend-paying common and preferred stocks (these
are called "equity" securities). The Fund can also invest in debt
securities, such as corporate bonds and U.S. Government securities. To
seek its secondary objective, the Fund's manager may choose common stocks
that have growth potential. The Fund may also use hedging instruments and
some derivative investments to try to manage investment risks. These
investments are more fully explained in "Investment Objectives and
Policies," starting on page 10.
- Who Manages the Fund? The Fund's investment adviser (the
"Manager") is Oppenheimer Management Corporation. The Manager (including
a subsidiary) manages investment company portfolios having over $38
billion in assets as of September 30, 1995. The Manager is paid an
advisory fee by the Fund, based on its assets. The Fund has a portfolio
manager, John Doney, who is employed by the Manager. He is primarily
responsible for the selection of the Fund's securities. The Fund's Board
of Trustees, elected by shareholders, oversees the investment adviser and
the portfolio manager. Please refer to "How the Fund is Managed,"
starting on page 18 for more information about the Manager and its fees.
- How Risky is 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 such as changes in general bond
and stock market movements, the change in value of particular stocks or
bonds because of an event affecting the issuer, or changes in interest
rates that can affect bond prices. These changes affect the value of the
Fund's investments and its price per share. In the Oppenheimer funds
spectrum, the Fund is generally more conservative than aggressive growth
funds, but more aggressive than money market or investment grade bond
funds. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased
for the portfolio, and in some cases by using hedging techniques, there
is no guarantee of success in achieving the Fund's objectives and your
shares may be worth more or less than their original cost when you redeem
them. Please refer to "Investment Objectives and Policies" starting on
page 10 for a more complete discussion of the Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How To Buy Shares"
on page 23 for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. All classes have the same investment portfolio but
have different expenses. Class A shares are offered with a front-end
sales charge, starting at 5.75%, and reduced for larger purchases. Class
B shares are offered without a front-end sales charge, but may be subject
to a contingent deferred sales charge (starting at 5% and declining as
shares are held longer) if redeemed within 6 years of purchase. Class C
shares are offered without a front-end sales charge, but may be subject
to a contingent deferred sales charge of 1% if redeemed within one year
of buying them. There is also an annual asset-based sales charge on Class
B and Class C shares. Please review "How To Buy Shares" starting on page
23 for more details, including a discussion about which class may be
appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How To Sell Shares" on page 37. The Fund also
offers exchange privileges to other Oppenheimer funds, described in "How
to Exchange Shares" on page 39.
- How Has the Fund Performed? The Fund measures its performance
by quoting its average annual total return and cumulative total return,
which measure historical performance. Those returns can be compared to
the returns (over similar periods) of other funds. Of course, other funds
may have different objectives, investments, and levels of risk. The
Fund's performance can also be compared to broad market indices, which we
have done on page 21. Please remember that past performance does not
guarantee future results.
<PAGE>
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data, expense ratios and
other data based on the Fund's average net assets. This information has
been audited by Deloitte & Touche LLP, the Fund's independent auditors,
whose report on the Fund's financial statements for the fiscal year ended
June 30, 1995 is included in the Statement of Additional Information.
Class C shares were not publicly offered during the periods shown, and
consequently, no information on Class C shares is included in the table
on the following pages or in the Fund's other financial statements.
<PAGE>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------
Year Ended June 30,
1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $9.44 $10.01 $9.15 $8.86
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income .50 .47 .50 .50
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions .92 (.39) .99 .39
Total income (loss) from investment
operations 1.42 .08 1.49 .89
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.48) (.47) (.48) (.48)
Dividends in excess of net
investment income -- (.01) -- --
Distributions from net realized gain
on investments and foreign
currency transactions (.13) (.12) (.15) (.12)
Distributions in excess of
capital gains -- (.05) -- --
Total dividends and distributions
to shareholders (.61) (.65) (.63) (.60)
- -------------------------------------------------------------------------------
Net asset value, end of period $10.25 $9.44 $10.01 $9.15
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(2) 15.66% .65% 16.76% 10.26%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $1,893,249 $1,772,944 $1,790,346 $1,555,924
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $1,797,670 $1,831,606 $1,657,692 $1,525,599
- -------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 184,623 187,841 178,819 170,117
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.15% 4.72% 5.12% 5.33%
Expenses .96% .90% .79% .82%
- -------------------------------------------------------------------------------
Portfolio turnover rate(4) 45.7% 30.4% 59.0% 37.0%
</TABLE>
<PAGE>
Investment Objectives and Policies
Objectives. The Fund has primary and secondary objectives. First, the
Fund invests its assets to try to provide as much current income as the
Manager believes is compatible with prudent investing. As a secondary
objective, the Fund seeks to conserve principal while providing an
opportunity for its shares to increase in value.
Investment Policies and Strategies. The Fund seeks current income
principally by investing in common stocks that pay dividend income. The
Fund may also seek income by investing in bonds, preferred stocks
(including convertible stocks), debentures, zero-coupon securities issued
by the U.S. Government or companies, and other debt securities, such as
notes. In its stock investments the Fund primarily focuses on stocks of
larger, more established companies with an established history of
operations. To seek its secondary objective the Fund may invest in stocks
of companies that the Manager believes offer growth potential without
excessive volatility.
Under normal conditions (when the Manager believes that the
securities markets are not in a volatile or unstable period), the Fund
will invest at least 65% of its total assets in income-producing equity
securities (common stocks, preferred stocks, and securities convertible
into common stocks). When market conditions are unstable, the Fund may
invest substantial amounts of its assets in debt securities, such as money
market instruments or government securities, as described in "Temporary
Defensive Investments," below.
When investing the Fund's assets, the Manager considers many
factors, including the financial condition of particular companies as well
as general economic conditions in the U.S. relative to foreign economies,
and the trends in domestic and foreign stock markets. In evaluating the
potential for income from particular securities, the Manager examines many
factors, such as the consistency of the company's earnings, the industry
group the company is in (and the prospects for that industry in the
overall economy), how well the company is managed, and the size of the
company's capitalization. While the Fund focuses on large or mid-size
companies which tend to be more stable investments, the Fund may invest
in smaller issuers as well.
The Fund may try to hedge against losses in the value of its
portfolio of securities by using hedging strategies and derivative
investments described below. The Fund's portfolio manager may employ
special investment techniques in selecting securities for the Fund. These
are also described below. Additional information may be found about them
under the same headings in the Statement of Additional Information.
- Can the Fund's Investment Objectives and Policies Change? The
Fund has investment objectives, which are described above, as well as
investment policies it follows to try to achieve its objectives.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those investment policies. The Fund's investment policies
and techniques are not "fundamental" unless this Prospectus or the
Statement of Additional Information says that a particular policy is
"fundamental." The Fund's investment objectives are fundamental policies.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's Board
of Trustees may change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus.
- Stock Investment Risks. Because the Fund invests a substantial
portion of its assets in stocks, the value of the Fund's portfolio will
be affected by changes in the stock markets. At times, the stock markets
can be volatile and stock prices can change substantially. This 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. Not
all stock prices change uniformly or at the same time and not all stock
markets move in the same direction at the same time. Other factors can
affect a particular stock's prices, such as poor earnings reports by an
issuer, loss of major customers, major litigation against an issuer, or
changes in government regulations affecting an industry. Not all of these
factors can be predicted.
As discussed below, the Fund attempts to limit market risks by
diversifying its investments, that is, by not holding a substantial amount
of stock of any one company and by not investing too great a percentage
of the Fund's assets in any one company. Also, the Fund does not
concentrate its investments in any one industry or group of industries.
Because changes in securities market prices can occur at any time, and
because the income earned on securities is subject to change, there is no
assurance that the Fund will achieve its investment objectives, and when
you redeem your shares, they may be worth more or less than what you paid
for them.
- Investments in Bonds and Convertible Securities. The Fund also
invests in bonds, debentures and other fixed-income securities to help
seek its primary objective. While the Fund will normally limit its
investments in fixed-income securities to no more than 35% of its total
assets (during normal market conditions), the Fund may invest in a variety
of different types of income-producing securities. When investing in
convertible securities, the Manager looks to the conversion feature and
treats the securities as "equity securities."
The Fund may not invest more than 25% of its total assets in "lower-
grade" debt securities (described below), and no more than 10% of its
total assets may be invested in lower-grade debt securities that are not
convertible. The Fund can buy unrated securities, and when determining
whether a security is subject to these percentage limitations, the Manager
will determine in its judgment whether unrated securities are of
comparable quality to securities rated by rating organizations. The
Manager does not rely solely on ratings of securities in making investment
decisions, but evaluates other business and economic factors affecting the
issues as well.
- Risks of Fixed-Income Securities. In addition to credit risks,
described below, debt securities are subject to changes in their value due
to changes in prevailing interest rates. When prevailing interest rates
fall, the value of already-issued debt securities generally rise. When
interest rates rise, the values of already-issued debt securities
generally decline. The magnitude of these fluctuations will often be
greater for longer-term debt securities than shorter-term debt securities.
Changes in the value of securities held by the Fund mean that the Fund's
share prices can go up or down when interest rates change because of the
effect of the change on the value of the Fund's portfolio of debt
securities. Credit risk relates to the ability of the issuer to meet
interest or principal payments on a security as they become due.
Generally, higher yielding lower-grade bonds, described below, are subject
to credit risks to a greater extent than lower yielding, investment grade
bonds.
- Special Risks of Lower-Rated Securities. The Manager may select
high-yield, "lower-grade" debt securities (or high-yielding unrated
securities), commonly known as "junk bonds," for investment, subject to
the limits described above, because they generally offer higher income
potential than investment grade securities. "Lower-grade" debt securities
are those rated below "investment grade," which means they have a rating
lower than "Baa" by Moody's Investors Service, Inc. ("Moody's") or lower
than "BBB" by Standard & Poor's Corporation ("S&P") or similar ratings by
other rating organizations. The Fund may invest in securiites rated as
low as "C" or "D" or which may be in default at the time the Fund buys
them. While securities rated "Baa" by Moody's or "BBB" by S&P are
investment grade and are not regarded as "junk bonds," those securities
may be subject to greater market fluctuations and risks of loss of income
and principal than higher-grade securities and may be considered to have
certain speculative characteristics. For a description of these
securities ratings, please refer to the Appendix in the Statement of
Additional Information.
High yield, lower-grade securities, whether rated or unrated, often
have speculative characteristics and special risks that make them riskier
investments than investment grade securities. They may be subject to
greater market fluctuations and risk of loss of income and principal than
lower yielding, investment grade securities. There may be less of a
market for them and therefore they may be harder to sell at an acceptable
price. There is a relatively greater possibility that the issuer's
earnings may be insufficient to make the payments of interest due on the
bonds. The issuer's low creditworthiness may increase the potential for
its insolvency.
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
may be affected by declines in value of these securities. However, the
Fund's limitations on investments in these types of securities may reduce
some of the risk, as will the Fund's policy of diversifying its
investments. Also, convertible securities may be less subject to some of
these risks than other debt securities, to the extent they can be
converted into stock, which may be more liquid and less affected by these
other risk factors.
- Warrants and Rights. Warrants basically are options to purchase
stock at set prices that are valid for a limited period of time. Rights
are similar to warrants but normally have a short duration and are
distributed directly by the issuer to its shareholders. The Fund may
invest up to 5% of its total assets in warrants or rights. That 5%
limitation does not apply to warrants and rights the Fund acquired as part
of units with other securities or that are attached to other securities.
No more than 2% of the Fund's total assets may be invested in warrants
that are not listed on either The New York Stock Exchange or The American
Stock Exchange. These percentage limitations are fundamental policies.
For further details about these investments, please refer to "Warrants and
Rights" in the Statement of Additional Information.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or by private issuers. In general,
zero coupon U.S. Treasury securities include (1) U.S. Treasury notes or
bonds that have been "stripped" of their interest coupons, (2) U.S.
Treasury bills issued without interest coupons, or (3) certificates
representing an interest in stripped securities. A zero coupon Treasury
security pays no current interest and trades at a deep discount from its
face value. It will be subject to greater market fluctuations from
changes in interest rates than interest-paying securities. The Fund
accrues interest on zero coupon securities without receiving the actual
cash. As a result of holding these securities, the Fund could possibly
be forced to sell portfolio securities to pay cash dividends or meet
redemptions. Zero coupon securities issued by non-government issuers are
similar to U.S. Government zero coupon securities. They have an
additional risk that the issuing company may fail to pay interest or repay
the principal on the obligation.
- Preferred Stock. The Fund may invest in preferred stock.
Generally, preferred stock is an equity security that has a specified
dividend and ranks after bonds and before common stocks in its claim on
income for dividend payments and on assets should the issuing company be
liquidated. While most preferred stocks pay a dividend, the Fund may
purchase preferred stock where the issuer has omitted, or is in danger of
omitting, payment of its dividend. Such investments would be made
primarily for their capital appreciation potential. Certain preferred
stock may be convertible into or exchangeable for a given number of common
shares. Such preferred stock tends to be more volatile than
nonconvertible preferred stock, which behaves more like a fixed-income
security.
- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." The Fund ordinarily does not engage in
short-term trading to try to achieve its objectives. As a result, the
Fund's portfolio turnover is not expected to be more than 100% each year.
The "Financial Highlights table" above, shows the Fund's portfolio
turnover rate during past fiscal years.
Portfolio turnover affects brokerage costs, dealer markups and other
transaction costs, and results in the Fund's realization of capital gains
or losses for tax purposes. It may also affect the Fund's ability to
qualify as a "regulated investment company" under the Internal Revenue
Code for tax deductions for dividends and capital gains distributions the
Fund pays to shareholders. The Fund qualified in its last fiscal year and
intends to do so in the coming year, although it reserves the right not
to qualify.
- Derivative Investments. In general, a "derivative investment" is
a specially designed investment. Its performance is linked to the
performance of another investment or security, such as an option, future,
index, currency or commodity. Derivative investments used by the Fund are
used in some cases for hedging purposes and in other cases to attempt to
seek income. In the broadest sense, exchange-traded options and futures
contracts (discussed in "Hedging," below) may be considered "derivative
investments." The Fund may not purchase or sell commodities (other than
hedging instruments deemed to be commodities); however, the Fund may
purchase and sell foreign currency in hedging transactions. This shall
not prevent the Fund from buying or selling options and futures contracts.
The Fund may invest in different types of derivatives. "Index-
linked" or "commodity-linked" notes are debt securities of companies that
call for interest payments and/or payment on the maturity of the note in
different terms than the typical note where the borrower agrees to make
fixed interest payments and/or to pay a fixed sum on the maturity of the
note. Principal and/or interest payments on an index-linked note depend
on the performance of one or more market indices, such as the S & P 500
Index or a weighted index of commodity futures, such as crude oil,
gasoline and natural gas. The Fund may invest in "debt exchangeable for
common stock" of an issuer or "equity-linked" debt securities of an
issuer. At maturity, the principal amount of the debt security is
exchanged for common stock of the issuer or is payable in an amount based
on the issuer's common stock price at the time of maturity. In either
case there is a risk that the amount payable at maturity will be less than
the expected principal amount of the debt.
The Fund may also invest in currency-indexed securities. Typically,
these are short-term or intermediate-term debt securities having a value
at maturity, and/or an interest rate, determined by reference to one or
more foreign currencies. The currency-indexed securities purchased by the
Fund may make payments based on a formula. The payment of principal or
periodic interest may be calculated as a multiple of the movement of one
currency against another currency, or against an index. These investments
may entail increased risk to principal and increased price volatility.
There are special risks in investing in derivative investments. The
company issuing the instrument may fail to pay the amount due on the
maturity of the instrument. Also, the underlying investment or security
might not perform the way the Manager expected it to perform. Markets,
underlying securities and indices may move in a direction not anticipated
by the Manager. Performance of derivative investments may also be
influenced by interest rate and stock market changes in the U.S. and
abroad. All of this can mean that the Fund will realize less principal
or income from the investment than expected. Certain derivative
investments held by the Fund may be illiquid. Please refer to "Illiquid
and Restricted Securities."
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that may help to reduce some of the risks.
- Investing in Small, Unseasoned Companies. The Fund may invest in
securities of small, unseasoned companies. These are companies that have
been in operation for less than three years, counting the operations of
any predecessors. Securities of these companies may have limited
liquidity (which means that the Fund may have difficulty selling them at
an acceptable price when it wants to) and the prices of these securities
may be volatile. The Fund may not invest more than 5% of its net assets
in securities of small, unseasoned issuers. That limit is a fundamental
policy. See "Investing in Small, Unseasoned Companies" in the Statement
of Additional Information for a further discussion of the risks involved
in such investments.
- Foreign Securities. To broaden its opportunities to seek income
or capital growth, the Fund may purchase equity and debt securities issued
or guaranteed by foreign companies or foreign governments, including
foreign government agencies. The Fund may buy securities of companies or
governments in any country, developed or underdeveloped. The Fund may
invest up to 100% of its assets in foreign securities. However, the Fund
normally does not expect to have more than 35% of its assets invested in
foreign securities. The Fund will hold foreign currency only in
connection with the purchase or sale of foreign securities.
Foreign securities have special risks. For example, 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 changes in foreign currency rates, exchange control
regulations, expropriation or nationalization of a company's assets,
foreign taxes, delays in settlement of transactions, changes in
governmental economic or monetary policy in the U.S. or abroad, or other
political and economic factors. More information about the risks and
potential rewards of investing in foreign securities is contained in the
Statement of Additional Information.
- Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, forward
contracts, and options on futures, broadly-based stock indices and foreign
currencies, and engage in interest rate swap transactions. These are all
referred to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of them,
described below. The hedging instruments the Fund may use are described
below and in greater detail in "Other Investment Techniques and
Strategies" in the Statement of Additional Information.
The Fund may buy and sell options, futures and forward contracts for
a number of purposes. It may do so to try to manage its exposure to the
possibility that the prices on its portfolio securities may decline, or
to establish a position in the equity securities market as a temporary
substitute for purchasing individual securities. Some of these strategies,
such as selling futures, buying puts and writing covered calls, hedge the
Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Fund's exposure to the securities market. Forward
contracts are used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Fund to distribute to shareholders, for liquidity purposes or for
defensive reasons.
-Futures. The Fund may buy and sell futures contracts that relate
to (1) broadly-based stock indices (these are referred to as Stock Index
Futures), (2) interest rates (Interest Rate Futures), and (3) other
securities indexes (Financial Futures). All of these Futures are
described in the Statement of Additional Information.
Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls). A call or put option may not
be purchased if the value of all of the Fund's put and call options would
exceed 5% of the Fund's total assets.
The Fund can buy only those puts that relate to (1) securities the
Fund owns, (2) Stock Index Futures (whether or not the Fund owns that
particular security in its portfolio), (3) broadly-based stock indices or
(4) foreign currencies. The Fund may not sell a put other than a put that
it previously purchased.
The Fund may purchase calls only on securities, broadly-based stock
indices, Stock Index Futures and foreign currencies, or to terminate its
obligation on a call the Fund previously wrote. The Fund may write (that
is, sell) call options. Each call the Fund writes must be "covered" while
it is outstanding. That means the Fund must own the investment on which
the call was written or it must own other securities that are acceptable
for the escrow arrangements required for calls. After the Fund writes a
call, not more than 25% of the Fund's total assets may be subject to
calls. Covered call options sold by the Fund must be listed on a domestic
securities exchange or quoted on the Automated Quotation System of the
National Association of Securities Dealers, Inc. (NASDAQ).
The Fund may buy or sell foreign currency puts and calls only if
they are traded on a securities or commodities exchange or over-the-
counter market, or are quoted by recognized dealers in those options.
Foreign currency options are used to try to protect against declines in
the dollar value of foreign securities the Fund owns, or to protect
against increases in the dollar cost of buying foreign securities.
-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 try 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 foreign currency.
The Fund limits its net exposure under forward contracts in a particular
foreign currency to the amount of its assets denominated in that currency
or denominated in a closely-correlated currency. The Fund may also use
cross-hedging where the Fund hedges against changes in currencies other
than the currency in which a security it holds is denominated.
-Interest Rate Swaps. 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 may swap a right to receive
floating rate payments for fixed rate payments. The Fund enters into
swaps only on securities it owns. The Fund may not enter into swaps with
respect to more than 25% of its total assets. Also, the Fund will
segregate liquid assets (such as cash or U.S. Government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
-Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on a
security that has increased in value, the Fund will be required to sell
the security at the call price and will not be able to realize any profit
if the security has increased in value above the call price. The use of
forward contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign currency.
To limit its exposure in foreign currency exchange contracts, the Fund
limits its exposure to the amount of its assets denominated in the foreign
currency. Interest rate swaps are subject to credit risks (if the other
party fails to meet its obligations) and also to interest rate risks. The
Fund could be obligated to pay more under its swap agreements than it
receives under them, as a result of interest rate changes. These risks
are described in greater detail in the Statement of Additional
Information.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments. Investments
may be illiquid because of the absence of an active trading market, making
it difficult to value them or dispose of them promptly at an acceptable
price. A 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 (that limit may increase
to 15% if certain state laws are changed or the Fund's shares are no
longer sold in those states). The Fund's percentage limitation on these
investments does not apply to certain restricted securities that are
eligible for resale to qualified institutional purchasers.
- Loans of Portfolio Securities. To attempt to increase its
income, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions. The Fund must receive collateral for a
loan. These loans are limited to not more than 10% of the Fund's net
assets and are subject to other conditions described in the Statement of
Additional Information. The Fund presently does not intend to lend its
portfolio securities, but if it does, the value of securities loaned is
not expected to exceed 5% of the value of its total assets in the coming
year.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date. They
are used primarily for cash liquidity purposes. Repurchase agreements
must be fully collateralized. 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 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 of seven days or less.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date.
- Temporary Defensive Investments. When stock market conditions are
unfavorable or in unusual economic or business circumstances, the Fund may
invest all or a portion of its assets in defensive securities. Securities
selected for defensive purposes usually will include debt securities, such
as (1) U.S. Treasury Bills and other obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, (2) commercial
paper rated "A-3" or better by Standard & Poor's Corporation or "P-3" or
better by Moody's Investors Service, Inc., or (3) certificates of deposit,
bankers' acceptances or other bank obligations.
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies. Under these fundamental policies, the Fund
cannot do any of the following:
- - buy securities issued or guaranteed by any one issuer (except the U.S.
Government or any of its agencies or instrumentalities) if (with respect
to 75% of its total assets) more than 5% of the Fund's total assets would
be invested in securities of that issuer, or if the Fund would then own
more than 10% of that issuer's voting securities;
- - engage in short sales or purchase securities on margin; however, the
Fund may make margin deposits in connection with any of the hedging
instruments it may use;
- - borrow money or mortgage, pledge or hypothecate the Fund's assets; the
escrow, collateral and margin arrangements involved with hedging
instruments are not considered to involve a mortgage, hypothecation or
pledge;
- -concentrate more than 25% of the Fund's assets in any one industry; or -
buy or sell commodities or commodity contracts other than those hedging
instruments which are considered commodities.
All of the percentage restrictions described above and elsewhere in
this Prospectus apply only at the time the Fund purchases a security, and
the Fund need not dispose of a security merely because the size of the
Fund's assets has changed or the security has increased in value relative
to the size of the Fund. There are other fundamental policies discussed
in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was originally incorporated in
Maryland in 1967 but was reorganized in 1986 as a Massachusetts business
trust. The Fund is an open-end, diversified management investment company,
with an unlimited number of authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible
for protecting the interests of shareholders under Massachusetts law. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and officers of the Fund and provides more
information about them. Although the Fund is not required by law to hold
annual meetings, it may hold shareholder meetings from time to time on
important matters, and shareholders have the right to call a meeting to
remove a Trustee or to take other action described in the Fund's
Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has three classes of shares, Class A,
Class B and Class C. All classes invest in the same investment portfolio.
Each class has its own dividends and distributions and pays certain
expenses which may be different for the different classes. Each class may
have a different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Only shares of
a particular class vote as a class on matters that affect that class
alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities. The Agreement sets forth the fees paid by the
Fund to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $38 billion
as of September 30, 1995 and with more than 2.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
- Portfolio Manager. The Portfolio Manager of the Fund is John P.
Doney. He is a Vice President of the Manager. He has been the person
principally responsible for the day-to-day management of the Fund's
portfolio since June 22, 1992. During the past five years, and prior to
joining the Manager, Mr. Doney served as Senior Vice President and Chief
Investment Officer of Equities of National Securities & Research
Corporation (a mutual fund investment adviser) and was a Vice President
of the National Affiliated Investment Companies.
- Fees and Expenses. Under the Investment Advisory Agreement, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.75% of the first $100 million of
average 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 its last fiscal year was 0.54% of average annual net assets for
Class A shares and 0.54% for Class B shares.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal fees and
auditing costs. Those expenses are paid out of the Fund's assets and are
not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Fund's Distributor.
The Distributor also distributes the shares of the other Oppenheimer funds
managed by the Manager and is sub-distributor for funds managed by a
subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund on an "at-cost" basis. It also
acts as the shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer
Agent at the address and toll-free number shown below in this Prospectus
and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return" and "average annual total return" to illustrate its performance.
The performance of each class of shares is shown separately, because the
performance of each class will usually be different as a result of the
different kinds of expenses each class bears. These returns measure the
performance of a hypothetical account in the Fund over various periods,
and do not show the performance of each shareholder's account (which will
vary if dividends are received in cash, or shares are sold or purchased).
The Fund's performance information may help you see how well your Fund has
done over time and to compare it to other funds or market indices.
It is important to understand that the Fund's total returns
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns are
calculated is contained in the Statement of Additional Information, which
also contains information about other ways to measure and compare the
Fund's performance. The Fund's investment performance will vary over time,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
- Total Returns. There are different types of total returns used
to measure the Fund's performance. Total return is the change in value
of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they normally
include the payment of the current maximum initial sales charge. Total
returns may also be quoted at net asset value, without including the sales
charge, and those returns would be reduced if sales charges were deducted.
When total returns are shown for Class B shares, they include the effect
of the contingent deferred sales charge that applies to the period for
which total return is shown. When total returns are shown for a one-year
period (or less) for Class C shares, they include the effect of the
contingent deferred sales charge. Total returns for Class B and Class C
shares may also be shown based on the change in net asset value, without
including the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended June 30, 1995,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
- Management's Discussion of Performance. During the Fund's past
fiscal year, the domestic stock market significantly improved from the
prior year substantially due to a decline in general interest rates and
strong corporate earnings. In response, the Manager sold those stocks in
the Fund's portfolio that were believed to have reached their peak price,
as well as stocks of issuers that were perceived to have below average
growth potential. During the past fiscal year, to enhance income, the
Manager increased the Fund's position in convertible securities, which
generally provide higher current income than common stocks, and maintained
the Fund's position in securities in the banking sector. The Manager also
purchased securities of issuers perceived to have attractive appreciation
possibilities, including issuers in cyclical industries.
- Comparing the Fund's Performance to the Market. The graphs below
show the performance of a hypothetical $10,000 investment in Class A and
Class B shares of the Fund held until June 30, 1995. In the case of Class
A shares, performance is measured over a ten-year period, and in the case
of Class B shares, performance is measured from the inception of the class
on August 17, 1993. Class C shares were not publicly offered during the
fiscal year ended June 30, 1995, and consequently, no information on class
C shares is included in these graphs.
The Fund's performance is compared to the performance of the S&P 500
Index, a broad-based index of equity securities widely regarded as a
general measurement of the performance of the U.S. equity securities
market. Index performance reflects the reinvestment of dividends but does
not consider the effect of capital gains or transaction costs, and none
of the data below shows the effect of taxes. Also, the Fund's performance
reflects the deduction of the current maximum sales charge of 5.75% for
Class A shares, the applicable contingent deferred sales charge of 4% on
Class B shares, and the reinvestment of all dividends and capital gains
distributions, and the effect of Fund business and operating expenses.
While index comparisons may be useful to provide a benchmark for the
Fund's performance, it must be noted that the Fund's investments are not
limited to the securities in the S&P 500 index, which does not include
debt securities. Moreover, the index performance data does not reflect
any assessment of the risk of the investments included in the index.
Oppenheimer Equity Income Fund
Comparison of Change in Value
of $10,000 Hypothetical Investments
in Oppenheimer Equity Income Fund and
the S&P 500 Index
(Graph)
Past performance is not predictive of future performance.
Oppenheimer Equity Income Fund
Average Annual Total Returns
of the Fund at 6/30/95
Class A Shares(1)
1-Year 5-Year 10-Year
9.01% 7.93% 11.07%
Class B Shares(2)
1-Year Life
9.87% 4.29%
_____________________
(1) The average annual total returns and the ending account value in the
graph reflect reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 5.75% maximum initial
sales charge.
(2) Class B shares of the Fund were first publicly offered on 8/17/93.
The average annual total returns reflect reinvestment of all dividends and
capital gains distributions and are shown net of the applicable 5% and 4%
contingent deferred sales charges, respectively, for the 1-year period and
life-of-the-class. The ending account value in the graph is net of the
applicable contingent deferred sales charge.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you may pay an
initial sales charge on investments up to $1 million (up to $500,000 for
purchases by OppenheimerFunds prototype 401(k) plans). If you purchase
Class A shares as part of an investment of at least $1 million ($500,000
for OppenheimerFunds prototype 401(k) plans) in shares of one or more
Oppenheimer funds, you will not pay an initial sales charge but if you
sell any of those shares within 18 months of buying them, you may pay a
contingent deferred sales charge. The amount of that sales charge will
vary depending on the amount you invested. Sales charges are described in
"Buying Class A Shares" below.
- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years of buying them, you will normally pay a contingent deferred sales
charge. That sales charge varies depending on how long you own your
shares. It is described in "Buying Class B Shares" below.
- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred sales
charge of 1%. It is described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors are how much you plan to
invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class, considering the effect of the
annual asset-based sales charge on Class B and Class C expenses (which,
like all expenses, will affect your investment return). For the sake of
comparison, we have assumed that there is a 10% rate of appreciation in
the investment each year. Of course, the actual performance of your
investment cannot be predicted and will vary, based on the Fund's actual
investment returns and the operating expenses borne by each class of
shares, and which class you invest in. The factors discussed below are
not intended to be investment advice or recommendations, because each
investor's financial considerations are different. The discussion below
of the factors to consider in purchasing a particular class of shares
assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
- 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 (which reduces the amount of your
investment dollars used to buy shares for your account), compared to the
effect over time of higher class-based expenses on Class B or Class C
shares, for which no initial sales charge is paid.
Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares
rather than Class B shares, because of the effect of the Class B
contingent deferred sales charge if you redeem in less than 7 years, as
well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares might
be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and
the contingent deferred sales charge does not apply to amounts you sell
after holding them one year.
However, if you plan to invest more than $100,000 for the shorter
term, then the more you invest and the more your investment horizon
increases toward six years, Class C shares might not be as advantageous
as Class A shares. That is because the annual asset-based sales charge on
Class C shares will have a greater impact on your account over the longer
term than the reduced front-end sales charge available for larger
purchases of Class A shares. For example, Class A shares might be more
advantageous than Class C shares (as well as Class B shares) for
investments of more than $100,000 expected to be held for 5 or 6 years (or
more). For investments over $250,000 expected to be held 4 to 6 years (or
more), Class A shares may become more advantageous than Class C shares
(and Class B shares). If investing $500,000 or more, Class A shares may
be more advantageous as your investment horizon approaches 3 years or
more.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more or $1 million or more
of Class B or Class C shares, respectively, from a single investor.
Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you plan to
invest more than $100,000 over the long term, Class A shares will likely
be more advantageous than Class B shares or C shares, as discussed above,
because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in
Class A shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the effect
of current sales charges and expenses on a hypothetical investment over
time, using the assumed performance return stated above, and therefore,
should not be relied on as rigid guidelines.
- Are There Differences in Account Features That Matter to You?
Because some account features may not be available to Class B or Class C
shareholders, or other features (such as Automatic Withdrawal Plans) might
not be advisable (because of the effect of the contingent deferred sales
charge) for Class B or Class C shareholders, you should carefully review
how you plan to use your investment account before deciding which class
of shares to buy. Also, not all Oppenheimer funds currently offer Class
B and Class C shares, limiting exchangeability from the Fund. Share
certificates are not available for Class B or Class C shares, and if you
are considering using your shares as collateral for a loan, that may be
a factor to consider.
- How Does It Affect Payments to My Broker? A salesperson, such
as a broker, or any other person who is entitled to receive compensation
for selling Fund shares may receive different compensation for selling one
class than for selling another class. It is important that investors
understand that the purpose of the Class B and Class C contingent deferred
sales charges and asset-based sales charges is the same as the purpose of
the front-end sales charge on sales of Class A shares, that is, to
compensate the Distributor for commissions it pays to dealers and
financial institutions for selling shares.
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, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying
shares by 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 by reinvesting
distributions from unit investment trusts that have made arrangements with
the Distributor.
- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure
to specify Class A, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds 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, it
is recommended that you discuss your investment first with a financial
advisor, to be sure that it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to have the Transfer Agent send redemption proceeds, or to transmit
dividends or distributions.
Shares are purchased for your account on the regular business day
the Distributor is instructed by you to initiate the ACH transfer to buy
shares. You can provide those instructions automatically, under an Asset
Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below under "Special Investor
Services". You should request AccountLink privileges on the application
or dealer settlement instructions used to establish your account. Please
refer to "AccountLink" below for more details.
- 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 on the Application and in the Statement
of Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver, Colorado. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your order
by the time of day The New York Stock Exchange closes, which is normally
4:00 P.M., New York time but may be earlier on some days (all references
to time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange, on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Buying Class A Shares. Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However,
in some cases, described below, purchases are not subject to an initial
sales charge, and the offering price will be the net asset value. In some
cases, reduced sales charges may be available, as described below. Out
of the amount you invest, the Fund receives the net asset value to invest
for your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer. The current sales charge rates
and commissions paid to dealers and brokers are as follows:
_______________________________________________________________________
Front-End Sales Charge Commission as
As a Percentage of: Percentage of
Amount of
Purchase Offering Price Amount Invested Offering Price
_______________________________________________________________________
Less than $25,000 5.75% 6.10% 4.75%
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
_______________________________________________________________________
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more of the
Oppenheimer funds in the following cases:
- Purchases aggregating $1 million or more; or
- Purchases by an OppenheimerFunds prototype 401(k) plan that: (1)
buys shares costing $500,000 or more, or (2) has, at the time of purchase,
100 or more eligible participants, or (3) certifies that it projects to
have annual plan purchases of $200,000 or more.
Shares of any of the Oppenheimer funds that offers only one class
of shares that has no designation are considered "Class A" shares for this
purpose. The Distributor pays dealers of record commissions on those
purchases in an amount equal to the sum of 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. That commission will be paid only on the amount of those
purchases in excess of $1 million ($500,000, for purchases by
OppenheimerFunds prototype 401(k) plans) that were not previously subject
to a front-end sales charge and dealer commission.
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 may be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer
on all Class A shares of all Oppenheimer funds you purchased subject to
the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to the
sales charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of Oppenheimer funds
(other than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and your
spouse can add together Class A and Class B shares you purchase for your
individual accounts, or jointly, or for trust or custodial accounts on
behalf of your children who are minors. A fiduciary can count all shares
purchased for a trust, estate or other fiduciary account (including one
or more employee benefit plans of the same employer) that has multiple
accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can
also include Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The Oppenheimer funds are listed in "Reduced Sales Charges" in
the Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, if you purchase
Class A shares or Class A shares 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. This can include purchases made up to 90 days before
the date of the Letter. More information is contained in the Application
and in "Reduced Sales Charges" in the Statement of Additional Information.
- Waivers of Class A Sales Charges. The Class A sales charges are
not imposed in the circumstances described below. There is an explanation
of this policy in "Reduced Sales Charges" in the Statement of Additional
Information.
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:
- the Manager or its affiliates;
- present or former officers, directors, trustees and employees
(and their "immediate families" as defined in "Reduced Sales Charges" in
the Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
- employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and are
identified to the Distributor) or with the Distributor; the purchaser must
certify to the Distributor at the time of purchase that the purchase is
for the purchaser's own account (or for the benefit of such employee's
spouse or minor children);
- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made
available to their clients (those clients may be charged a transaction fee
by their dealer, broker or adviser for the purchase or sale of Fund
shares); or
- dealers, brokers 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.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
- shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its affiliates
acts as sponsor;
- 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; or
- shares purchased and paid for with the proceeds of shares
redeemed in the past 12 months 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 sales charge was paid (this waiver also applies
to shares purchased by exchange of shares of Oppenheimer Money Market
Fund, Inc. that were purchased and paid for in this manner); this waiver
must be requested when the purchase order is placed for your shares of the
Fund, and the Distributor may require evidence of your qualification for
this waiver.
Waivers of the Class A Contingent Deferred Sales Charge Redemptions.
The Class A contingent deferred sales charge does not apply to purchases
of Class A shares at net asset value without sales charge as described in
two sections above. It is also waived if shares that would otherwise be
subject to the contingent deferred sales charge are redeemed in the
following cases:
- for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred compensation plans
or other employee benefit plans, including OppenheimerFunds prototype
401(k) plans (these are all referred to as "Retirement Plans");
- to return excess contributions made to Retirement Plans;
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules
and Policies," below); or
- if, at the time a purchase order is placed for Class A shares
that would otherwise be subject to the Class A contingent deferred sales
charge, the dealer agrees in writing to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (and no further commission will be payable if the shares are
redeemed within 18 months of purchase); or
- for distributions from OppenheimerFunds prototype 401(k) plans
for any of the following cases or purposes: (1) following 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) hardship withdrawals, as defined in the
plan; (3) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code; (4) to meet the minimum distribution requirements
of the Internal Revenue Code; (5) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue
Code, or (6) separation from service.
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
shareholder accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate that may not exceed 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor uses all
of those fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares and to reimburse
itself (if the Fund's Board of Trustees authorizes such reimbursements,
which it has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. As discussed in "Expenses,"
above, the Board of Trustees has set a rate of 0.15% for net assets
representing shares of the Fund sold before April 1, 1991. That rate can
change. The payments under the Plan increase the annual expenses of Class
A shares. For more details, please refer to "Distribution and Service
Plans" in the Statement of Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser of
the net asset value of the shares at the time of redemption or the
original purchase price. 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 (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class B contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 6 years, and (3) shares held the
longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on
the number of years since you invested and the dollar amount being
redeemed, according to the following schedule:
Contingent Deferred Sales Charge
Years Since Beginning of Month In on Redemptions in that Year
Which Purchase Order Was Accepted (As % of Amount Subject to Charge)
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and
Class C Shares" in the Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B shares. Those
services are similar to the services provided under the Class A Service
Plan, described above. The asset-based sales charge and service fees
increase Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
The Distributor's actual expenses in selling Class B shares may be
more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B shares. Therefore, those expenses may be carried
over and paid in future years. At June 30, 1995, the end of the Plan
year, the Distributor had incurred unreimbursed expenses under the Plan
of $5,449,941 (equal to 3.38% of the Fund's net assets represented by
Class B shares on that date), which have been carried over into this
present Plan year. If the Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for expenses it incurred before the Plan was
terminated.
- Waivers of Class B and Class C Sales Charges. The Class B and
Class C contingent deferred sales charge will not be applied to shares
purchased in certain types of transactions nor will it apply to Class B
and Class C shares redeemed in certain circumstances as described below.
The reasons for this policy are discussed in "Reduced Sales Charges" in
the Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class B and
Class C contingent deferred sales charges will be waived for redemptions
of shares in the following cases:
- distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made (a) under an Automatic Withdrawal
Plan after the participant reaches age 59-1/2, as long as the payments are
no more than 10% of the account value annually (measured from the date the
Transfer Agent receives the request), or (b) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must have occurred after the
account was established);
- redemptions from accounts other than Retirement Plans following
the death or disability of the last surviving shareholder (the death or
disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by
the Social Security Administration);
- returns of excess contributions to Retirement Plans;
- distributions from IRAs (including SEP-IRAs and SAR/SEP accounts)
before the participant is age 59-1/2, and distributions from 403(b)(7)
custodial plans or pension or profit sharing plans before the participant
is age 59-1/2 but only after the participant has separated from service,
if the distributions are made in substantially equal periodic payments
over the life (or life expectancy) of the participant or the joint lives
(or joint life and last survivor expectancy) of the participant and the
participant's designated beneficiary (and the distributions must comply
with other requirements for such distributions under the Internal Revenue
Code and may not exceed 10% of the account value annually, measured from
the date the Transfer Agent receives the request);
- shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
- distributions from OppenheimerFunds prototype 401(k) plans (1)
for hardship withdrawals; (2) under a Qualified Domestic Relations Order,
as defined in the Internal Revenue Code; (3) to meet minimum distribution
requirements as defined in the Internal Revenue Code; (4) to make
"substantially equal periodic payments" as described in Section 72(t) of
the Internal Revenue Code; or (5) for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; or
- shares issued in plans of reorganization to which the Fund is a
party.
Buying Class C Shares. Class C shares are sold at net asset value per s
hare without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. 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 (including increases
due to the reinvestment of dividends and capital gains distributions).
The Class C contingent deferred sales charge is paid to the Distributor
to reimburse its expenses of providing distribution-related services to
the Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 12 months, and (3) shares held the
longest during the 12-month period.
- Waivers of Class C Sales Charges. The Class C contingent
deferred sales charge will be waived if the shareholder requests it for
any of the redemptions or circumstances described above under "Waivers of
Class B and Class C Sales Charges."
- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to compensate
the Distributor for distributing Class C shares and servicing accounts.
Under the Plan, the Fund pays the Distributor an annual "asset-based sales
charge" of 0.75% per year on Class C shares. The Distributor also
receives a service fee of 0.25% per year. Both fees are computed on the
average annual net assets of Class C shares, determined as of the close
of each regular business day. The asset-based sales charge allows
investors to buy Class C shares without a front-end sales charge while
allowing the Distributor to compensate dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class C expenses by 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class C shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 0.75% of the
purchase price to dealers from its own resources at the time of sale. The
total up-front commission paid by the Distributor to the dealer at the
time of sale of Class C shares is 1.00% of the purchase price. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
The Fund pays the asset-based sales charge to the Distributor for
its services rendered in connection with the distribution of Class C
shares. Those payments are at a fixed rate which is not related to the
Distributor's expense. The services rendered by the Distributor include
paying and financing the payment of sales commissions, service fees, and
other costs of distributing and selling Class C shares, including
compensating personnel of the Distributor who support distribution of
Class C shares. If the Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing Class C shares before the Plan
was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions. These include purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply to
each shareholder listed in the registration on your account as well as to
your dealer representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- 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.
- 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.
- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another Oppenheimer funds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- 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.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
Oppenheimer funds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000
or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of withdrawals
of up to $1,500 per month by telephone. You should consult the
Application and Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent
to automatically exchange an amount you establish in advance for shares
of up to five other Oppenheimer funds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each Oppenheimer funds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or other
Oppenheimer funds without paying a sales charge. This privilege applies
to Class A shares that you purchased with an initial sales charge and to
Class A or Class B shares on which you paid a contingent deferred sales
charge when you redeemed them. This privilege does not apply to Class C
shares. You must be sure to ask the Distributor for this privilege when
you send your payment. Please consult the Statement of Additional
Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SAR SEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons and
other employers
- 401(k) prototype retirement plans for businesses
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional Information.
- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations (there
may be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares
and receive a check
- A redemption check is not payable to all shareholders
listed on the account statement
- A redemption check is not sent to the address of record
on your statement
- Shares are being transferred to a Fund account with a
different owner or name
- Shares are redeemed by someone other than the owners
(such as an Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent
will accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If you
are signing on behalf of a corporation, partnership or other business, or
as a fiduciary, you must also include your title in the signature.
Selling 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 register, and
- Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the
person asking to sell shares.
Use the following address Send courier or Express
for requests by mail: Mail requests to:
Oppenheimer Shareholder Oppenheimer Shareholder
Services Services
P.O. Box 5270 10200 E. Girard Avenue,
Denver, Colorado 80217 Building D,
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M. but may be earlier on some days. You may not redeem
shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
- 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 wired to that bank
account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, once in any 7-day period. The check must be
payable to all owners of record of the shares and must be sent to the
address on the account statement. This service is not available within
30 days of changing the address on an account.
- Telephone Redemptions Through AccountLink or By Wire. There are
no dollar limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH wire 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 wired.
Shareholders may also have the Transfer Agent send redemption
proceeds of $2,500 or more by Federal Funds wire to a designated
commercial bank account. The bank must be a member of the Federal Reserve
wire system. There is a $10 fee for each Federal Funds wire. To place
a wire redemption request, call the Transfer Agent at 1-800-852-8457. The
wire will normally be transmitted on the next bank business day after the
shares are redeemed. There is a possibility that the wire may be delayed
up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of
shares that have been redeemed and are awaiting transmittal by wire. To
establish wire redemption privileges on an account that is already
established, please contact the Transfer Agent for instructions.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
Oppenheimer funds at net asset value per share at the time of exchange,
without sales charge. To exchange shares, you must meet several
conditions:
- 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 may be exchanged only for shares of the
same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, Oppenheimer Money Market Fund, Inc. offers only one class of
shares, which are considered to be Class A shares for this purpose. If
a fund has only one class of shares that does not have a class
designation, they are considered "Class A" shares for exchange purposes.
In some cases, sales charges may be imposed on exchange transactions.
Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- 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.
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 is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into up
to seven days if it determines it would be disadvantaged by a same-day
transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy
might require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- 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.
- For tax purposes, exchanges of shares involve a redemption of the
shares of the fund you own and a purchase of shares of the other fund,
which may result in a capital gain or loss. For more information about
taxes affecting exchanges, please refer to "How to Exchange Shares" in the
Statement of Additional Information.
- 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
- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange on each day the Exchange
is open by dividing the value of the Fund's net assets attributable to a
class by the number of shares of that class that are outstanding. The
Fund's Board of Trustees has established procedures to value the Fund's
securities to determine net asset value. In general, securities values
are based on market value. There are special procedures for valuing
illiquid and restricted securities and obligations for which market values
cannot be readily obtained. These procedures are described more
completely in the Statement of Additional Information.
- The offering of shares may be suspended during any period in
which the determination of net asset value is suspended, and the offering
may be suspended by the Board of Trustees at any time the Board believes
it is in the Fund's best interest to do so.
- 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 and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will
be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may not be
able to complete a telephone transaction and should consider placing your
order by mail.
- 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.
- 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.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C shares. Therefore, the
redemption value of your shares may be worth more or less than their
original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. For accounts registered
in the name of a broker-dealer, payment will be forwarded within 3
business days. The Transfer Agent may delay forwarding a check or
processing a payment via AccountLink for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much
as 10 days from the date the shares were purchased. That delay may be
avoided if you purchase shares by certified check or arrange with your
bank to provide telephone or written assurance to the Transfer Agent that
your purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of income.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charge when redeeming certain Class
A, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B and
Class C shares from net investment income and pays such dividends to
shareholders quarterly on or about the 29th of March, June, September and
December, but the Board of Trustees can change that date. It is expected
that distributions paid with respect to Class A shares will generally be
higher than for Class B and Class C shares because expenses allocable to
Class B and Class C shares will generally be higher.
During the Fund's fiscal year ended June 30, 1995, the Fund
attempted to pay dividends on its Class A shares at a constant level.
That was done keeping in mind the amount of net investment income and
other distributable income available from the Fund's portfolio
investments. However, the amount of each dividend can change from time
to time (or there might not be a dividend at all on any class) depending
on market conditions, the Fund's expenses, and the composition of the
Fund's portfolio. Attempting to pay dividends at a constant level
required the Manager to monitor the Fund's income stream from its
investments and at times to select higher yielding securities (appropriate
to the Fund's objectives and investment restrictions) to maintain income
at the required level. This practice did not affect the net asset values
of any class of shares. The Board of Trustees may change or end the
Fund's targeted dividend level for Class A shares at any time. There is
no targeted dividend level for Class B or Class C shares.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of capital gains following the end of its
fiscal year. Long-term capital gains will be separately identified in the
tax information the Fund sends you after the end of the year. Short-term
capital gains are treated as dividends for tax purposes. There can be no
assurance that the Fund will pay any capital gains distributions in a
particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- 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.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
- Reinvest Your Distributions in Another Oppenheimer Funds Account.
You can reinvest all distributions in another Oppenheimer funds account
you have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you held your
shares. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Distributions are subject to
federal income tax and may be subject to state or local taxes. Your
distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of all taxable distributions
you received in the previous year.
When more than 50% of its assets are invested in foreign securities
at the end of any fiscal year, the Fund may elect that Section 853 of the
Internal Revenue Code will apply to it to permit shareholders to take a
credit (or a deduction) on their own federal income tax returns for
foreign taxes paid by the Fund.
- "Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares on
or just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. Generally speaking, a
capital gain or loss is the difference between the price you paid for the
shares and the price you received when you sold them.
- Returns of Capital: In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders. A non-
taxable return of capital may reduce your tax basis in your Fund shares.
This information is only a summary of certain federal tax
information about your investment. More information is contained in the
Statement of Additional Information, and in addition you should consult
with your tax adviser about the effect of an investment in the Fund on
your particular tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER EQUITY INCOME FUND
Graphic material included in Prospectus of Oppenheimer Equity Income
Fund: "Comparison of Total Return of Oppenheimer Equity Income Fund with
the S&P 500 Index - Change in Value of $10,000 Hypothetical Investments
in Class A and Class B Shares of Oppenheimer Equity Income Fund and the
S&P 500 Index"
Linear graphs will be included in the Prospectus of Oppenheimer
Equity Income Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in the Fund.
In the case of the Fund's Class A shares, that graph will cover each of
the Fund's last ten fiscal years from 6/30/85 through 6/30/95 and in the
case of the Fund's Class B shares will cover the period from the inception
of the class (August 17, 1993) through 6/30/95. The graph will compare
such values with hypothetical $10,000 investments over the same time
periods in the S&P 500 Index. Set forth below are the relevant data
points that will appear on the linear graph. Additional information with
respect to the foregoing, including a description of the S&P 500 Index,
is set forth in the Prospectus under "Performance of the Fund - Comparing
the Fund's Performance to the Market."
Fiscal Year Oppenheimer S&P 500
(Period) Ended Equity Income A Index
6/30/85 $ 9,425 $10,000
6/30/86 $12,103 $13,600
6/30/87 $14,579 $17,000
6/30/88 $14,876 $15,800
6/30/89 $16,856 $19,100
6/30/90 $18,383 $22,200
6/30/91 $19,060 $23,900
6/30/92 $21,017 $27,100
6/30/93 $24,540 $30,700
6/30/94 $24,699 $31,200
6/30/95 $28,568 $39,300
Fiscal Oppenheimer S&P
Period Ended Equity Income Fund B 500 Index
8/17/93(1) $10,000 $10,000
6/30/94 $ 9,765 $ 9,805
6/30/95 $10,817 $12,022
- ----------------------
(1) Class B shares of the Fund were first publicly offered on August 17,
1993.
<PAGE>
Oppenheimer Equity Income Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Advisor
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
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
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional Information
and, if given or made, such information and representations must not be
relied upon as having been authorized by the Fund, Oppenheimer Management
Corporation, Oppenheimer Funds Distributor, Inc. or any affiliate thereof.
This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby in any state to any
person to whom it is unlawful to make such an offer in such state.
<PAGE>
Oppenheimer Equity Income Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated November 1, 1995
This Statement of Additional Information of Oppenheimer Equity
Income Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus
dated November 1, 1995. It should be read together with the Prospectus,
which may be obtained by writing to the Fund's Transfer Agent, Oppenheimer
Shareholder Services, at P.O. Box 5270, Denver, Colorado 80217 or by
calling the Transfer Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
About the Fund
Investment Objectives and Policies 2
Investment Policies and Strategies. 2
Other Investment Techniques and Strategies 4
Other Investment Restrictions 17
How the Fund is Managed 18
Organization and History 18
Trustees and Officers of the Fund 18
The Manager and Its Affiliates 22
Brokerage Policies of the Fund 23
Performance of the Fund 25
Distribution and Service Plans 28
About Your Account
How To Buy Shares 31
How To Sell Shares 37
How To Exchange Shares 41
Dividends, Capital Gains and Taxes 43
Additional Information About the Fund 44
Financial Information About the Fund
Independent Auditors' Report 45
Financial Statements 46
Appendix A: Ratings of Investments A-1
Appendix B: Corporate Industry Classifications B-1
<PAGE>
ABOUT THE FUND
Investment Objectives and Policies
Investment Policies and Strategies. The investment objectives and policies
of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund may invest, as well as the strategies the Fund may use
to try to achieve its objectives. Capitalized terms used in this
Statement of Additional Information have the same meaning as those terms
have in the Prospectus.
In selecting securities for the Fund's portfolio, the Fund's investment
adviser, Oppenheimer Management Corporation (the "Manager"), evaluates the
merits of particular equity and fixed-income securities primarily through
the exercise of its own investment analysis. This may include, among other
things, evaluation of the history of the issuer's operations, prospects
for the industry of which the issuer is part, the issuer's financial
condition, the issuer's pending product developments and developments by
competitors, the effect of general market and economic conditions on the
issuer's business, and legislative proposals or new laws that might affect
the issuer.
The portion of the Fund's assets allocated to particular securities and
types of special investment methods selected will depend upon the judgment
of the Fund's Manager as to the future movement of the equity and fixed-
income securities markets. If the Manager believes that economic
conditions favor dividend-paying equity and convertible securities and
fixed-income investments having higher yields, the Fund will emphasize
securities and investment methods selected to achieve its investment
objectives. If the Manager believes that a market decline is likely,
defensive shorter-term securities and investment methods may be emphasized
(See "Temporary Defensive Investments," below).
-- Investment Risks of Fixed-Income Securities. All fixed-income
securities are subject to two types of risks: credit risk and interest
rate risk. Credit risk relates to the ability of the issuer to meet
interest or principal payments on a security as they become due.
Generally, higher yielding lower-grade bonds are subject to credit risk
to a greater extent than lower yielding, investment grade bonds. Interest
rate risk refers to the fluctuations in value of fixed-income securities
resulting solely from the inverse relationship between price and yield of
outstanding fixed-income securities. An increase in prevailing interest
rates will generally reduce the market value of already-issued fixed-
income investments, and a decline in interest rates will tend to increase
their value. In addition, debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater changes
in their prices from changes in interest rates than obligations with
shorter maturities. Fluctuations in the market value of fixed-income
securities after the Fund buys them will not affect the interest payable
on those securities, and thus the cash income from such securities is not
affected by interest rate changes. However, those price fluctuations will
be reflected in the valuations of these securities and therefore the
Fund's net asset values.
As stated in the Prospectus, the Fund may not invest more than 10% of
its assets in non-convertible bonds and debentures in the lower rating
categories of Moody's and Standard & Poor's, the principal rating
services. High yield securities, whether rated or unrated, may be subject
to greater market fluctuations and risks of loss of income and principal
than lower-yielding, higher-rated, fixed-income securities. Risks of high
yield securities may include (i) limited liquidity and secondary market
support, (ii) substantial market price volatility resulting from changes
in prevailing interest rates, (iii) subordination of the obligations to
the prior claims of banks and other senior lenders, (iv) the operation of
mandatory sinking fund or call/redemption provisions during periods of
declining interest rates that could cause the Fund to be able to reinvest
premature redemption proceeds only in lower-yielding portfolio securities,
(v) the possibility that earnings of the issuer may be insufficient to
meet its debt service, and (vi) the issuer's low creditworthiness and
potential for insolvency during periods of rising interest rates and
economic downturn. As a result of the limited liquidity of high yield
securities, at times their prices have experienced significant and rapid
declines when a substantial number of holders decided to sell
simultaneously. A decline is also likely in the high yield bond market
during a general economic downturn. An economic downturn or an increase
in interest rates could severely disrupt the market for high yield bonds
and adversely affect the value of outstanding bonds and the ability of the
issuers to repay principal and interest. In addition, there have been
several Congressional attempts to limit the use of tax and other
advantages of high yield bonds which, if enacted, could adversely affect
the value of these securities and the Fund's net asset value. For
example, federally-insured savings and loan associations have been
required to divest their investments in high yield bonds.
-- Convertible Securities. While convertible securities are a form
of debt security in many cases, their conversion feature (allowing
conversion into equity securities) causes them to be regarded more as
"equity equivalents." As a result, the rating assigned to the security
has less impact on the Manager's investment decision with respect to
convertible securities than in the case of non-convertible fixed-income
securities. To determine whether convertible securities should be
regarded as "equity equivalents," the Manager examines the following
factors: (1) whether, at the option of the investor, the convertible
security can be exchanged for a fixed number of shares of common stock of
the issuer, (2) whether the issuer of the convertible securities has
restated its earnings per share of common stock on a fully diluted basis
(considering the effect of converting the convertible securities), and (3)
the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation in
the price of the issuer's common stock.
-- Warrants and Rights. Warrants basically are options to purchase
equity securities at set prices valid for a specified period of time. The
prices of warrants do not necessarily move in a manner parallel to the
prices of the underlying securities. The price the Fund pays for a
warrant will be lost unless the warrant is exercised prior to its
expiration. Rights are similar to warrants, but normally have a short
duration and are distributed directly by the issuer to its shareholders.
Rights and warrants have no voting rights, receive no dividends and have
no rights with respect to the assets of the issuer.
-- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or by private issuers, such as
corporations. Zero coupon U.S. Treasury securities include: (1) U.S.
Treasury bills without interest coupons, (2) U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons and (3)
receipts or certificates representing interests in such stripped debt
obligations or coupons. These securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations
in market value in response to changing interest rates than debt
obligations of comparable maturities that make current payments of
interest. However, the lack of periodic interest payments means that the
interest rate is "locked in" and there is no risk of having to reinvest
periodic interest payments in securities having lower rates.
Because the Fund accrues taxable income from zero coupon securities
without receiving cash, the Fund may be required to sell portfolio
securities in order to pay dividends or redemption proceeds for its
shares, which require the payment of cash. This will depend on several
factors: the proportion of shareholders who elect to receive dividends in
cash rather than reinvesting dividends in additional shares of the Fund,
and the amount of cash income the Fund receives from other investments and
the sale of shares. In either case, cash distributed or held by the Fund
that is not reinvested by investors in additional Fund shares will hinder
the Fund from seeking current income.
Other Investment Techniques and Strategies
-- Hedging. The Fund may use hedging instruments for the purposes
described in the Prospectus. When hedging to attempt to protect against
declines in the market value of the Fund's portfolio, or to permit the
Fund to retain unrealized gains in the value of portfolio securities which
have appreciated, or to facilitate selling securities for investment
reasons, the Fund may: (i) sell Futures, (ii) buy puts on such Futures or
on securities, or (iii) write covered calls on securities or on Futures.
When hedging to establish a position in the equity securities markets as
a temporary substitute for the purchase of individual equity securities
the Fund may: (i) buy Futures, or (ii) buy calls on such Futures or
securities held by it. Normally, the Fund would then purchase the equity
securities and terminate the hedging position.
The Fund's strategy of hedging with Futures and options on Futures will
be incidental to the Fund's investment activities in the underlying cash
market. In the future, the Fund may employ hedging instruments and
strategies that are not presently contemplated but which may be developed,
to the extent such investment methods are consistent with the Fund's
investment objective, and are legally permissible and disclosed in the
Prospectus. Additional information about the hedging instruments the Fund
may use is provided below.
-- Stock Index Futures, Financial Futures and Interest Rate Futures.
The Fund may buy and sell futures contracts relating to a securities
index ("Financial Futures"), including "Stock Index Futures," a type of
Financial Future for which the index used as the basis for trading is a
broadly-based stock index (including stocks that are not limited to
issuers in a particular industry or group of industries). A stock index
assigns relative values to the common stocks included in the index and
fluctuates with the changes in the market value of those stocks. Stock
indices cannot be purchased or sold directly. Financial futures are
contracts based on the future value of the basket of securities that
comprise the underlying index. The contracts obligate the seller to
deliver, and the purchaser to take, cash to settle the futures transaction
or to enter into an offsetting contract. No physical delivery of the
securities underlying the index is made on settling the futures
obligation. No monetary amount is paid or received by the Fund on the
purchase or sale of a Financial Future or Stock Index Future.
The Fund may also buy Futures relating to debt securities ("Interest
Rate Futures"). An Interest Rate Future obligates the seller to deliver
and the purchaser to take a specific type of debt security at a specific
future date for a fixed price to settle the futures transaction, or to
enter into an offsetting contract. As with Financial Futures, no monetary
amount is paid or received by the Fund on the purchase of an Interest Rate
Future.
Upon entering into a Futures transaction, the Fund will be required to
deposit an initial margin payment, in cash or U.S. Treasury bills, with
the futures commission merchant (the "futures broker"). Initial margin
payments will be deposited with the Fund's Custodian in an account
registered in the futures broker's name; however, the futures broker can
gain access to that account only under certain 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 on a daily basis.
At any time prior to the expiration of the Future, the Fund may elect
to close out its position by taking an opposite position, at which time
a final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund. Any gain or loss is then
realized by the Fund on the Future for tax purposes. Although Financial
Futures and Stock Index Futures by their terms call for settlement by the
delivery of cash, and Interest Rate Futures call for the delivery of a
specific debt security, in most cases the settlement obligation is
fulfilled without such delivery by entering into an offsetting
transaction. All Futures transactions are effected through a clearing
house associated with the exchange on which the contracts are traded.
-- Purchasing Puts and Calls. The Fund may 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 purchases a
call, it pays a premium (other than in a closing purchase transaction)
and, except as to calls on stock indices, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. In
purchasing a call, the Fund benefits only if the call is sold at a profit
or if, during the call period, the market price of the underlying
investment is above the sum of the call price, transaction costs, and the
premium paid, and the call is exercised. If the call is not exercised or
sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right
to purchase the underlying investment. When the Fund purchases a call on
a stock index, it pays a premium, but settlement is in cash rather than
by delivery of the underlying investment to the Fund.
The Fund may write covered calls. When the Fund writes a call on an
investment, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call during the call period
(usually not more than 9 months) at a fixed exercise price (which may
differ from the market price of the underlying investment) regardless of
market price changes during the call period. To terminate its obligation
on a call it has written, the Fund may purchase a corresponding call in
a "closing purchase transaction." A profit or loss will be realized,
depending upon whether the net of the amount of option transaction costs
and the premium received on the call the Fund has written is more or less
than the price of the call the Fund subsequently purchased. A profit may
also be realized if the call lapses unexercised, because the Fund retains
the underlying investment and the premium received. Those profits are
considered short-term capital gains for Federal income tax purposes, as
are premiums on lapsed calls, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to the lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised. The Fund may
also write calls on Futures without owning a futures contract or
deliverable securities, provided that at the time the call is written, the
Fund covers the call by segregating in escrow an equivalent dollar value
of deliverable securities or liquid assets. The Fund will segregate
additional liquid assets if the value of the escrowed assets drops below
100% of the current value of the Future. In no circumstances would an
exercise notice as to a Future put the Fund in a short futures position.
The Fund's Custodian, or a securities depository acting for the
Custodian, will act as the Fund's escrow agent, through the facilities of
the Options Clearing Corporation ("OCC"), as to the investments on which
the Fund has written options that are traded on exchanges, or as to other
acceptable escrow securities, so that no margin will be required from the
Fund for such option transactions. OCC will release the securities
covering a call on the expiration of the call or when the Fund enters into
a closing purchase transaction. Call writing affects the Fund's turnover
rate and the brokerage commissions it pays. Commissions, normally higher
than on general securities transactions, are payable on writing or
purchasing a call.
When the Fund purchases a put, it pays a premium and, except as to puts
on stock indices, has the right to sell the underlying investment to a
seller of a corresponding put on the same investment during the put period
at a fixed exercise price. Buying a put on an investment the Fund owns
(a "protective put") enables the Fund to attempt to protect itself during
the put period against a decline in the value of the underlying investment
below the exercise price by selling the underlying investment at the
exercise price to a seller of a corresponding put. If the market price
of the underlying investment is equal to or above the exercise price and
as a result the put is not exercised or resold, the put will become
worthless at its expiration and the Fund will lose the premium payment and
the right to sell the underlying investment. However, the put may be sold
prior to expiration (whether or not at a profit).
Puts and calls on broadly-based stock indices or Stock Index Futures
are similar to puts and calls on securities or futures contracts except
that all settlements are in cash and gain or loss depends on changes in
the index in question (and thus on price movements in the stock market
generally) rather than on price movements of individual securities or
futures contracts. When the Fund buys a call on a stock index or Stock
Index Future, it pays a premium. If the Fund exercises the call during
the call period, a seller of a corresponding call on the same investment
will pay the Fund an amount of cash to settle the call if the closing
level of the stock index or Future upon which the call is based is greater
than the exercise price of the call. That cash payment is equal to the
difference between the closing price of the call and the exercise price
of the call times a specified multiple (the "multiplier") which determines
the total dollar value for each point of difference. When the Fund buys
a put on a stock index or Stock Index Future, it pays a premium and has
the right during the put period to require a seller of a corresponding
put, upon the Fund's exercise of its put, to deliver cash to the Fund to
settle the put if the closing level of the stock index or Stock Index
Future upon which the put is based is less than the exercise price of the
put. That cash payment is determined by the multiplier, in the same
manner as described above as to calls.
When the Fund purchases a put on a stock index, or on a Stock Index
Future not owned by it, the put protects the Fund to the extent that the
index moves in a similar pattern to the securities the Fund holds. The
Fund can either resell the put or, in the case of a put on a Stock Index
Future, buy the underlying investment and sell it at the exercise price.
The resale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment
is above the exercise price, and as a result the put is not exercised, the
put will become worthless on the expiration date. In the event of a
decline in price of the underlying investment, the Fund could exercise or
sell the put at a profit to attempt to offset some or all of its loss on
its portfolio securities.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
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 will pay a brokerage commission each time it buys or sells a
call, put or an underlying investment in connection with the exercise of
a put or call. Those commissions may be higher 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 and, consequently, put and call options offer
large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes
in the value of the underlying investments.
-- Options on Foreign Currency. The Fund intends to write and
purchase calls on foreign currencies. The Fund may purchase and write
puts and calls on foreign currencies that are traded on a securities or
commodities exchange or over-the-counter markets or are quoted by major
recognized dealers in such options. It does so to protect against
declines in the dollar value of foreign securities and against increases
in the dollar cost of foreign securities to be acquired. 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 such
securities may be partially offset by purchasing calls or writing puts on
that foreign currency. If a decline in the dollar value of a foreign
currency is anticipated, the decline in value of portfolio securities
denominated in that currency may be partially offset by writing calls or
purchasing puts on that foreign currency. However, in the event of
currency rate fluctuations adverse to the Fund's position, it would lose
the premium it paid and transactions costs.
A call written on a foreign currency by the Fund 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 for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by
the Fund on a foreign currency to provide a hedge against a decline due
to an expected adverse change in the exchange rate 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. This is a
cross-hedging strategy. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
custodian, cash or U.S. Government Securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked-to-
market daily.
-- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. A Forward Contract involves
bilateral obligations of one party to purchase, and another party to sell,
a specific currency at a future date (which may be any fixed number of
days from the date of the contract agreed upon by the parties), at a price
set at the time the contract is entered into. These contracts are traded
in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may enter
into a Forward Contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold
but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S.
dollar and a foreign currency.
There is a risk that use of Forward Contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S.
dollar and a foreign currency. Forward contracts include standardized
foreign currency futures contracts which are traded on exchanges and are
subject to procedures and regulations applicable to other Futures. The
Fund may also enter into a forward contract to sell a foreign currency
denominated in a currency other than that in which the underlying security
is denominated. This is done in the expectation that there is a greater
correlation between the foreign currency of the forward contract and the
foreign currency of the underlying investment than between the U.S. dollar
and the foreign currency of the underlying investment. This technique is
referred to as "cross hedging." The success of cross hedging is dependent
on many factors, including the ability of the Manager to correctly
identify and monitor the correlation between foreign currencies and the
U.S. dollar. To the extent that the correlation is not identical, the
Fund may experience losses or gains on both the underlying security and
the cross currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase.
The Fund will not speculate with foreign currency exchange contracts.
There is no limitation as to the percentage of the Fund's assets that may
be committed to foreign currency exchange contracts. The Fund does not
enter into such forward contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's Custodian will place cash or U.S. Government securities or
other liquid high-quality debt securities in a separate account of the
Fund having a value equal to the aggregate amount of the Fund's
commitments under forward contracts to cover its short positions. If the
value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to
maintaining all or part of the separate account, 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, or 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 contract
price. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such
contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of
such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transactions
costs.
At or before the maturity of a Forward Contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing
a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund may close out a Forward Contract requiring
it to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity
date of the first contract. The Fund would realize a gain or loss as a
result of entering into such an offsetting Forward Contract under either
circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first
contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
-- Interest Rate Swap Transactions. 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 have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap 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 will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements.
A master netting agreement provides that all swaps done between the
Fund and that counterparty under the master agreement shall be regarded
as parts of an integral agreement. If on any date amounts are payable in
the same currency in respect of one or more swap transactions, the net
amount payable on that date in that currency shall be paid. In addition,
the master netting agreement may provide that if one party defaults
generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting 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 with respect to each
swap (i.e., 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." The Fund will not invest more
than 25% of its assets in interest rate swap transactions.
-- Regulatory Aspects of Hedging Instruments. The Fund is required to
operate within certain guidelines and restrictions with respect to its use
of Futures and options on Futures established by the Commodity Futures
Trading Commission ("CFTC"). In particular the Fund is exempted from
registration with the CFTC as a "commodity pool operator" if the Fund
complies with the requirements of Rule 4.5 adopted by the CFTC. In
particular, the Fund is excluded from registration as a "commodity pool
operator" if it 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 option premiums for a bona fide
hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related option premiums to no more
than 5% of the Fund's net assets for hedging strategies that are not
considered bona fide hedging strategies under the Rule.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of options
that may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus the number of options which the Fund may write or hold may
be affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser
that is an affiliate of the Fund's adviser). The exchanges also impose
position limits on Futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
Due to requirements under the Investment Company Act, when the Fund
purchases a Future, the Fund will maintain, in a segregated account or
accounts with its Custodian, cash or readily-marketable, short-term
(maturing in one year or less) debt instruments in an amount equal to the
market value of the securities underlying such Future, less the margin
deposit applicable to it.
-- Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without 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). One of the tests for
the Fund's qualification as a regulated investment company is that less
than 30% of its gross income must be derived from gains realized on the
sale of securities held for less than three months. To comply with this
30% cap, the Fund will limit the extent to which it engages in the
following activities, but will not be precluded from them: (i) selling
investments, including Stock Index Futures, held for less than three
months, whether or not they were purchased on the exercise of a call held
by the Fund; (ii) purchasing options which expire in less than three
months; (iii) effecting closing transactions with respect to calls or puts
written or purchased less than three months previously; (iv) exercising
puts or calls held by the Fund for less than three months; or (v) writing
calls on investments held less than three months.
Certain foreign currency exchange contracts (Forward Contracts) in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including Forward Contracts)
generally are treated as ordinary income or loss. In addition, section
1256 contracts held by the Fund at the end of each taxable year are
"marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized. These contracts also may be marked-
to-market for purposes of the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt
these transactions from this marked-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a
position(s) making up a straddle is allowed only to the extent such loss
exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there
is no unrecognized gain in the offsetting positions making up the
straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as an ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
-- Risks of Hedging With Options and Futures. 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. In addition to the risks
associated with hedging that are discussed in the Prospectus and above,
there is a risk in using short hedging by (i) selling Stock Index Futures
or (ii) purchasing puts on stock indices or Stock Index Futures to attempt
to protect against declines in the value of the Fund's equity securities.
The risk is that the prices of Stock Index Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of
the Fund's equity securities. The ordinary spreads between prices in the
cash and futures markets are subject to distortions, due to differences
in the natures of those markets. First, all participants in the futures
markets are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may
close out futures contracts through offsetting transactions which could
distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures markets 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 markets could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin
requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of the equity securities being hedged and movements in the price of
the hedging instruments, the Fund may use hedging instruments in a greater
dollar amount than the dollar amount of equity securities being hedged if
the historical volatility of the prices of the equity securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that if the Fund has used hedging instruments in a
short hedge, the market may advance and the value of equity securities
held in the Fund's portfolio may decline. If that occurred, the Fund would
lose money on the hedging instruments and also experience a decline in
value in 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 equity securities will tend to move in the same
direction as the indices upon which the hedging instruments are based.
If the Fund uses hedging instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual
equity securities (long hedging) by buying Stock Index Futures and/or
calls on such Futures, on securities or on stock indices, it is possible
that the market may decline. If the Fund then concludes not to invest in
equity securities at that time because of concerns as to a possible
further market decline or for other reasons, the Fund will realize a loss
on the hedging instruments that is not offset by a reduction in the price
of the equity securities purchased.
-- Investing in Small, Unseasoned Companies. The securities of small,
unseasoned companies may have a limited trading market, which may
adversely affect the Fund's ability to dispose of them and can reduce the
price the Fund might be able to obtain for them. If other investors trade
the same securities when the Fund attempts to dispose of its holdings, the
Fund may receive lower prices than might otherwise be obtained, because
of the thinner market for such securities. The limitation against
investing more than 5% of the Fund's net assets in securities of companies
(including predecessors) with a record of less than three years'
continuous operation does not apply to public utilities or pipeline
companies.
-- Foreign Securities. "Foreign securities" include equity and debt
securities of companies organized under the laws of countries other than
the United States and debt securities of foreign governments that are
traded on foreign securities exchanges or in the foreign over-the-counter
markets. Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are not considered "foreign
securities" for the purpose of the Fund's investment allocations, because
they are not subject to many of the special considerations and risks,
discussed below, that apply to foreign securities traded and held abroad.
The Fund may invest in U.S. dollar-denominated foreign debt obligations
known as "Brady Bonds," which are issued for the exchange of existing
commercial bank loans to foreign entities for new obligations that are
generally collateralized by zero coupon U.S. Treasury securities having
the same maturity. Because the Fund may purchase securities denominated
in foreign currencies, a change in the value of such foreign currency
against the U.S. dollar will result in a change in the amount of income
the Fund has available for distribution. Because a portion of the Fund's
investment income may be received in foreign currencies, the Fund will be
required to compute its income in U.S. dollars for distribution to
shareholders, and therefore the Fund will absorb the cost of currency
fluctuations. After the Fund has distributed income, subsequent foreign
currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income,
which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers, including the
opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in
portfolio value by taking advantage of foreign stock markets that do not
move in a manner parallel to U.S. markets. If the Fund's portfolio
securities are held abroad, the countries in which they may be held and
the sub-custodians holding them must be approved by the Fund's Board of
Trustees where required under applicable rules of the Securities and
Exchange Commission.
-- Risks of Foreign Investing. Investments in foreign securities
present special additional risks and considerations not typically
associated with investments in domestic securities: reduction of income
by foreign taxes; fluctuation in value of foreign portfolio investments
due to changes in currency rates and control regulations (e.g., currency
blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing
and financial reporting standards comparable to those applicable to
domestic issuers; less volume on foreign exchanges than on U.S. exchanges;
greater volatility and less liquidity on foreign markets than in the U.S.;
less regulation of foreign issuers, stock exchanges and brokers than in
the U.S.; greater difficulties in commencing lawsuits; higher brokerage
commission rates than in the U.S.; increased risks of delays in settlement
of portfolio transactions or loss of certificates for portfolio
securities; possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or adverse diplomatic
developments; and 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.
-- Restricted and Illiquid Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral on each business day must at least equal the value of the
loaned securities (by marking to market" daily) and must consist of cash,
bank letters of credit or securities of the U.S. Government (or its
agencies or instrumentalities). To be acceptable as collateral, letters
of credit must obligate a bank to pay amounts demanded by the Fund if the
demand meets the terms of the letter. Such terms and the issuing bank
must be satisfactory to the Fund. When it lends securities, the Fund
receives amounts equal to the dividends or interest on loaned securities
and also receives one or more of (a) negotiated loan fees, (b) interest
on securities used as collateral, and (c) interest on 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. 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.
-- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. Although the Fund will
enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. The Fund does not intend to make such
purchases for speculative purposes. The commitment to purchase a security
for which payment will be made on a future date may be deemed a separate
security and involve a risk of loss if the value of the security declines
prior to the settlement date. During the period between commitment by the
Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser,
and no interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government securities
or other high grade debt obligations at least equal to the value of
purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. At the time the Fund
makes a commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects the
value of the security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates before settlement in a direction other than that
expected by the Manager will affect the value of such securities and may
cause a loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use 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 forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
-- Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of purchases of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to, an approved vendor. An "approved vendor"
is a U.S. commercial bank or the U.S. branch of a foreign bank or a
broker-dealer which has been designated a primary dealer in government
securities, which must meet credit requirements set by the Fund's Board
of Trustees from time to time. 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. The
majority of these transactions run from day to day, and delivery pursuant
to the resale typically will occur within one to five days of the
purchase. Repurchase agreements are considered "loans" under the
Investment Company Act, collateralized by the underlying security. The
Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the value of the collateral must equal
or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
-- Temporary Defensive Investments. When the equity markets in
general are declining, the Fund may commit an increasing portion of its
assets to defensive securities. These may include the types of securities
described in the Prospectus. When investing for defensive purposes, the
Fund will normally emphasize investment in short-term debt securities
(that is, securities maturing in one year or less from the date of
purchase), since those types of securities are generally more liquid and
usually may be disposed of quickly without significant gains or losses so
that the Manager may have liquid assets when it wishes to make investments
in securities for appreciation possibilities.
Other Investment Restrictions
The Fund's most significant investment restrictions are described in
the Prospectus. The following are also fundamental policies, and together
with the Fund's fundamental investment policies described in the
Prospectus, cannot be changed without the approval of a "majority" of the
Fund's outstanding voting securities. Such a "majority" vote is defined
in the Investment Company Act as the vote of the holders of the lesser of
(1) 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 (2) more than 50% of the
outstanding shares.
Under these additional restrictions, the Fund cannot:
(1) act as an underwriter of securities of other issuers;
(2) buy or sell real estate or interests in real estate investment
trusts;
(3) buy or sell any securities, other than shares of the Fund, from
or to any officer or Trustee of the Fund or officer or director
of the Manager or firms of which any of them are members
(however, such persons may act as brokers for the Fund);
(4) buy or retain securities of any issuer if those officers and
Trustees of the Fund or officers and directors of the Manager
who beneficially own more than .5% of the securities of the
issuer together own more than 5% of the securities of such
issuer;
(5) invest in securities of any company for the purpose of
management or the exercise of control;
(6) buy securities of other investment companies, except in
connection with a merger or consolidation;
(7) cease to maintain its business as an investment company as
defined in the Investment Company Act; or
(8) accept the purchase price for any of its shares without
immediately thereafter issuing an appropriate number of shares.
For purposes of the Fund's policy not to concentrate its assets
described in "Other Investment Restrictions" in the Prospectus, the Fund
has adopted the industry classifications set forth in Appendix B to this
Statement of Additional Information. This is not a fundamental policy.
In connection with the registration of its shares in certain states,
the Fund has made the following undertakings. These undertakings, which
are non-fundamental policies of the Fund, shall terminate if the Fund
ceases to qualify its shares for sale in that state or if the state's
applicable rules or regulations are amended. The Fund has undertaken
that: (i) it will not invest in oil, gas or other mineral leases; and (ii)
it will not invest in real estate limited partnerships.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees And Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. Except as noted below, all of the Trustees are
also trustees, directors or managing general partners of Oppenheimer Total
Return Fund, Inc., Oppenheimer High Yield Fund, Oppenheimer Integrity
Funds, Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt Fund, Oppenheimer
Limited-Term Government Fund, The New York Tax-Exempt Income Fund, Inc.,
Oppenheimer Champion Income Fund, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Strategic Funds Trust, Oppenheimer Strategic Income & Growth
Fund, Oppenheimer International Bond Fund and Oppenheimer Variable
Account Funds; as well as the following "Centennial Funds": Daily Cash
Accumulation Fund, Inc., Centennial America Fund, L.P., Centennial Money
Market Trust, Centennial Government Trust, Centennial New York Tax Exempt
Trust, Centennial Tax Exempt Trust and Centennial California Tax Exempt
Trust, (all of the foregoing funds are collectively referred to as the
"Denver-based Oppenheimer funds"). Mr. Fossel is a Trustee, Director or
Managing General Partner of all the Denver-based Oppenheimer funds except
Oppenheimer Integrity Funds and Oppenheimer Strategic Funds Trust. Mr.
Fossel is President and Mr. Swain is Chairman of the Denver-based
Oppenheimer funds. As of October 2, 1995, the Trustees and officers of
the Fund as a group owned of record or beneficially less than 1% of each
class of shares of the Fund. The foregoing statement does not reflect
ownership of shares held of record by an employee benefit plan for
employees of the Manager (for which plan two of the officers listed below,
Messrs. Fossel and Donohue, are trustees), other than the shares
beneficially owned under that plan by the officers of the Fund listed
above.
Robert G. Avis, Trustee*; Age: 64
One North Jefferson Avenue, 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
adviser and trust company, respectively).
William A. Baker, Trustee; Age: 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age: 65
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly associated
with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Trustee*; Age: 53
Two World Trade Center, New York, New York 10048-0203
Chairman and a director of the Manager; President and a director of
Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding
company; President and a director of HarbourView Asset Management
Corporation ("HarbourView"), a subsidiary of the Manager; a director of
Shareholder Services, Inc. ("SSI") and Shareholder Financial Services,
Inc. ("SFSI"), transfer agent subsidiaries of the Manager; formerly
President of the Manager.
Raymond J. Kalinowski, Trustee; Age: 66
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; formerly Vice Chairman
and a director of A.G. Edwards, Inc., parent holding company of A.G.
Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice
President.
C. Howard Kast, Trustee; Age: 73
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; Age: 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
- ------------------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Ned M. Steel, Trustee; Age: 80
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation of Colorado, formerly Senior Vice President and a director of
Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Trustee*; Age 61:
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a Director of the Manager; President and Director of
Centennial Asset Management Corporation, an investment adviser subsidiary
of the Manager ("Centennial"); formerly Chairman of the Board of SSI.
Andrew J. Donohue, Vice President; Age: 45
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer of
other Oppenheimer funds; formerly Senior Vice President and Associate
General Counsel of the Manager and the Distributor; formerly a Partner in
Kraft & McManimon (a law firm), prior to which he was an officer of First
Investors Corporation (a broker-dealer) and First Investors Management
Company, Inc. (broker-dealer and investment adviser) and a director and
an officer of the First Investors Family of Funds and First Investors Life
Insurance Company.
George C. Bowen, Vice President, Secretary and Treasurer; Age: 59
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
Oppenheimer funds.
John P. Doney, Vice President and Portfolio Manager; Age: 65
Two World Trade Center, New York, N.Y. 10048-0203
Vice President of the Manager; formerly Senior Vice President and Chief
Investment Officer-Equities of National Securities & Research Corporation
(mutual fund investment adviser) and Vice President of the National
affiliated investment companies.
Robert G. Zack, Assistant Secretary; Age: 47
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer; Age: 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; previously a Fund Controller for the Manager,
prior to which he was an
Accountant for Yale & Seffinger, P.C., an accounting firm and previously
an Accountant and Commissions Supervisor for Stuart James Company Inc.,
a broker-dealer.
- ------------------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Scott Farrar, Assistant Treasurer; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting, an officer
of other Oppenheimer funds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant
for State Street Bank & Trust Company.
-- Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Messrs. Swain and Fossel, who are both
officers and Trustees) receive no salary or fee from the Fund. The
Trustees of the Fund (excluding Messrs. Swain and Fossel) received the
total amounts shown below (i) from the Fund, during its fiscal year ended
June 30, 1995 and (ii) from all 21 of the Denver-based Oppenheimer funds
(including the Fund) listed in the first paragraph of this section (and
from Oppenheimer Tax-Exempt Cash Reserves, Oppenheimer Strategic
Investment Grade Bond Fund and Oppenheimer Strategic Short-Term Income
Fund, which ceased operation following the acquisition of their assets by
certain other Oppenheimer funds), for services in the positions shown:
<TABLE>
<CAPTION>
Total Compensation
Aggregate from all
Compensation Denver-based
Name and Position from the Fund Oppenheimer Funds1
<S> <C> <C>
Robert G. Avis $ 8,400 $53,000.00
Trustee
William A. Baker $11,607 $73,257.01
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $10,818 $68,293.67
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski$ 8,393 $53,000.00
Trustee
C. Howard Kast $8,393 $53,000.00
Trustee
Robert M. Kirchner $10,818 $68,293.67
Audit and Review
Committee Member
and Trustee
Ned M. Steel $ 8,393 $53,000.00
Trustee
- ----------------------
</TABLE>
1 For the 1995 calendar year.
- -- Major Shareholders. As of October 2, 1995, no person owned of
record or was known by the Fund to own beneficially 5% or more of the
shares of the Fund as a whole or 5% or more of the Fund's Class A or Class
B shares. No Class C shares were outstanding as of that date.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Fund, and two of whom (Mr. Fossel and Mr. Swain)
serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed
to detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced by the Manager.
-- The Investment Advisory Agreement. A management fee is payable
monthly to the Manager under the terms of the investment advisory
agreement between the Manager and the Fund and is computed on the
aggregate net assets of the Fund as of the close of business each day.
The investment advisory agreement requires the Manager, at its expense,
to provide the Fund with adequate office space, facilities and equipment,
and to provide and supervise the activities of all administrative and
clerical personnel required to provide effective corporate administration
for the Fund, including the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified
reports, and composition of proxy materials and registration statements
for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including
litigation costs. For the Fund's fiscal years ended June 30, 1993, 1994,
and 1995 the management fees paid by the Fund to the Manager were
$9,038,385, $10,114,770, and $10,347,426, respectively.
The advisory agreement contains a provision limiting the Fund's
expenses. That provision provides that the Manager will reimburse the
Fund for its annual expenses, other than taxes, interest, brokerage
commissions and extraordinary non-recurring expenses, that exceed in any
fiscal year 1.5% of the first $30 million of the Fund's average annual net
assets plus 1% of the Fund's average annual net assets in excess of $30
million. The payment of the management fee at the end of any month will
be reduced as necessary so that there will not be any accrued but unpaid
liability under this expense limitation.
The advisory agreement provides that as long as it shall have
acted with due care and in good faith, the Manager is not liable for any
loss sustained by reason of any investment, the adoption of any investment
policy, or the purchase, sale or retention of any security. However, the
Agreement does not exculpate the Manager from willful misfeasance, bad
faith, or gross negligence in the performance of its duties or from
reckless disregard of its obligations and duties under the Agreement. The
Agreement permits the Manager to act as investment adviser for any other
person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer
act as investment adviser to the Fund, the right of the Fund to use the
name "Oppenheimer" as part of its name may be withdrawn.
--The Distributor. Under its General Distributor's Agreement with
the Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A, Class B and Class C
shares but is not obligated to sell a specific number of shares. Expenses
normally attributable to sales, (excluding payments under the Distribution
and Service Plans but including advertising and the cost of printing and
mailing prospectuses, other than those furnished to existing
shareholders), are borne by the Distributor. During the Fund's fiscal
years ended June 30, 1993, 1994 and 1995, the aggregate sales charges on
sales of the Fund's Class A shares were $8,573,285, $7,807,280 and
$4,629,585, respectively, of which the Distributor and an affiliated
broker-dealer retained in the aggregate, $2,683,153, $2,506,452 and
$1,414,085 in those respective years. During the Fund's fiscal year ended
June 30, 1995, the contingent deferred sales charges collected on the
Fund's Class B shares totalled $2,424,041, of which $193,761 was paid by
the Distributor to an affiliate. During that same period Class C shares
were not publicly offered, and no contingent deferred sales charges were
collected. For additional information about distribution of the Fund's
shares and the payments made by the Fund to the Distributor in connection
with such activities, please refer to "Distribution and Service Plans,"
below.
-- The Transfer Agent. Oppenheimer Shareholder Services, the
Fund's Transfer Agent, is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to be aware of the current
rates of eligible brokers and to minimize the commissions paid to the
extent consistent with the interest and policies of the Fund as
established by its Board of Trustees. Purchases of securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and asked price.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
investment advisory agreement and the procedures and rules described
above. Regardless, brokerage is allocated under the supervision of the
Manager's executive officers. Transactions in securities other than those
for which an exchange is the primary market are generally done with
principals or market makers. Brokerage commissions are paid primarily for
effecting transactions in listed securities or for certain fixed-income
agency transactions in the secondary market, and are otherwise paid only
if it appears likely that a better price or execution can be obtained.
When the Fund engages in an option transaction, ordinarily the same broker
will be used for the purchase or sale of the option and any transaction
in the securities to which the option relates. When possible, concurrent
orders to purchase or sell the same security by more than one of the
accounts managed by the Manager or its affiliates are combined. The
transactions effected pursuant to such combined orders are averaged as to
price and allocated in accordance with the purchase or sale orders
actually placed for each account. Option commissions may be relatively
higher than those which would apply to direct purchases and sales of
portfolio securities.
Most purchases of money market instruments and debt obligations
are principal transactions at net prices. Instead of using a broker for
those transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained by using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt
execution of these orders at the most favorable net price.
The research services provided by a particular broker may be
useful only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid for in
commission dollars. The Board of Trustees has permitted the Manager to
use concessions on fixed price offerings of fixed income securities to
obtain research, in the same manner as is permitted for agency
transactions. The Board has also permitted the Manager to use stated
commissions on secondary fixed-income agency trades to obtain research
where the broker has represented to the Manager that: (i) the trade is not
from or for the broker's own inventory, (ii) the trade was executed by
the broker on an agency basis at the stated commission, and (iii) the
trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
During the Fund's fiscal years ended June 30, 1993, 1994 and 1995,
total brokerage commissions paid by the Fund (not including spreads or
concessions on principal transactions on a net trade basis) were
$1,000,874, $4,522,951 and $2,355,811, respectively. During the fiscal
year ended June 30, 1995, $413,705 was paid to brokers as commissions in
return for research services; the aggregate dollar amount of those
transactions was $237,204,616. The transactions giving rise to those
commissions were allocated in accordance with the Manager's internal
allocation procedures.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to
time the "average annual total return," "cumulative total return,"
"average annual total return at net asset value" and "total return at net
asset value" of an investment in a class of shares of the Fund may be
advertised. An explanation of how these total returns are calculated for
each class and the components of those calculations is set forth below.
No total return calculations are presented below for Class C shares
because no shares of that class were publicly issued during the fiscal
year ended June 30, 1995.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund 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. This enables an investor to compare the Fund's
performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A,
Class B and Class C shares of the Fund are affected by portfolio quality,
the type of investments the Fund holds and its operating expenses
allocated to the particular class.
-- Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of return for
each year in a specified number of years. It is the rate of return based
on the change in value of a hypothetical initial investment of $1,000 ("P"
in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV") of that investment, according to the
following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
-- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses
some of the same factors as average annual total return, but it does not
average the rate of return on an annual basis. Cumulative total return is
determined as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 5.75% (as a percentage of the offering price) is
deducted from the initial investment ("P") (unless the return is shown at
net asset value, as described below). For Class B shares, the payment of
the applicable contingent deferred sales charge (5.0% for the first year,
4.0% for the second year, 3.0% for the third and fourth years, 2.0% in the
fifth year, 1.0% in the sixth year and none thereafter) is applied to the
investment result for the period shown (unless the total return is shown
at net asset value, as described below). For Class C shares, the payment
of the 1% contingent deferred sales charge is applied to the investment
result for the one year period (or less). Total returns also assume that
all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that
the investment is redeemed at the end of the period. The "average annual
total returns" on an investment in Class A shares of the Fund for the one,
five and ten year periods ended June 30, 1995 were 9.01%, 7.93% and
11.07%, respectively. During a portion of the periods for which total
returns are shown for Class A shares, the Fund's maximum initial sales
charge rate was higher. As a result, performance of an actual investment
during those periods would be less than the results shown. The cumulative
"total return" on Class A shares for the ten year period ended June 30,
1995 was 185.68%. The "average annual total returns" on an investment in
Class B shares of the Fund for the one year period ended June 30, 1995 and
for the period from August 17, 1993 (commencement of the offering of Class
B shares) through June 30, 1995 was 9.87% and 4.29%, respectively. The
cumulative "total return" on Class B shares for the period from August 17,
1993 through June 30, 1995 was 8.17%.
-- Total Returns at Net Asset Value. From time to time the Fund
may also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions. The cumulative total return
at net asset value of the Fund's Class A shares for the ten-year period
ended June 30, 1995 was 203.11%. The average annual total returns at net
asset value for the one, five and ten-year periods ended June 30, 1995,
for Class A shares were 15.66%, 9.22% and 11.73%, respectively. The
cumulative total return at net asset value on the Fund's Class B shares
for the period from August 17, 1993 through June 30, 1995 was 12.16%. The
average annual total returns at net asset value on the Fund's Class B
shares for the one year period ended June 30, 1995 and for the period from
August 17, 1993 through June 30, 1995 was 14.87% and 6.33%, respectively.
Total return information may be useful to investors in reviewing
the performance of the Fund and Class A, Class B or Class C shares.
However, when comparing total return of an investment in shares of the
Fund with that of other alternatives, investors should understand that as
the Fund is an equity fund seeking capital appreciation, its shares are
subject to greater market risks and volatility than shares of funds having
more conservative investment objectives and policies and that the Fund is
designed for investors who are willing to accept greater risk of loss in
the hopes of realizing greater gains.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund is ranked against (i) all other funds, (ii)
all other "equity income" funds and (iii) all other "equity income" funds
with assets of more than $1 billion. The Lipper performance rankings are
based on total returns that include the reinvestment of capital gain
distributions and income dividends but do not take sales charges or taxes
into consideration.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Morningstar,
Inc., an independent mutual fund monitoring service that ranks mutual
funds, including the Fund, monthly in broad investment categories (equity,
taxable bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charges and expenses. Risk
measures fund performance below 90-day U.S. Treasury bill monthly returns.
Risk and investment return are combined to produce star rankings
reflecting performance relative to the average fund in a fund's category.
Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is
"below average" (next 22.5%) and one star is "lowest" (bottom 10%).
Morningstar ranks the Fund in relation to other equity funds. Rankings
are subject to change.
The total return on an investment in the Fund's Class A, Class B
or Class C shares may be compared with performance for the same period of
either the Dow-Jones Industrial Average ("Dow") or the Standard & Poor's
500 Index ("S&P 500"), both of which are widely recognized indices of
stock market performance. Both indices consist of unmanaged groups of
common stocks; the Dow consists of thirty such issues. The performance
of both indices includes a factor for the reinvestment dividends but does
not reflect expenses or taxes. The performance of the Fund's Class A,
Class B or Class C shares may also be compared in publications to (i) the
performance of various market indices or to other investments for which
reliable performance data is available, and (ii) to averages, performance
rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or
Class C return to the returns on fixed income investments available from
banks and thrift institutions, such as 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 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, and Treasury bills are guaranteed as to principal and
interest by the U.S. government.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or Transfer Agent) or the investor services
provided by them to shareholders of the Oppenheimer funds, other than
performance rankings of the Oppenheimer funds themselves. Those ratings
or rankings of shareholder/investor services by third parties may compare
the Oppenheimer funds' services to those of other mutual fund families
selected by the rating or ranking services and may be based upon the
opinions of the rating or ranking service itself, based on its research
or judgment, or based upon surveys of investors, brokers, shareholders or
others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares of the Fund
under Rule 12b-1 of the Investment Company Act pursuant to which the Fund
makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of that class, as described in the
Prospectus. Each Plan has been approved by a vote of (i) the Board of
Trustees of the Fund, including a majority of the Independent Trustees,
cast in person at a meeting called for the purpose of voting on that Plan,
and (ii) the holders of a "majority" (as defined in the Investment Company
Act) of the shares of each class. For the Distribution and Service Plans
for Class B and Class C shares, that vote was cast by the Manager as the
sole initial holder of Class B and Class C shares of the Fund.
In addition, under the Plans, the Manager and the Distributor, in
their sole discretion, from time to time, may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund), to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform, at
no cost to the Fund. The Distributor and the Manager may, in their sole
discretion, increase or decrease the amount of payments they make from
their own resources to Recipients.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as its continuance is
specifically approved at least annually by the Fund's Board of Trustees
and its Independent Trustees by a vote cast in person at a meeting called
for the purpose of voting on such continuance. Either Plan may be
terminated at any time by the vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined in the
Investment Company Act) of the outstanding shares of that class. Neither
Plan may be amended to increase materially the amount of payments to be
made unless such amendment is approved by shareholders of the class
affected by the amendment. In addition, because Class B shares of the
Fund automatically convert into Class A shares after six years, the Fund
is required to obtain the approval of Class B as well as Class A
shareholders for a proposed amendment to the Class A Plan that would
materially increase the amount to be paid by Class A shareholders under
the Class A Plan. Such approval must be by a "majority" of the Class A
and Class B shares (as defined in the Investment Company Act), voting
separately by class. All material amendments must be approved by the
Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which each payment was made and the services rendered in
connection with the distribution of shares. Those reports, will be
subject to the review and approval of the Independent Trustees in the
exercise of their fiduciary duty. Each Plan further provides that while
it is in effect, the selection and nomination of those Trustees of the
Fund who are not "interested persons" of the Fund is committed to the
discretion of the Independent Trustees. This does not prevent the
involvement of others in such selection and nomination if the final
decision on selection or nomination is approved by a majority of the
Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fees at the maximum rate (except for assets representing Class A shares
acquired prior to April 1, 1991, for which the rate is 0.15% for the
current fiscal year) and set no minimum amount.
For the fiscal year ended June 30, 1995, payments under the Plan
for Class A shares totaled $3,341,473, all of which was paid by the
Distributor to Recipients including $204,516 that was paid to an affiliate
of the Distributor. Any unreimbursed expenses incurred by the Distributor
with respect to Class A shares for any fiscal year may not be recovered
in subsequent fiscal years. Payments received by the Distributor under
the Plan for Class A shares will not be used to pay any interest expense,
carrying charges, or other financial costs, or allocation of overhead by
the Distributor.
The Class B and Class C Plan allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year such
shares are outstanding, and thereafter on a quarterly basis, as described
in the Prospectus. The advance payment is based on the net asset value
of shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event shares are redeemed during
the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor. Payments made under the Class B Plan during the fiscal year
ended June 30, 1995 totalled $1,223,578, of which $10,645 was paid to a
dealer affiliated with the Distributor. Since no Class C shares were
outstanding during the Fund's fiscal year ended June 30, 1995, no payments
were made under the Class C Plan.
Although the Class B and the Class C Plans permit the Distributor
to retain both the asset-based sales charges and the service fees on such
shares, or to pay Recipients the service fee on a quarterly basis without
payment in advance, the Distributor presently intends to pay the service
fee to Recipients in the manner described above. A minimum holding period
may be established from time to time under the Class B and the Class C
Plan by the Board. Initially, the Board has set no minimum holding
period. All payments under the Class B and the Class C Plan are subject
to the limitations imposed by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. on payments of asset-based sales
charges and service fees.
The Distributor's actual distribution expenses for any given year
may exceed the aggregate of payments received pursuant to the Class B Plan
and from contingent deferred sales charges, and such expenses will be
carried forward and paid in future years. The Fund will be charged only
for interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of $4
million in a given fiscal year, of which $2,000,000 was recovered in the
form of contingent deferred sales charges paid by investors and $1,600,000
was reimbursed in the form of payments made by the Fund to the Distributor
under the Class B Plan, the balance of $400,000 (plus interest) would be
subject to recovery in future fiscal years from such sources.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. The asset-based sales
charge paid to the Distributor by the Fund under the Class B Plan is
intended to allow the Distributor to recoup the cost of sales commissions
paid to authorized brokers and dealers at the time of sale, plus financing
costs, as described in the Prospectus. Such payments may also be used to
pay for the following expenses in connection with the distribution of
Class B shares: (i) financing the advance of the service fee payment to
Recipients under the Class B Plan, (ii) compensation and expenses of
personnel employed by the Distributor to support distribution of Class B
shares, and (iii) costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue sky"
registration fees.
The Class C Plan provides for the Distributor to be compensated
at a flat rate, whether the Distributor's distribution expenses are more
or less than the amounts paid by the Fund during that period. Such
payments are made in recognition that the Distributor (i) pays sales
commissions to authorized brokers and dealers at the time of sale and pays
service fees as described in the Prospectus, (ii) may finance such
commissions and/or the advance of the service fee payment to Recipients
under those Plans, or may provide such financing from its own resources,
or from an affiliate, (iii) employs personnel to support distribution of
shares, and (iv) may bear the costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders), state
"blue sky" registration fees and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B shares and Class C shares
are the same as those of the initial sales charge with respect to Class
A shares. Any salesperson or other person entitled to receive
compensation for selling Fund shares may receive different compensation
with respect to one class of shares than the other. The Distributor
normally will not accept any order for $500,000 or more of Class B shares
or $1 million or more of Class C shares on behalf of a single investor
(not including dealer "street name" or omnibus accounts) because generally
it will be more advantageous for that investor to purchase Class A shares
of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on such shares will be
reduced by incremental expenses borne solely by those classes, including
the asset-based sales charge to which both classes of shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of B shares does not constitute a taxable
event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature
may be suspended, in which event no further conversions of Class B shares
would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the
holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution and/or
Service Plan fees, (ii) incremental transfer and shareholder servicing
agent fees and expenses, (iii) registration fees and (iv) shareholder
meeting expenses, to the extent that such expenses pertain to a specific
class rather than to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange (the
"Exchange") on each day the Exchange is open by dividing the value of the
Fund's net assets attributable to that class by the number of shares of
that class that are outstanding. The Exchange normally closes at 4:00
P.M. New York time, but may close earlier on some days (for example, in
case of weather emergencies or 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, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. It may also close on other days. The Fund may invest a substantial
portion of its assets in foreign securities primarily listed on foreign
exchanges which may trade on Saturdays or customary U.S. business holidays
on which the Exchange is closed. Because the Fund's net asset value will
not be calculated on those days, the Fund's net asset values per share of
Class A, Class B and Class C shares may be significantly affected at times
when shareholders cannot purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a securities exchange or on the NASDAQ National
Market System ("NASDAQ") for which last sale information is regularly
reported are valued at the last reported sale price on their primary
exchange or NASDAQ that day (or, in the absence of sales that day, at
values based on the last sales prices of the preceding trading day, or
closing bid and asked prices); (ii) securities actively traded on a
foreign securities exchange are valued at the last sales price available
to the pricing service approved by the Fund's Board of Trustees or to the
Manager as reported by the principal exchange on which the security is
traded; (iii) unlisted foreign securities or listed foreign securities not
actively traded are valued as in (i) above, if available, or at the mean
between "bid" and "asked" prices obtained from active market makers in the
security on the basis of reasonable inquiry; (iv) long-term debt
securities having a remaining maturity in excess of 60 days are valued at
the mean between the "bid" and "asked" prices determined by a portfolio
pricing service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable inquiry;
(v) debt instruments having a maturity of more than one year when issued,
and non-money market type instruments having a maturity of one year or
less when issued, which have a remaining maturity of 60 days or less are
valued at the mean between "bid" and "asked" prices determined by a
pricing service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable inquiry;
(vi) money market-type debt securities having a maturity of less than one
year when issued that having a remaining maturity of 60 days or less are
valued at cost, adjusted for amortization of premiums and accretion of
discounts; and (vii) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under
the Board's procedures.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign securities and corporate bonds, when last sale
information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity and other special factors involved.
The Fund's Board of Trustees has authorized the Management to employ a
pricing service to price U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds. The
Trustees will monitor the accuracy of such pricing services by comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
Trading in securities on European and Asian exchanges and over-
the-counter markets is normally completed before the close of the
Exchange. Events affecting the values of foreign securities traded in
stock markets that occur between the time their prices are determined and
the close of the Exchange will not be reflected in the Fund's calculation
of net asset value unless the Board of Trustees or the Manager, under
procedures established by the Board of Trustees, determines that the
particular event would materially affect the Fund's net asset value, in
which case an adjustment would be made. Foreign currency, including
forward contracts, will be valued at the closing price in the London
foreign exchange market that day as provided by a reliable bank, dealer
or pricing service. The values of securities denominated in foreign
currency will be converted to
U.S. dollars at the closing price in the London foreign exchange market
that day as provided by a reliable bank, dealer or pricing service.
Puts, calls and Futures held by the Fund are valued at the last
sales price on the principal exchange on which they are traded, or on
NASDAQ, as applicable, or, if there are no sales that day, in accordance
with (i), above. Forward currency contracts are valued at the closing
price on the London foreign exchange market. When the Fund writes an
option, an amount equal to the premium received by the Fund is included
in the Fund's Statement of Assets and Liabilities as an asset, and an
equivalent deferred credit is included in the liability section. The
deferred credit is "marked-to-market" to reflect the current market value
of the option. In determining the Fund's gain on investments, if a call
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.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy the shares. Dividends will begin to accrue on
shares purchased by the proceeds of ACH transfers on the business day the
Fund receives Federal Funds for such purchase through the ACH system
before the close of the 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 three 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 the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse
and a spouse's siblings.
-- The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the sub-
distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
<PAGE>
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
<PAGE>
There is an initial sales charge on the purchase of Class A shares
of each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
-- Letters of Intent. A Letter of Intent (referred to as a
"Letter") is an investor's statement in writing to the Distributor of the
intention to purchase Class A shares or Class A and Class B shares of the
Fund (and other Oppenheimer funds) during a 13-month period (the "Letter
of Intent period"), which may, at the investor's request, include
purchases made up to 90 days prior to the date of the Letter. The Letter
states the investor's intention to make the aggregate amount of purchases
of shares which, when added to the investor's holdings of shares of those
funds, will equal or exceed the amount specified in the Letter. Purchases
made by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to
count the Class A and Class B shares purchased under the Letter to obtain
the reduced sales charge rate on purchases of Class A shares of the Fund
(and other Oppenheimer funds) that applies under the Right of Accumulation
to current purchases of Class A shares. Each purchase of Class A shares
under the Letter will be made at the public offering price (including the
sales charge) applicable to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the
Transfer Agent will not hold shares in escrow. If the intended purchases
amount under the Letter entered into by an OppenheimerFunds prototype
401(k) plan is not purchased by the plan by the end of the Letter of
Intent period, there will be no adjustment of commissions paid to the
broker-dealer or financial institution of record for accounts held in the
name of that plan.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended purchase amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual purchases. If total eligible purchases during the
Letter of Intent period exceed the intended purchase amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended purchase amount specified in the Letter shall be held in escrow
by the Transfer Agent. For example, if the intended purchase amount is
$50,000, the escrow shall be shares valued in the amount of $2,500
(computed at the public offering price adjusted for a $50,000 purchase).
Any dividends and capital gains distributions on the escrowed shares will
be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include (a) Class
A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge, (b) Class B shares acquired subject to
a contingent deferred sales charge, and (c) Class A or B shares acquired
in exchange for either (i) Class A shares of one of the other Oppenheimer
funds that were acquired subject to a Class A initial or contingent
deferred sales charge or (ii) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent deferred
sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in
the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
-- Involuntary Redemptions. The Fund's Board of Trustees has the right
to cause the involuntary redemption of the shares held in any account if
the aggregate net asset value of those shares is less than $200 or such
lesser amount as the Board may fix. The Board of Trustees will not cause
the involuntary redemption of shares in an account if the aggregate net
asset value of the shares has fallen below the stated minimum solely as
a result of market fluctuations. Should the Board elect to exercise this
right, it may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question
(not less than 30 days), or the Board may set requirements for granting
permission to the Shareholder to increase the investment, and set other
terms and conditions so that the shares would not be involuntarily
redeemed.
-- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under the
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares
purchased subject to an initial sales charge, or (ii) Class B shares on
which the shareholder paid a contingent deferred sales charge when
redeemed. This privilege does not apply to Class C shares. The
reinvestment may be made without sales charge only in Class A shares of
the Fund or any of the other Oppenheimer funds into which shares of the
Fund are exchangeable as described below, at the net asset value next
computed after the Transfer Agent receives the reinvestment order. The
shareholder must ask the Distributor for that privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer funds
within 90 days of payment of the sales charge, the shareholder's basis in
the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge at the time of transfer to the name of
another person or entity (whether the transfer occurs by absolute
assignment, gift or bequest, not involving, directly or indirectly, a
public sale). The transferred shares will remain subject to the
contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B or Class C
contingent deferred sales charge will be followed in determining the order
in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans,
or pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address
listed in "How To Sell Shares" in the Prospectus or on the back cover of
this Statement of Additional Information. The request must: (i) state the
reason for the distribution; (ii) state the owner's awareness of tax
penalties if the distribution is premature; and (iii) conform to the
requirements of the plan and the Fund's other redemption requirements.
Participants (other than self-employed persons maintaining a plan in their
own name) in OppenheimerFunds-sponsored pension, profit-sharing plans or
401(k) plans may not directly redeem or exchange shares held for their
accounts under those plans. The employer or plan administrator must sign
the request. Distributions from pension and profit sharing plans are
subject to special requirements under the Internal Revenue Code and
certain documents (available from the Transfer Agent) must be completed
before the distribution may be made. Distributions from retirement plans
are subject to withholding requirements under the Internal Revenue Code,
and IRS Form W-4P (available from the Transfer Agent) must be submitted
to the Transfer Agent with the distribution request, or the distribution
may be delayed. Unless the shareholder has provided the Transfer Agent
with a certified tax identification number, the Internal Revenue Code
requires that tax be withheld from any distribution even if the
shareholder elects not to have tax withheld. The Fund, the Manager, the
Distributor, the Trustee and the Transfer Agent assume no responsibility
to determine whether a distribution satisfies the conditions of applicable
tax laws and will not be responsible for any tax penalties assessed in
connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customers prior to the time the Exchange closed (normally that
is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts redeemed
by a broker-dealer under this procedure, payment will be made within three
business days after the shares have been redeemed upon the Distributor's
receipt the required redemption documents in proper form, with the
signature(s) of the registered owners guaranteed on the redemption
document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred
sales charge on such withdrawals (except where the Class B or Class C
contingent deferred sales charge is waived as described in the Prospectus
under "Waivers of Class B and Class C Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated
below and in the provisions of the OppenheimerFunds Application relating
to such Plans, as well as the Prospectus. These provisions may be amended
from time to time by the Fund and/or the Distributor. When adopted, such
amendments will automatically apply to existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other Oppenheimer funds automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
-- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who
executed the Plan authorization and application submitted to the Transfer
Agent. Neither the Fund nor the Transfer Agent shall incur any liability
to the Planholder for any action taken or omitted by the Transfer Agent
in good faith to administer the Plan. Certificates will not be issued for
shares of the Fund purchased for and held under the Plan, but the Transfer
Agent will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to
the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use Class A shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the Class A shares in
certificated form. Share certificates are not issued for Class B or Class
C shares. Upon written request from the Planholder, the Transfer Agent
will determine the number of Class A shares for which a certificate may
be issued without causing the withdrawal checks to stop because of
exhaustion of uncertificated shares needed to continue payments. However,
should such uncertificated shares become exhausted, Plan withdrawals will
terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent
to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. Shares of
the Oppenheimer funds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All of the Oppenheimer
funds 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, Centennial America Fund, L.P., and
Daily Cash Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Tax-Exempt Fund which only offers Class
A and Class B shares, (Class B and Class C shares of Oppenheimer Cash
Reserves are generally available only by exchange from the same class of
shares of other Oppenheimer funds or through OppenheimerFunds sponsored
401(k) plans). A list showing which funds offer which class can be
obtained by calling the Distributor at 1-800-525-7048.
Class A shares of the Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Oppenheimer
funds subject to a contingent deferred sales charge). However, shares of
Oppenheimer Money Market Fund, Inc., purchased with the redemption
proceeds of shares of other mutual funds (other than funds managed by the
Manager or its subsidiaries) redeemed within the 12 months prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer
funds without being subject to an initial or contingent deferred sales
charge, whichever is applicable. To qualify for that privilege, the
investor or the investor's dealer must notify the Distributor of
eligibility for this privilege at the time the shares of Oppenheimer Money
Market Fund, Inc., are purchased, and, if requested, must supply proof of
entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds or from any unit
investment trust for which reinvestment arrangements have been made with
the Distributor may be exchanged at net asset value for shares of any of
the Oppenheimer funds. No contingent deferred sales charge is imposed on
exchanges of shares of either 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 (see "Class A Contingent Deferred Sales Charge" in the
Prospectus). 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 A, 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 A, Class B or the Class C
contingent deferred sales charge will be followed in determining the order
in which the shares are exchanged. Shareholders should take into account
the effect of any exchange on the applicability and rate of any contingent
deferred sales charge that might be imposed in the subsequent redemption
of remaining shares. Shareholders owning shares of more than one class
must specify whether they intend to exchange Class A, Class B or Class C
shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of,
the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the dividends-received deduction
for corporate shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends paid by
the Fund which may qualify for the deduction is limited to the aggregate
amount of qualifying dividends that the Fund derives from its portfolio
investments that the Fund has held for a minimum period, usually 46 days.
A corporate shareholder will not be eligible for the deduction on
dividends paid on 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, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board of Trustees and the Manager might
determine in a particular year that it would be in the best interest of
shareholders for the Fund not to make such distributions at the required
levels and to pay the excise tax on the undistributed amounts. That would
reduce the amount of income or capital gains available for distribution
to shareholders.
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
during its last fiscal year, and intends to qualify in current and future
years, but reserves the right not to do so. The Internal Revenue Code
contains a number of complex tests to determine whether the Fund will
qualify, and the Fund might not meet those tests in a particular year.
For example, if the Fund derives 30% or more of its gross income from the
sale of securities held less than three months, it may fail to qualify
(see "Tax Aspects of Covered Calls and Hedging Instruments," above). 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.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., 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.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other Oppenheimer funds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. To elect
this option, a shareholder must notify the Transfer Agent in writing and
either have an existing account in the fund selected for reinvestment or
must obtain a prospectus for that fund and an application from the
Distributor to establish an account. The investment will be made at the
net asset value per share in effect at the close of business on the
payable date of the dividend or distribution. Dividends and/or
distributions from shares of other Oppenheimer funds may be invested in
shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to and
from the Fund. The Manager has represented to the Fund that the banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates. The Funds cash
balances in excess of $100,000 is not protected by Federal deposit
insurance. Such uninsured balances may at times be substantial.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for the Manager and certain other funds advised
by the Manager and its affiliates.
<PAGE>
20 Oppenheimer Equity Income Fund
<PAGE>
----------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Trustees and Shareholders of Oppenheimer Equity Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Equity Income Fund as
of June 30, 1995, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended June 30,
1995 and 1994, and the financial highlights for the period July 1, 1985 to
June 30, 1995. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned at June 30, 1995 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
Equity Income Fund at June 30, 1995, 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
/s/ Deloitte & Touche
Denver, Colorado
July 24, 1995
5 Oppenheimer Equity Income Fund
<PAGE>
----------------------------------------
STATEMENT OF INVESTMENTS JUNE 30, 1995
----------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS--13.1%
- -----------------------------------------------------------------------------------------------------------------------------------
AGENCY--0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY/FULL FAITH--0.1% Nafin Securities Ltd., 6% Gtd. Bonds, 12/19/96 $2,000,000
$1,830,000
- -----------------------------------------------------------------------------------------------------------------------------------
TREASURY--13.0%
U.S. TREASURY NTS.:
7.50%, 12/31/96 146,500,000 150,070,938
7.625%, 5/31/96 100,000,000 101,718,689
7.875%, 6/30/96 14,200,000 14,492,875
-----------
266,282,502
Total U.S. Government Obligations
(Cost $265,052,972) 268,112,502
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--6.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Par Bonds, 5%, 3/31/23(2) 5,750,000 2,752,812
--------------------------------------------------------------------------------------------
Argentina (Republic of) Past Due Interest Bonds,
7.313%, 3/31/05(3) 2,500,000 1,542,187
--------------------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior SNC International
Finance BV Bonds, 9.875%, 6/24/96 23,150,000 22,773,812
--------------------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior SNC International
Finance BV Gtd. Matador Bonds, 8%, 8/5/03 2,000,000 1,432,500
--------------------------------------------------------------------------------------------
Banco Nacional de Obras y Servicios Publicos SA Nts.,
10.75%, 8/16/96 6,000,000 5,977,500
--------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Interest Due and Unpaid Bonds,
7.813%, 1/1/01(3) 4,850,000 3,913,344
--------------------------------------------------------------------------------------------
Canada (Government of) Bonds, Series H62, 9.25%, 10/1/96 CAD 55,800,000
41,776,603
--------------------------------------------------------------------------------------------
Ecuador (Republic of) Par Bonds, 3%, 2/28/25(3) 10,250,000 3,312,031
--------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03 AUD 9,900,000 7,118,300
--------------------------------------------------------------------------------------------
Ontario Hydro (Province of) Canada Gtd. Debs., 10.875%,
1/8/96 CAD 16,000,000 11,900,637
--------------------------------------------------------------------------------------------
Quebec, Canada (Province of) Debs., 10.25%, 4/7/98 CAD 10,000,000 7,759,069
--------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01 AUD 33,650,000 22,778,510
--------------------------------------------------------------------------------------------
South Australia (Government of) Bonds, 9%, 9/23/02 AUD 3,000,000 2,122,505
------------
Total Foreign Government Obligations (Cost $150,552,349) 135,159,810
- -----------------------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--1.8%
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--0.5% Auburn Hills Trust, 12% Gtd. Exch. Certificates, 5/1/20(4) 5,000,000
7,423,280
--------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A,
12/1/11(5) 2,500,000 1,612,500
---------
9,035,780
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA--1.0% Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000
6,420,000
--------------------------------------------------------------------------------------------
Viacom International, Inc., 10.25% Sr. Sub. Nts., 9/15/01 12,000,000 13,410,000
-----------
19,830,000
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.3% WestPoint Stevens, Inc., 8.75% Sr. Nts., 12/15/01 6,000,000
5,947,500
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY--0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS--0.8% Coastal Corp., 11.75% Sr. Debs., 6/15/06 8,946,000
9,733,221
--------------------------------------------------------------------------------------------
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 7,000,000 7,525,000
----------
17,258,221
</TABLE>
6 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE--0.2% Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs.,
11/15/03 $4,250,000 $4,154,375
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.5% Imo Industries, Inc., 12.25% Sr. Sub. Debs., 8/15/97 7,078,000
7,111,517
--------------------------------------------------------------------------------------------
MagneTek, Inc., 10.75% Sr. Sub. Debs., 11/15/98 3,000,000
3,172,500
--------------------------------------------------------------------------------------------
10,284,017
----------
Total Non-Convertible Corporate Bonds and Notes
(Cost $60,588,617) 66,509,893
- -----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--6.6%
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
METALS--1.0% Inco, Ltd.:
5.75% Cv. Debs., 7/1/04 9,700,000 10,803,375
7.75% Cv. Debs., 3/15/16 9,800,000 10,008,250
----------
20,811,625
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--3.0%
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--0.2% U.S. Home Corp., 4.875% Cv. Sub. Debs., 11/1/05 4,350,000
3,605,063
- -----------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--2.3% AMR Corp., 6.125% Cv. Sub. Debs., 11/1/24
20,000,000 20,900,000
--------------------------------------------------------------------------------------------
Delta Airlines, Inc., 3.23% Cv. Sub. Nts., 6/15/03 13,500,000 12,993,750
--------------------------------------------------------------------------------------------
Time Warner, Inc., 8.75% Cv. Sr. Nts., 1/10/15 3,179,000 3,306,160
--------------------------------------------------------------------------------------------
Time Warner, Inc., Zero Coupon Cv. Liquid Yield Option
Nts., 12/17/12 30,000,000 10,050,000
----------
47,249,910
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA--0.3% Thomas Nelson, Inc., 5.75% Cv. Nts., 11/30/99(6) 5,000,000
5,818,750
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.2% Carter Hawley Hale Stores, Inc., 6.25% Cv. Sr. Sub.
Nts., 12/31/00 7,800,000 5,070,000
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--0.2% ICN Pharmaceuticals, Inc., 8.50% Cv. Sub. Debs., 11/15/99
4,500,000 4,410,000
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY--0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
OIL-INTEGRATED--0.5% Box Energy Corp., 8.25% Cv. Sub. Nts., 12/1/02 5,000,000
4,662,500
--------------------------------------------------------------------------------------------
Oryx Energy Co., 7.50% Cv. Sub. Debs., 5/15/14 7,000,000
6,212,500
----------
10,875,000
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--0.9%
- -----------------------------------------------------------------------------------------------------------------------------------
BANKS--0.9% Banco de Galicia y Buenos Aires SA, 7% Cv.
Negotiable Obligation Bonds, 8/1/02 2,500,000 1,762,500
--------------------------------------------------------------------------------------------
Bank of New York Co., Inc. (The), 7.50% Cv. Sub.
Debs., 8/15/01 7,750,000 16,081,250
----------
17,843,750
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.3% Cooper Industries, Inc., 7.05% Cv. Unsec. Sub. Bonds, 1/1/15 6,741,000
6,993,788
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS--0.5% Stone Container Corp., 8.875% Cv. Sr. Sub. Nts., 7/15/00 5,000,000
9,881,250
- -----------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-TECHNOLOGY--0.2% Intelcom Group, Inc., 7% Cv. Sub. Nts., 10/30/98(7)
5,525,000 3,683,026
-----------
Total Convertible Corporate Bonds and Notes (Cost $120,304,987)
136,242,162
</TABLE>
7 Oppenheimer Equity Income Fund
<PAGE>
--------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
--------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--43.5%
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--2.4% Dow Chemical Co. (The) 200,000
$14,375,000
--------------------------------------------------------------------------------------------
Du Pont (E.I.) De Nemours & Co. 200,000 13,750,000
--------------------------------------------------------------------------------------------
Goodrich (B.F.) Co. (The) 200,000 10,725,000
--------------------------------------------------------------------------------------------
Lyondell Petrochemical Co. 420,600 10,777,875
----------
49,627,875
- -----------------------------------------------------------------------------------------------------------------------------------
METALS--0.4% Cyprus Amax Minerals Co. 100,000
2,850,000
--------------------------------------------------------------------------------------------
Reynolds Metals Co. 100,000 5,175,000
---------
8,025,000
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER--1.7% Union Camp Corp. 200,000 11,575,000
--------------------------------------------------------------------------------------------
Westvaco Corp. 250,000 11,062,500
--------------------------------------------------------------------------------------------
Weyerhaeuser Co. 250,000 11,781,250
---------
34,418,750
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--3.4%
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--1.1% General Motors Corp. 475,000
22,265,625
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA--0.4% Dun & Bradstreet Corp. (The) 151,000 7,927,500
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--1.9% Sears, Roebuck & Co. 641,219
38,392,988
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--3.9%
- -----------------------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.3% Anheuser-Busch Cos., Inc. 100,000
5,687,500
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--0.3% Johnson & Johnson 100,000
6,762,500
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--0.2% U.S. Healthcare, Inc. 100,000
3,062,500
- -----------------------------------------------------------------------------------------------------------------------------------
TOBACCO--3.1% Philip Morris Cos., Inc. 600,000 44,625,000
--------------------------------------------------------------------------------------------
RJR Nabisco Holdings Corp. 240,000 6,690,000
--------------------------------------------------------------------------------------------
UST, Inc. 400,000 11,900,000
----------
63,215,000
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY--4.3%
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS--0.3% Baker Hughes, Inc. 339,000
6,949,500
- -----------------------------------------------------------------------------------------------------------------------------------
OIL-INTEGRATED--4.0% Mobil Corp. 176,500
16,944,000
--------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 600,000 13,725,000
--------------------------------------------------------------------------------------------
Phillips Petroleum Co. 300,000 10,012,500
--------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 201,500 24,557,812
--------------------------------------------------------------------------------------------
Texaco, Inc. 251,500 16,504,688
----------
81,744,000
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--17.0%
- -----------------------------------------------------------------------------------------------------------------------------------
BANKS--13.2% Banc One Corp. 700,000 22,575,000
--------------------------------------------------------------------------------------------
Bank of Boston Corp. 405,636 15,211,350
--------------------------------------------------------------------------------------------
BankAmerica Corp. 600,000 31,575,000
--------------------------------------------------------------------------------------------
Chase Manhattan Corp. 550,000 25,850,000
</TABLE>
8 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANKS--(CONTINUED)
Chemical Banking Corp. 550,000 $25,987,500
--------------------------------------------------------------------------------------------
Citicorp 92,457 5,350,949
--------------------------------------------------------------------------------------------
Crestar Financial Corp. 275,000 13,475,000
--------------------------------------------------------------------------------------------
First Bank System, Inc. 200,000 8,200,000
--------------------------------------------------------------------------------------------
First Fidelity Bancorporation 399,300 23,558,700
--------------------------------------------------------------------------------------------
First Union Corp. 300,000 13,575,000
--------------------------------------------------------------------------------------------
Fleet Financial Group, Inc. 400,000 14,850,000
--------------------------------------------------------------------------------------------
KeyCorp 400,000 12,550,000
--------------------------------------------------------------------------------------------
Magna Group, Inc. 400,000 8,800,000
--------------------------------------------------------------------------------------------
Mellon Bank Corp. 450,000 18,731,250
--------------------------------------------------------------------------------------------
National City Corp. 500,000 14,687,500
--------------------------------------------------------------------------------------------
Signet Banking Corp. 400,000 8,750,000
--------------------------------------------------------------------------------------------
U.S. Bancorp, Inc. 300,000 7,218,750
----------
270,945,999
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--1.3% American Express Co. 600,000
21,075,000
--------------------------------------------------------------------------------------------
Capital One Financial Corp. 300,000 5,850,000
---------
26,925,000
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE--2.5% Allstate Corp. 130,000 3,851,250
--------------------------------------------------------------------------------------------
General Re Corp. 101,000 13,521,375
--------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc. 2,079,000 13,513,500
--------------------------------------------------------------------------------------------
Safeco Corp. 200,000 11,487,500
--------------------------------------------------------------------------------------------
St. Paul Cos., Inc. 200,000 9,850,000
----------
52,223,625
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--2.8%
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.8% AMP, Inc. 400,000
16,900,000
- -----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--1.1% Tenneco, Inc. 500,000
23,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.9% Ryder Systems, Inc. 500,000
11,937,500
--------------------------------------------------------------------------------------------
Union Pacific Corp. 100,000 5,537,500
---------
17,475,000
- -----------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--2.9%
- -----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--0.8% United Technologies Corp. 200,000
15,625,000
- -----------------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--1.3% Minnesota Mining & Manufacturing Co. 200,000
11,450,000
--------------------------------------------------------------------------------------------
Moore Corp. Ltd. 716,000 15,841,500
----------
27,291,500
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--0.8% Tektronix, Inc. 350,000 17,237,500
</TABLE>
9 Oppenheimer Equity Income Fund
<PAGE>
--------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
--------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--4.7%
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--4.7% Allegheny Power System, Inc. 300,000
$7,050,000
--------------------------------------------------------------------------------------------
Baltimore Gas & Electric Co. 260,000 6,500,000
--------------------------------------------------------------------------------------------
Detroit Edison Co. 300,000 8,850,000
--------------------------------------------------------------------------------------------
Entergy Corp. 550,000 13,268,750
--------------------------------------------------------------------------------------------
Florida Progress Corp. 500,000 15,625,000
--------------------------------------------------------------------------------------------
Ohio Edison Co. 400,000 9,050,000
--------------------------------------------------------------------------------------------
Public Service Co. of Colorado 200,000 6,500,000
--------------------------------------------------------------------------------------------
Public Service Enterprise Group, Inc. 604,000 16,761,000
--------------------------------------------------------------------------------------------
Texas Utilities Co. 400,000 13,750,000
--------------------------------------------------------------------------------------------
97,354,750
-----------
Total Common Stocks (Cost $699,903,319) 893,057,112
- -----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--16.8%
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--3.5%
- -----------------------------------------------------------------------------------------------------------------------------------
METALS--1.7% Alumax, Inc., $4.00 Cv., Series A 50,000
6,718,750
--------------------------------------------------------------------------------------------
Armco, Inc., $3.625 Cum. Cv. 200,000 10,475,000
--------------------------------------------------------------------------------------------
Cyprus Amax Minerals Co., $4.00 Cv., Series A 150,000 9,375,000
--------------------------------------------------------------------------------------------
Reynolds Metals Co., 7% Preferred Redeemable Increased
Dividend Equity Securities, $3.31 Cv., 12/31/97 160,000 7,720,000
-----------
34,288,750
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER--1.8% Boise Cascade Corp., $1.58 Cum. Cv., Series G 460,000
15,352,500
--------------------------------------------------------------------------------------------
Bowater, 7% Preferred Redeemable Increased Dividend Equity
Securities, Series B, $6.58 Cv., 1/1/98 95,000 3,586,250
--------------------------------------------------------------------------------------------
James River Corp. of Virginia, Dividend Enhanced Convertible
Stock, 9% Cv. Exchangeable Depositary Shares, Series P 700,000
17,325,000
-----------
36,263,750
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.6% Delta Airlines, Inc., $3.50 Cv. Depositary Shares,
Series C 200,000 11,700,000
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--2.8%
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--0.7% U.S. Surgical Corp., $2.20 Depositary Shares Representing
1/50th Share of Series A Preferred Stock 550,000 14,025,000
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.8% Westinghouse Electric Corp., Participating Equity Preferred
Shares, $12.125 Cv., Series C(5) 1,100,000 16,500,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOBACCO--1.3% RJR Nabisco Holdings Corp., $6.50 Cv., Series C 4,315,000
26,429,375
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY--2.4%
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS--0.5% Noble Drilling Corp., $1.50 Cv. Exchangeable 122,000
2,897,500
--------------------------------------------------------------------------------------------
Santa Fe Energy Resources, Inc., Dividend Enhanced Convertible
Stock, $.732 Cv. Exchangeable, Series A 805,000 7,748,125
----------
10,645,625
</TABLE>
10 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OIL-INTEGRATED--1.9% Atlantic Richfield Co., 9% Exchangeable Notes for Common
Stock of Lyondell Petrochemical Co., 9/15/97 400,000 $ 10,400,000
--------------------------------------------------------------------------------------------
Occidental Petroleum Corp., $3.00 Cum. Cv. Canadian Occidental
Petroleum Ltd.-Indexed 90,000 5,332,500
--------------------------------------------------------------------------------------------
Occidental Petroleum Corp., $3.875 Cum. Cv.(5) 400,000 22,900,000
----------
38,632,500
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
BANKS--2.8% Citicorp, Cv. Depositary Shares, Series 13 200,000
32,025,000
--------------------------------------------------------------------------------------------
Citicorp, Preferred Equity Redemption Cumulative Stock,
$1.217 Cv. Depositary Shares, Series 15, 11/30/95 329,141 6,665,105
--------------------------------------------------------------------------------------------
First Chicago Corp., $2.875 Cum Cv. Depositary Shares, Series B 135,000
7,830,000
--------------------------------------------------------------------------------------------
Sovereign Bancorp Inc., 6.25% Cv., Series B 36,500 1,966,437
--------------------------------------------------------------------------------------------
Washington Mutual, Inc., $6.00 Non-Cum. Cv. Perpetual
Preferred Stock, Series D 96,800 9,655,800
-----------
58,142,342
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--1.5% Allstate Corp., $2.30 Debt Exchangeable for
Common Stock of PMI Group, Inc. 111,000 4,523,250
--------------------------------------------------------------------------------------------
American Express Co., Debt Exchangeable for Common Stock of
First Data Corp., 6.25%, 10/15/96 557,000 27,014,500
-----------
31,537,750
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE--0.2% American General Delaware LLC, $3.00 Cv. Monthly Income
Preferred Securities, Series A 75,000 3,890,625
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--1.7%
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS--0.5% Owens-Corning Capital LLC, 6.50% Cv. Monthly Income Preferred
Securities 200,000 10,275,000
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--1.2% Browning-Ferris Industries, Inc., 7.25% Cv. Automatic Common
Exchangeable Securities(8) 225,000 8,212,500
--------------------------------------------------------------------------------------------
Case Equipment Corp., Cum. Cv., Series A(5) 130,000 10,530,000
--------------------------------------------------------------------------------------------
Corning Delaware LP, 6% Cv. Monthly Income Preferred
Securities 150,000 7,668,750
----------
26,411,250
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.3%
- -----------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.9% Valero Energy Corp., Cv. 200,000
9,200,000
- -----------------------------------------------------------------------------------------------------------------------------------
Williams Companies, Inc., $3.50 Cv. 147,000 9,058,875
----------
18,258,875
- -----------------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--0.4% Compania de Inversiones en Telecomunicaciones SA,
Provisionally Redeemable Income Debt Exchangeable for Stock,
7%, 3/3/98(5) 165,000 8,456,250
--------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost $286,304,865) 345,457,092
</TABLE>
11 Oppenheimer Equity Income Fund
<PAGE>
--------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
--------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STRUCTURED INSTRUMENTS--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
CS First Boston Corp. Argentina Structured Product
Asset Return Trust Certificates, 9.40%, 9/1/97
(representing debt of Argentina (Republic of)
Bonos del Tesoro Bonds, Series II, 6.063%, 9/1/97
and an interest rate swap between Credit Suisse
Financial Products and the Trust) (Cost $7,428,571)(5) $7,428,571 $7,157,673
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--9.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital
Markets, 6.125%, dated 6/30/95, to be repurchased at
$200,300,184 on 7/3/95, collateralized by U.S.
Treasury Bonds, 11.25%, 2/15/15, with a value of
$20,423,668, U.S. Treasury Nts., 4.75%--7.875%,
3/31/96--8/15/01, with a value of $133,595,446, and
U.S. Treasury Bills maturing 9/28/95--12/14/95, with
a value of $50,382,907 (Cost $200,198,000) 200,198,000 200,198,000
-------------
Total Investments, at Value (Cost $1,790,333,680) 99.9% 2,051,894,244
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.1 2,801,386
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets 100.0% $2,054,695,630
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
1. Face amount is reported in local currency. Foreign currency abbreviations
are as follows:
AUD--Australian Dollar
CAD--Canadian Dollar
2. Represents the current interest rate for an increasing rate security.
3. Represents the current interest rate for a variable rate security.
4. Variable rate obligation maturing in more than a year. The interest rate
is the effective rate on June 30, 1995 and may change as the credit rating
changes.
5. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $67,156,423 or 3.3% of the Fund's net
assets, at June 30, 1995.
6. Identifies issues considered to be illiquid--See Note 5 of Notes to Financial
Statements.
7. Interest or dividend is paid in kind.
8. Non-income producing security.
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer Equity Income Fund
<PAGE>
---------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995
---------------------------------------------------
<TABLE>
<S> <C>
ASSETS Investments, at value (cost $1,790,333,680)--see accompanying
statement $2,051,894,244
------------------------------------------------------------------------------------
Cash 347,939
------------------------------------------------------------------------------------
Receivables:
Interest and dividends 11,728,444
Shares of beneficial interest sold 3,355,907
Investments sold 3,075,000
------------------------------------------------------------------------------------
Other 55,182
------------------------------------------------------------------------------------
Total assets 2,070,456,716
------------------------------------------------------------------------------------
LIABILITIES Payables and other liabilities:
Investments purchased 8,716,903
Shares of beneficial interest redeemed 4,851,255
Distribution and service plan fees--Note 4 976,601
Transfer and shareholder servicing agent fees--Note 4 136,630
Other 1,079,697
------------------------------------------------------------------------------------
Total liabilities 15,761,086
------------------------------------------------------------------------------------
Net Assets $2,054,695,630
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS PAID-IN CAPITAL
$1,760,752,758
------------------------------------------------------------------------------------
Overdistributed net investment income (970,447)
------------------------------------------------------------------------------------
Accumulated net realized gain from investment transactions 33,385,470
------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies--Note 3 261,527,849
------------------------------------------------------------------------------------
Net assets $2,054,695,630
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $1,893,248,866 and 184,622,931 shares of beneficial interest
outstanding) $10.25
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $10.88
------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $161,446,764 and 15,815,667 shares of
beneficial interest outstanding) $10.21
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer Equity Income Fund
<PAGE>
----------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
----------------------------------------------------------
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME Interest $59,082,794
-------------------------------------------------------------------------------------
Dividends (net of withholding taxes of $402,699) 58,281,419
-------------------------------------------------------------------------------------
Total income 117,364,213
-------------------------------------------------------------------------------------
EXPENSES Management fees--Note 4 10,347,426
-------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 3,341,473
Class B--Note 4 1,223,578
-------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 2,166,379
-------------------------------------------------------------------------------------
Shareholder reports 1,157,551
-------------------------------------------------------------------------------------
Custodian fees and expenses 334,295
-------------------------------------------------------------------------------------
Registration and filing fees:
Class A 116,381
Class B 27,668
-------------------------------------------------------------------------------------
Legal and auditing fees 106,390
-------------------------------------------------------------------------------------
Trustees' fees and expenses 66,822
-------------------------------------------------------------------------------------
Other 543,970
------------
Total expenses 19,431,933
-------------------------------------------------------------------------------------
NET INVESTMENT INCOME 97,932,280
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized gain on:
GAIN (LOSS) ON INVESTMENTS Investments 31,284,132
AND FOREIGN CURRENCY Foreign currency transactions 2,241,544
TRANSACTIONS ------------
Net realized gain 33,525,676
-------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 156,924,050
Translation of assets and liabilities denominated in
foreign currencies (3,645,863)
------------
Net change 153,278,187
------------
Net realized and unrealized gain on investments and foreign currency
transactions 186,803,863
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$284,736,143
------------
------------
</TABLE>
See accompanying Notes to Financial Statements.
14 Oppenheimer Equity Income Fund
<PAGE>
-----------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
OPERATIONS Net investment income $97,932,280 $88,048,979
----------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 33,525,676 23,085,323
----------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on
investments and translation of assets and liabilities
denominated in foreign currencies 153,278,187 (101,601,423)
----------------------------------------------------------------------------------
Net increase in net assets resulting from operations 284,736,143 9,532,879
----------------------------------------------------------------------------------
EQUALIZATION Net change -- 546,821
- -------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.48 and $.47 per share, respectively) (88,319,907) (85,741,017)
SHAREHOLDERS Class B ($.40 and $.42 per share, respectively) (5,380,964) (2,115,733)
----------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.01 per share) -- (1,829,618)
Class B ($.01 per share) -- (45,147)
----------------------------------------------------------------------------------
Distributions from net realized gain on investments
and foreign currency transactions:
Class A ($.1272 and $.1221 per share, respectively) (23,241,171) (22,569,711)
Class B ($.1272 and $.1221 per share, respectively) (1,584,662) (515,610)
----------------------------------------------------------------------------------
Distributions in excess of gain on investments and
foreign currency transactions:
Class A ($.05 per share) -- (8,593,810)
Class B ($.05 per share) -- (196,327)
- -------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting
TRANSACTIONS from Class A beneficial interest
transactions--Note 2 (34,706,185) 88,576,248
----------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 62,397,726 93,399,883
----------------------------------------------------------------------------------
NET ASSETS Total increase 193,900,980 70,448,858
----------------------------------------------------------------------------------
Beginning of period 1,860,794,650 1,790,345,792
------------- -------------
End of period (including overdistributed net
investment income of $970,447 and $3,381,130,
respectively) $2,054,695,630 $1,860,794,650
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Financial Statements.
15 Oppenheimer Equity Income Fund
<PAGE>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------
Year Ended June 30,
1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $9.44 $10.01 $9.15 $8.86
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income .50 .47 .50 .50
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions .92 (.39) .99 .39
Total income (loss) from investment
operations 1.42 .08 1.49 .89
- -------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.48) (.47) (.48) (.48)
Dividends in excess of net
investment income -- (.01) -- --
Distributions from net realized gain
on investments and foreign
currency transactions (.13) (.12) (.15) (.12)
Distributions in excess of
capital gains -- (.05) -- --
Total dividends and distributions
to shareholders (.61) (.65) (.63) (.60)
- -------------------------------------------------------------------------------
Net asset value, end of period $10.25 $9.44 $10.01 $9.15
- -------------------------------------------------------------------------------
Total Return, at Net Asset
Value(2) 15.66% .65% 16.76% 10.26%
- -------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $1,893,249 $1,772,944 $1,790,346 $1,555,924
- -------------------------------------------------------------------------------
Average net assets (in
thousands) $1,797,670 $1,831,606 $1,657,692 $1,525,599
- -------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 184,623 187,841 178,819 170,117
- -------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.15% 4.72% 5.12% 5.33%
Expenses .96% .90% .79% .82%
- -------------------------------------------------------------------------------
Portfolio turnover rate(4) 45.7% 30.4% 59.0% 37.0%
<FN>
1. For the period from August 17, 1993 (inception of offering) to June 30, 1994.
2. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Sales charges are not reflected in the total returns. Total returns are not
annualized for periods of less than one full year.
</TABLE>
16 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------------------
Year Ended June 30,
1991 1990 1989 1988 1987 1986 1995 1994(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value, beginning
of period $9.18 $9.11 $8.51 $9.85 $9.26 $7.78 $9.40 $10.22
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .48 .48 .52 .48 .46 .50 .43 .36
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (.17) .33 .58 (.35) 1.22 1.59 .91 (.58)
Total income (loss) from investment
operations .31 .81 1.10 .13 1.68 2.09 1.34 (.22)
- ------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment
income (.48) (.50) (.48) (.60) (.48) (.46) (.40) (.42)
Dividends in excess of net
investment income -- -- -- -- -- -- -- (.01)
Distributions from net realized gain
on investments and foreign
currency transactions (.15) (.24) (.02) (.87) (.61) (.15) (.13) (.12)
Distributions in excess of
capital gains -- -- -- -- -- -- -- (.05)
Total dividends and distributions
to shareholders (.63) (.74) (.50) (1.47) (1.09) (.61) (.53) (.60)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.86 $9.18 $9.11 $8.51 $9.85 $9.26 $10.21 $9.40
- ------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset
Value(2) 3.68% 9.07% 13.30% 2.04% 20.45% 28.42% 14.87% (2.35)%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $1,393,303 $1,329,830 $1,017,074 $806,892 $730,655 $381,122 $161,447 $87,850
- ------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,323,858 $1,179,704 $ 885,179 $743,232 $526,897 $228,642 $122,471
$47,414
- ------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 157,239 144,921 111,613 94,824 74,169 41,166 15,816 9,341
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.31% 5.10% 5.89% 5.48% 5.08% 6.00% 4.34%
3.99%(3)
Expenses .79% .79% .85% .83% .91% 1.03% 1.79% 1.82%(3)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 64.0% 122.0% 91.4% 124.1% 94.7% 105.3% 45.7% 30.4%
<FN>
3. Annualized.
4. 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 June 30, 1995 were $822,550,797 and
$820,422,707, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Equity Income Fund
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
- -------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer Equity Income Fund (the Fund) is
ACCOUNTING POLICIES registered under the Investment Company Act of
1940, as amended, as a diversified, open-end
management investment company. The Fund's
investment advisor is Oppenheimer Management
Corporation (the Manager). The Fund offers both
Class A and Class B shares. Class A shares are
sold with a front-end sales charge. Class B shares
may be subject to a contingent deferred sales
charge. Both classes of shares have identical
rights to earnings, assets and voting privileges,
except that each class has its own distribution
and/or service plan, expenses directly attributable
to a particular class and exclusive voting rights
with respect to matters affecting a single class.
Class B shares will automatically convert to
Class A shares six years after the date of
purchase. The following is a summary of significant
accounting policies consistently followed by the
Fund.
---------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are
valued at the close of the New York Stock Exchange
on each trading day. Listed and unlisted securities
for which such information is regularly reported
are valued at the last sale price of the day or, in
the absence of sales, at values based on the
closing bid or asked price or the last sale price
on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a
portfolio pricing service approved by the Board of
Trustees. Such securities which cannot be valued by
the 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 under consistently applied
procedures established by the Board of Trustees to
determine fair value in good faith. Short-term
"money market type" debt securities having a
remaining maturity of 60 days or less are valued
at cost (or last determined market value) adjusted
for amortization to maturity of any premium or
discount.
---------------------------------------------------
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 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 result of
operations.
---------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the
custodian to take possession, to have legally
segregated in the Federal Reserve Book Entry System
or to have segregated within the custodian's vault,
all securities held as collateral for repurchase
agreements. The market value of the underlying
securities is required to be at least 102% of the
resale price at the time of purchase. If the seller
of the agreement defaults and the value of the
collateral declines, or if the seller enters an
insolvency proceeding, realization of the value of
the collateral by the Fund may be delayed or
limited.
---------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND
LOSSES. Income, expenses (other than those
attributable to a specific class) and gains and
losses are allocated daily to each class of shares
based upon the relative proportion of net assets
represented by such class. Operating expenses
directly attributable to a specific class are
charged against the operations of that class.
---------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to
comply with provisions of the Internal Revenue Code
applicable to regulated investment companies and to
distribute all of its taxable income, including any
net realized gain on investments not offset by loss
carryovers, to shareholders. Therefore, no federal
income or excise tax provision is required.
---------------------------------------------------
EQUALIZATION. Prior to September 24, 1993, the Fund
followed the accounting practice of equalization,
by which a portion of the proceeds from sales and
costs of redemptions of Fund shares equivalent on a
per share basis to the amount of undistributed net
investment income were credited or charged to
undistributed income. The cumulative effect of the
change in accounting practice resulted in a
reclassification of $32,950,419 from undistributed
net investment income to paid-in capital.
18 Oppenheimer Equity Income Fund
<PAGE>
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING DISTRIBUTIONS TO SHAREHOLDERS. Dividends and
POLICIES (CONTINUED) distributions to shareholders are recorded on the
ex-dividend date.
---------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS.
Net investment income (loss) and net realized gain
(loss) may differ for financial statement and tax
purposes primarily because of paydown gains and
losses and the recognition of certain foreign
currency gains (losses) as ordinary income (loss)
for tax purposes. The character of the
distributions made during the year from net
investment income or net realized gains may differ
from their 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 year
that the income or realized gain (loss) was
recorded by the Fund. Effective July 1, 1993, the
Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. As a
result, the Fund changed the classification of
distributions to shareholders to better disclose
the differences between financial statement amounts
and distributions determined in accordance with
income tax regulations. During the year ended
June 30, 1995, in accordance with Statement of
Position 93-2, undistributed net investment income
was decreased by $1,820,726, and accumulated net
realized gain on investments was increased by the
same amount.
---------------------------------------------------
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. Interest on payment-in-kind debt
instruments is accrued as income at the coupon rate
and a market adjustment is made on the ex-date.
Realized gains and losses on investments and
unrealized appreciation and depreciation are
determined on an identified cost basis, which is
the same basis used for federal income tax
purposes.
---------------------------------------------------
2. SHARES OF The Fund has authorized an unlimited number of no
BENEFICIAL INTEREST par value shares of beneficial interest of each
class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1995 June 30, 1994(1)
------------------------- --------------------------
Shares Amount Shares Amount
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Class A:
Sold 19,327,605 $207,336,132 26,551,307 $264,515,469
Dividends and distributions reinvested 11,012,028 83,402,034 11,168,493 110,189,163
Redeemed (33,557,623) (325,444,351) (28,698,217) (286,128,384)
----------- ------------- ----------- ------------
Net increase (decrease) (3,217,990) $(34,706,185) 9,021,583 $88,576,248
----------- ------------- ----------- ------------
----------- ------------- ----------- ------------
Class B:
Sold 7,529,176 $72,586,104 9,581,829 $95,687,102
Dividends and distributions reinvested 670,317 6,342,433 266,194 2,603,845
Redeemed (1,724,724) (16,530,811) (507,125) (4,891,064)
----------- ------------- ----------- ------------
Net increase 6,474,769 $62,397,726 9,340,898 $93,399,883
----------- ------------- ----------- ------------
----------- ------------- ----------- ------------
<FN>
1. For the year ended June 30, 1994 for Class A shares and for the period
from August 17, 1993 (inception of offering) to June 30, 1994 for Class B
shares.
</TABLE>
19 Oppenheimer Equity Income Fund
<PAGE>
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
- --------------------------------------------------------------------------------
3. UNREALIZED GAINS AND At June 30, 1995, net unrealized appreciation on
LOSSES ON INVESTMENTS investments of $261,560,564 was composed of gross
appreciation of $296,970,357, and gross
depreciation of $35,409,793.
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND Management fees paid to the Manager were in
OTHER TRANSACTIONS accordance with the investment advisory agreement
WITH AFFILIATES with the Fund which provides for a fee of .75% on
the first $100 million of average annual net assets
with a reduction of .05% on each $100 million
thereafter, to .50% on net assets in excess of
$500 million. The Manager has agreed to reimburse
the Fund if aggregate expenses (with specified
exceptions) exceed 1.5% of the first $30 million of
average annual net assets of the Fund, plus 1% of
average annual net assets in excess of $30 million.
For the year ended June 30, 1995, commissions
(sales charges paid by investors) on sales of
Class A shares totaled $4,629,585, of which
$1,414,085 was retained by Oppenheimer Funds
Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an
affiliated broker/dealer. Sales charges advanced
to broker/dealers by OFDI on sales of the Fund's
Class B shares totaled $2,424,041, of which
$193,761 was paid to an affiliated broker/dealer.
During the year ended June 30, 1995, OFDI received
contingent deferred sales charges of $232,362 upon
redemption of Class B shares, as reimbursement for
sales commissions advanced by OFDI at the time of
sale of such shares.
Oppenheimer Shareholder Services (OSS), a division
of the Manager, is the transfer and shareholder
servicing agent for the Fund, and for other
registered investment companies. OSS's total costs
of providing such services are allocated ratably to
these companies.
Under separate approved plans, each class may
expend up to .25% of its net assets annually to
reimburse OFDI for costs incurred in connection
with the personal service and maintenance of
accounts that hold shares of the Fund, including
amounts paid to brokers, dealers, banks and other
institutions. In addition, Class B shares are
subject to an asset-based sales charge of .75% of
net assets annually, to reimburse OFDI for sales
commissions paid from its own resources at the time
of sale and associated financing costs. In the
event of termination or discontinuance of the
Class B plan, the Board of Trustees may allow the
Fund to continue payment of the asset-based sales
charge of OFDI for distribution expenses incurred
on Class B shares sold prior to termination or
discontinuance of the plan. During the year ended
June 30, 1995, OFDI paid $204,516 and $10,645,
respectively, to an affiliated broker/dealer as
reimbursement for Class A and Class B personal
service and maintenance expenses and retained
$1,120,169 as reimbursement for Class B sales
commissions and service fee advances, as well as
financing costs.
- --------------------------------------------------------------------------------
5. ILLIQUID AND RESTRICTED At June 30, 1995, investments in securities
SECURITIES included issues that are illiquid or restricted.
The 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 Trustees as
reflecting fair value. The Fund intends to invest
no more than 10% of its net assets (determined at
the time of purchase) in illiquid and restricted
securities. The aggregate value of these securities
subject to this limitation at June 30, 1995 was
$5,818,750, which represents .28% of the Fund's net
assets. Information concerning these securities is
as follows:
<TABLE>
<CAPTION>
Valuation
Acquisition Cost Per Unit as of
Security Date Per Unit June 30, 1995
-------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas Nelson, Inc., 5.75% Cv.
Nts., 11/30/99 11/11/92 $100.00 $116.38
</TABLE>
Pursuant to guidelines adopted by the Board of
Trustees, certain unregistered securities are
determined to be liquid and are not included within
the 10% limitation specified above.
<PAGE>
Appendix A: Ratings of Investments
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and to
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 which are 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 which are 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 which are rated "Baa" are considered medium grade obligations,
i.e., 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.
The bond investments in which the Fund will principally invest will be in
the lower-rated categories described below.
Ba: Bonds which are 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 which are 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 which are 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 which are rated "Ca" represent obligations which are speculative
in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" can be regarded as having extremely poor
prospects of ever retaining any real investment standing.
Description of Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to adverse effects of change
in circumstances and economic conditions.
BBB: The bond investments in which the Fund will principally invest will
be in the lower-rated categories, described below. Bonds rated "BBB" are
regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds
rated "D" are in default and payment of interest and/or repayment of
principal is in arrears.
Appendix
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
<PAGE>
Food
Gas Transmission*
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking------------------------
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, gas utilities and gas
transmission utilities each will be considered a separate industry.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
