Oppenheimer Equity Income Fund
Prospectus dated November 1, 1996
Oppenheimer Equity Income 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. Please refer to
"Investment Objectives and Strategies" for more information about the types of
securities the Fund invests in and refer to "Investment Risks" for a discussion
on the risks of investing in the Fund.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it for
future reference. You can find more detailed information about the Fund in the
November 1, 1996 Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
[OppenheimerFunds logo]
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other agency, and
involve investment risks, including the possible loss of the principal amount
invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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
3 Expenses
5 A Brief Overview of the Fund
7 Financial Highlights
11 Investment Objectives and Policies
12 Investment Risks
15 Investment Techniques and Strategies
21 How the Fund is Managed
22 Performance of the Fund
ABOUT YOUR ACCOUNT
27 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
40 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
42 How to Sell Shares
By Mail
By Telephone
44 How to Exchange Shares
46 Shareholder Account Rules and Policies
48 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Arrangements
-2-
<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 fiscal year ended June 30, 1996.
o Shareholder Transaction Expenses are charges you pay when you buy or
sell shares of the Fund. Please refer to "About Your Account," from pages 27
through 49, 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
Maximum Deferred Sales Charge
(as a % of the
lower of the
original offering
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)
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<PAGE>
thereafter(2)
Maximum Sales Charge on
Reinvested Dividends None None None
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 "Retirement Plans," as defined in "Class A
Contingent Deferred Sales Charge" on page 32) 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 - Buying Class A Shares," below.
(2) See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares" below, for more information on the
contingent deferred sales charge.
(3) There is a $10 transaction fee for redemptions paid by Federal
funds wire, but not for redemptions paid by check or by ACH
transfer through AccountLink. See "How to Sell Shares" below.
o Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the Fund
pays management fees to its investment adviser, OppenheimerFunds, Inc. (which is
referred to in this Prospectus as the "Manager"). The rates of the Manager's
fees are set forth in "How the Fund is Managed," below. The Fund has other
regular expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds its portfolio securities, audit fees and legal expenses.
Those expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
Annual Fund Operating Expenses (as a Percentage of Average Net
Assets)
Class Class Class
A Shares B Shares C Shares
Management Fees 0.53% 0.53% 0.53%
12b-1 Plan Fees 0.19% 1.00% 1.00%
Other Expenses 0.17% 0.19% 0.28%
----- ----- -----
Total Fund Operating
Expenses 0.89% 1.72% 1.81%
The numbers in the chart above are based on the Fund's expenses in its
fiscal year ended June 30, 1996. 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%) and the annual asset-based
sales charges of 0.75%. These plans are described in greater detail in "How to
Buy Shares."
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 C shares were not publicly sold before November 1, 1995.
Therefore, the Annual Fund Operating Expenses for Class C shares are based on
amounts that would have been payable in that period assuming that Class C shares
were outstanding during the entire fiscal year. These plans are described in
greater detail in "How to Buy Shares."
o Examples. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical examples shown below. Assume that
you make a $1,000 investment in each class of shares of the Fund, and 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 $66 $84 $104 $161
Class B Shares $67 $84 $113 $161
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<PAGE>
Class C Shares $28 $57 $98 $213
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $66 $84 $104 $161
Class B Shares $17 $54 $93 $161
Class C Shares $18 $57 $98 $213
*In the first example, expenses include the Class A initial sales charge and the
applicable Class B or Class C contingent deferred sales charge. In the second
example, Class A expenses include the initial sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges. The Class B
expenses in years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the 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 - Buying Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your account, such as how to sell or exchange
shares.
o 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 providing
an opportunity for
-5-
<PAGE>
capital appreciation.
o 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 may invest in U.S. companies or foreign companies
and foreign government 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 11.
o Who Manages the Fund? The Fund's investment adviser (the "Manager") is
OppenheimerFunds, Inc. The Manager (including a subsidiary) manages investment
company portfolios having over $55 billion in assets. The Manager is paid an
advisory fee by the Fund, based on its net assets. The Fund's portfolio manager,
John Doney, is employed by the Manager and is primarily responsible for the
selection of the Fund's securities. The Fund's Board of Trustees, elected by
shareholders, oversees the investment adviser and the portfolio manager. Please
refer to "How the Fund is Managed," starting on page 21 for more information
about the Manager and its fees.
o 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 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 Risks" starting on page 12 for a more complete discussion of the
Fund's investment risks.
o How Can I Buy Shares? You can buy shares through your dealer
-6-
<PAGE>
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 27 for more
details.
o Will I Pay a Sales Charge to Buy Shares? The Fund offers three classes
of shares. Each class has the same investment portfolio but different expenses.
Class A shares are offered with a front-end sales charge, starting at 5.75%, and
reduced for larger purchases. Class B shares 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 27 for
more details, including a discussion about factors you and your financial
advisor should consider in determining which class may be appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail or by telephone
call to the Transfer Agent on any business day, or through your dealer. Please
refer to "How to Sell Shares" on page 42. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to Exchange Shares" on
page 44.
o 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 pages 25 and 26. Please
remember that past performance does not guarantee future results.
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. The Fund recently changed its fiscal year end from
June 30 to August 31 and information for both the fiscal year ended June 30,
1996 and the fiscal period ended August 31, 1996 is included in that table.
-7-
<PAGE>
This information has been audited by Deloitte & Touche LLP, the Fund's
independent auditors, whose reports on the Fund's financial statements for the
fiscal years ended June 30, 1996 and August 31, 1996 are included in the
Statement of Additional Information. Class C shares were only offered during a
portion of the fiscal years ended June 30, 1996 and August 31, 1996, commencing
November 1, 1995.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Financial Highlights
Class A
-------------------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $11.39 $10.25 $9.44 $10.01 $9.15
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .09 .50 .50 .47 .50
Net realized and unrealized gain (loss) (.12) 1.36 .92 (.39) .99
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.03) 1.86 1.42 .08 1.49
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.48) (.48) (.47) (.48)
Dividends in excess of net investment
income -- -- -- (.01) --
Distributions from net realized gain (.24) (.13) (.12) (.15)
Distributions in excess of net realized gain -- -- -- (.05) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders -- (.72) (.61) (.65) (.63)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.36 $11.39 $10.25 $9.44 $10.01
==========================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(4) (0.26)% 18.61% 15.66% 0.65% 16.76%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions) $2,110 $2,141 $1,893 $1,773 $1,790
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $2,109 $2,054 $1,798 $1,832 $1,658
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.28%(5) 4.51% 5.15% 4.72% 5.12%
Expenses 0.94%(5) 0.89% 0.96% 0.90% 0.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 13.5% 42.9% 45.7% 30.4% 59.0%
Average brokerage commission rate(7) $0.0587 $0.0592 -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[Table Restubbed]
-------------------------------------------------------------------------
-------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $8.86 $9.18 $9.11 $8.51 $9.85 $9.26
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .50 .48 .48 .52 .48 .46
Net realized and unrealized gain (loss) .39 (.17) .33 .58 (.35) 1.22
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations .89 .31 .81 1.10 .13 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.48) (.48) (.50) (.48) (.60) (.48)
Dividends in excess of net investment
income -- -- -- -- -- --
Distributions from net realized gain (.12) (.15) (.24) (.02) (.87) (.61)
Distributions in excess of net realized gain -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.60) (.63) (.74) (.50) (1.47) (1.09)
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.15 $8.86 $9.18 $9.11 $8.51 $9.85
===============================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(4) 10.26% 3.68% 9.07% 13.30% 2.04% 20.45%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions) $1,556 $1,393 $1,330 $1,017 $807 $731
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $1,526 $1,324 $1,180 $885 $743 $527
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.33% 5.31% 5.10% 5.89% 5.48% 5.08%
Expenses 0.82% 0.79% 0.79% 0.85% 0.83% 0.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 37.0% 64.0% 122.0% 91.4% 124.1% 94.7%
Average brokerage commission rate(7) -- -- -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[Table Restubbed]
-------------------------------------------------------------------
Class B
--------------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $11.33 $10.21 $9.40 $10.22
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .41 .43 .36
Net realized and unrealized gain (loss) (.11) 1.35 .91 (.58)
- -------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.04) 1.76 1.34 (.22)
- -------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.40) (.40) (.42)
Dividends in excess of net investment
income -- -- -- (.01)
Distributions from net realized gain (.24) (.13) (.12)
Distributions in excess of net realized gain -- -- -- (.05)
- -------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders -- (.64) (.53) (.60)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.29 $11.33 $10.21 $9.40
====================================================================
- ------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(4) (0.35)% 17.58% 14.87% (2.35)%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions) $260 $252 $161 $88
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $255 $208 $122 $47
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.48%(5) 3.68% 4.34% 3.99%(5)
Expenses 1.76%(5) 1.72% 1.79% 1.82%(5)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 13.5% 42.9% 45.7% 30.4%
Average brokerage commission rate(7) $0.0587 $0.0592 -- --
</TABLE>
<PAGE>
[End Restubbed Table]
<TABLE>
<CAPTION>
-----------------------------------------
Class C
------------------------------------
Two Months
Ended Period Ended
August 31, June 30,
<PAGE>
1996(2) 1996(1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $11.35 $10.76
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .07 .28
Net realized and unrealized gain (loss) (.12) .88
- -------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.05) 1.16
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.33)
Dividends in excess of net investment
income -- --
Distributions from net realized gain (.24)
Distributions in excess of net realized gain -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders -- (.57)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.30 $11.35
=====================================
- -------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(4) (0.44)% 10.50%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions) $7 $6
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $7 $3
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.55%(5) 3.53%(5)
Expenses 1.79%(5) 1.81%(5)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 13.5% 42.9%
Average brokerage commission rate(7) $0.0587 $0.0592
<PAGE>
<FN>
1. For the period from November 1, 1995 (inception of offering) to June 30, 1996.
2. The Fund changed its fiscal year end from June 30 to August 31.
3. For the period from August 17, 1993 (inception of offering) to June 30, 1994.
4. Assumes a hypothetical initial investment on the business day before the first day of the fiscal
period (or inception of
offering), with all dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected
in the total returns.
Total returns are not annualized for periods of less than one full year.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of
portfolio securities owned during the period. Securities with a maturity or expiration date at the time
of acquisition of one year
or less are excluded from the calculation. Purchases and sales of investment securities (excluding
short-term securities) for the
period ended August 31, 1996 were $293,833,873 and $502,985,239, respectively.
7. Total brokerage commissions paid on applicable
purchases and sales of portfolio securities for the period divided by the total number of related
shares purchased and sold.
</FN>
</TABLE>
Oppenheimer Equity Income Fund
-8-
<PAGE>
Investment Objectives and Policies
Objectives. The Fund has primary and secondary objectives. The Fund's primary
investment objective is to seek as much current income as is compatible with
prudent investment. Its secondary investment objective is to conserve principal
while providing an opportunity for capital appreciation.
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
-9-
<PAGE>
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.
o 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.
o 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 years and intends to do so
in the coming year, although it reserves the right not to qualify.
Investment Risks.
All investments carry risks to some degree, whether they are risks that market
prices of the investment will fluctuate (this is known as "market risk") or that
the underlying issuer will experience
-10-
<PAGE>
financial difficulties and may default on its obligation under a fixed-income
investment to pay interest and repay principal (this is referred to as "credit
risk"). These general investment risks, and the special risks of certain types
of investments that the Fund may hold are described below. They affect the value
of the Fund's investments, its investment performance, and the prices of its
shares. These risks collectively form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income or
preservation of capital. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased, and
in some cases by using hedging techniques, changes in overall market prices can
occur at any time, and because the income earned on securities is subject to
change, there is no assurance that the Fund will achieve its investment
objectives. When you redeem your shares, they may be worth more or less than
what you paid for them.
o 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.
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.
o Foreign Securities Have Special Risks. While foreign
securities offer special investment opportunities, there are also
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special risks. The change in value of a foreign currency against the U.S. dollar
will result in a change in the U.S. dollar value of securities denominated in
that foreign currency. Foreign issuers are not subject to the same accounting
and disclosure requirements that U.S. companies are subject to. The value of
foreign investments may be affected by exchange control regulations,
expropriation or nationalization of a company's assets, foreign taxes, delays in
settlement of transactions, changes in governmental economic or monetary policy
in the U.S. or abroad, or other political and economic factors. Securities of
companies in emerging market countries may be more difficult to sell and their
prices may be more volatile. More information about the risks and potential
rewards of investing in foreign securities is contained in the Statement of
Additional Information.
o Interest Rate Risks. 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.
o Special Risks of Lower-Grade Securities. The Manager may select
high-yield, below investment grade debt securities (including both rated and
unrated securities). These "lower-grade" securities are commonly known as "junk
bonds." All corporate debt securities (whether foreign or domestic) are subject
to some degree of credit risk. Credit risk relates to the ability of the issuer
to meet interest or principal payments on a security as they become due.
Generally, higher yielding lower-grade bonds whether rated or unrated, often
have speculative characteristics and special risks that make them riskier
investments than investment grade securities and are subject to credit risks.
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 and principal due
on the bonds. The issuer's low creditworthiness may increase the potential for
its
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insolvency. A decline in their values 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. For foreign lower-grade debt securities, these
risks are in addition to the risks of investing in foreign securities, described
above. 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.
o Hedging instruments can be volatile investments and may involve special
risks. The Fund may invest in a variety of hedging instruments. 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 options, futures and
forward contracts are subject to special tax rules that may affect the amount,
timing and character of the Fund's income for distributions. There are also
special risks in particular hedging strategies. For example, if a covered call
written by the Fund is exercised on a security that has increased in value, the
Fund will be required to sell the security at the call price and will not be
able to realize any profit if the security has increased in value above the call
price. 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 the risk that the other party will
fail to meet its
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obligations (or that the underlying issuer will fail to pay on time) as well as
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.
o There are special risks in investing in derivative investments. The Fund
can invest in a number of different kinds of "derivative" investment. In
general, a "derivative investment" is a specially designed investment whose
performance is linked to the performance of another investment or security, such
as an option, future, index, currency or commodity. 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."
Investment Techniques and Strategies.
The Fund may also use the investment techniques and strategies described below.
These techniques involve certain risks. The Statement of Additional Information
contains more information about these practices, including limitations on their
use that are designed to reduce some of the risks.
o Warrants and Rights. Warrants basically are options to purchase stock at
set prices that are valid for a limited period of time. Rights are similar to
warrants but normally have a short duration and are distributed directly by the
issuer to its shareholders. The Fund may invest up to 5% of its total assets in
warrants 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.
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o Investment 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.
Convertible securities are bonds, preferred stocks and other securities
that normally pay a fixed rate of interest or dividends and give the owner the
option to convert the security into common stock. While the value of convertible
securities depends in part on interest rate changes and the credit quality of
the issuer, the price will also change based on the price of the underlying
stock. While convertible securities generally have less potential for gain than
common stock, their income provides a cushion against the stock price declines.
They generally pay less income than non-convertible bonds. The Manager generally
analyzes these investment from the perspective of the growth potential of the
underlying stock and treats them as "equity substitutes."
o Lower-Grade Debt Securities. Subject to the limits described above, the
Fund may invest in "lower grade" debt securities commonly known as "junk bonds."
"Lower-grade" debt securities are those rated below "investment grade," which
means they have a rating lower than "Baa" by Moody's or lower than "BBB" by
Standard & Poor's or Duff & Phelps or similar ratings by other rating
organizations, or if unrated, are determined by the Manager to be of comparable
quality to debt securities rated below investment grade. The Fund may invest in
securities 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 Standard &
Poor's or Duff & Phelps are investment grade and are not regarded as "junk
bonds," those securities may be subject to greater market fluctuation and risks
of loss of income and principal than higher- grade securities and may be
considered to have certain speculative risks. The Fund may not invest more than
25% of its total assets in "lower-grade" debt securities and no more than 10% of
its total assets may be invested in lower-grade debt securities that are not
convertible. For a description of these securities ratings, please refer to the
Appendix in the Statement of Additional information. The Fund may not invest
more than 25% of its total assets in "lower-grade" debt securities and no more
than 10% of its total assets may be invested in lower-grade debt securities that
are not convertible.
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o 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.
o 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 or enter
bankruptcy proceedings. 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.
o Derivative Investments. Derivative investments may be used by the Fund
for hedging purposes or 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
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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.
o 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.
o 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. Foreign securities also include securities that are traded
primarily on a foreign securities exchange or over-the-counter market, as well
as
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securities of companies that derive a significant portion of their revenue or
profits from foreign business, investments or sales or have a significant
portion of their assets abroad. Foreign securities may include securities of
foreign issuers represented in the U.S. markets by American Depository Receipts
(ADRs) or other similar arrangements. 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.
o 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.
oFutures. 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),
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and (3) other securities indexes (Financial Futures). All of these
Futures are described in the Statement of Additional Information.
oPut 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 owns the investment on which the call was
written or the Fund owns and segregates liquid assets to satisfy its obligation
if the call is exercised. 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 National
Association of Securities Dealers' Automated Quotation System (NASDAQ) of the
Nasdaq Stock Market, Inc.
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.
oForward 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
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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.
oInterest 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 of any type, including
equity and debt securities of any grade, 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.
o 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.
The Fund's percentage limitation on these investments does not apply to certain
restricted securities that are eligible for resale to qualified institutional
purchasers.
o 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.
o 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.
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<PAGE>
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.
o "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.
o 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:
o The Fund cannot 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;
o The Fund cannot 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;
o The Fund cannot borrow money or mortgage, pledge or hypothecate
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the Fund's assets; the escrow, collateral and margin arrangements involved with
hedging instruments are not considered to involve a mortgage, hypothecation or
pledge;
o The Fund cannot concentrate more than 25% of the Fund's assets
in any one industry; or
o The Fund cannot 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 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
will not normally hold annual meetings of its shareholders, it may hold
shareholder meetings from time to time on important matters, and shareholders
have the right to call a meeting to remove a Trustee or to take other action
described in the Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. The Board has done
so, and the Fund currently has three classes of shares, Class A, Class B and
Class C. All classes invest in the same investment portfolio. Each class has its
own
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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,
OppenheimerFunds, Inc. which is responsible for selecting the Fund's investments
and handles its day-to-day business. The Manager carries out its duties, subject
to the policies established by the Board of Trustees, under an Investment
Advisory Agreement which states the Manager's responsibilities. The Agreement
sets forth the fees paid by the Fund to the Manager and describes the expenses
that the Fund is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The Manager
(including a subsidiary) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $55 billion as of September 30, 1996
and with more than 3 million shareholder accounts. The Manager is owned by
Oppenheimer Acquisition Corp., a holding company that is owned in part by senior
officers of the Manager and controlled by Massachusetts Mutual Life Insurance
Company.
o Portfolio Manager. The Portfolio Manager of the Fund is 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.
o 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 annual 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 average annual
net assets in excess of $500 million. The Fund's management fee for its fiscal
years ended June 30, 1996 and August 31, 1996 was 0.53% of average annual net
assets.
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The Fund pays expenses related to its daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal fees and auditing costs. Those
expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other expenses paid
by the Fund is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected for the
Fund's portfolio transactions. When deciding which brokers to use, the Manager
is permitted by the Investment Advisory Agreement to consider whether brokers
have sold shares of the Fund or any other funds for which the Manager serves as
investment adviser.
o The Distributor. The Fund's shares are sold through brokers, dealers and
other financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes the shares of the other
Oppenheimer funds managed by the Manager and is sub-distributor for funds
managed by a subsidiary of the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for the other Oppenheimer funds. Shareholders should direct
inquiries about their 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
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dividends and distributions 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.
o Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, they normally include
the payment of the current maximum initial sales charge. When total returns are
shown for Class B and Class C shares, normally the contingent deferred sales
charge that applies to the period for which total return is shown has been
deducted. However total returns may also be quoted at "net asset value," without
including the effect of either a front-end or the appropriate contingent
deferred sales charge, as applicable, and those returns would be reduced if
sales charges were deducted. How Has the Fund Performed? Below is a discussion
by the Manager of the Fund's performance during its fiscal years ended June 30,
1996 and August 31, 1996, followed by a graphical comparison of the Fund's
performance to an appropriate broad-based market index.
o Management's Discussion of Performance. During the fiscal
year ended June 30, 1996 and the fiscal period ended August 31,
1996, the Fund's performance was positively affected by the strong
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<PAGE>
performance of the U.S. stock market. The Fund's investments in
bank, airline, machinery and auto stocks helped the Fund's
performance.
The bond market was more volatile than the stock market during the Fund's
last fiscal year because, in the view of the Manager, of investor fears that
renewed U.S. economic growth would spur inflation. The Fund's policy of
attempting to maintain a constant dividend for its Class A shares was aided by
the Fund's investments in convertible stocks and bonds. Additionally, the Fund
increased its holdings in longer term Treasury bonds to seek higher yields and
possible price appreciation if general interest rates decline.
o Comparing the Fund's Performance to the Market. The graphs below show
the performance of a hypothetical $10,000 investment in Class A , Class B and
Class C shares of the Fund held until June 30, 1996 and August 31, 1996. 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. In the case of Class C shares, performance is measured
from the inception of the class on November 1, 1995.
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 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]
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<PAGE>
Past performance is not predictive of future performance.
Oppenheimer Equity Income Fund
Average Annual Total Returns of the Fund at 6/30/96
Class A Shares(1)
1-Year 5-Year 10-Year
11.79% 10.87% 10.19%
Class B Shares(2)
1-Year Life
12.58% 9.24%
Cumulative Total Return of Class C Shares (3)
Life
9.50%
Average Annual Total Returns of the Fund at 8/31/96
Class A Shares(1)
1-Year 5-Year 10-Year
6.51% 9.70% 10.15%
Class B Shares(2)
1-Year Life
7.11% 8.86%
Cumulative Total Return of Class C Shares (3)
Life
9.01%
- -------------------
1. The inception date of the Fund (Class A shares) was 12/01/70. The average
annual total returns and the ending account value in the graph show change in
share value and include reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 5.75% maximum sales charge.
The Fund's fiscal year
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<PAGE>
end has changed from 6/30 to 8/31.
2. Class B shares of the Fund first publicly offered on 8/17/93. The average
annual total return reflect reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 5% and 3% contingent deferred
sales charge the one year period and the life of the class, respectively. The
ending account value in the graph is net of the applicable 3% contingent
deferred sales charge. 3. Class C shares of the Fund were first publicly offered
on November 1, 1995. The one year return is shown net of the applicable 1%
contingent deferred sales charge. Past performance is not predictive of future
performance. Graphs are not drawn to same scale.
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.
o Class A Shares. If you buy Class A shares, you may pay an initial sales
charge on investments up to $1 million (up to $500,000 for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
page 32). If you purchase Class A shares as part of an investment of at least $1
million ($500,000 for Retirement Plans) in shares of one or more Oppenheimer
funds, you will not pay an initial sales charge, but if you sell any of those
shares within 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 charge rates are described in "Buying Class A Shares" below.
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares, as described in "Buying
Class B Shares" below.
o Class C Shares. If you buy Class C shares, you pay no sales
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<PAGE>
charge at the time of purchase, but if you sell your shares within 12 months of
buying them, you will normally pay a contingent deferred sales charge of 1%, as
discussed in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial advisor. The Fund's operating costs that apply to a
class of shares and the effect of the different types of sales charges on your
investment will vary your investment results over time. The most important
factors to consider are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over time and you plan
to purchase additional shares, you should re-evaluate those factors to see if
you should consider another class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the sales
charge rates that apply to each class, considering the effect of the annual
asset-based sales charge on Class B and Class C expenses (which, like all
expenses, will affect your investment return). For the sake of comparison, we
have assumed that there is a 10% rate of appreciation in the investment each
year. Of course, the actual performance of your investment cannot be predicted
and will vary, based on the Fund's actual investment returns and the operating
expenses borne by each class of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment advice or
recommendations, because each investor's financial considerations are different.
The discussion below of the factors to consider in purchasing a particular class
of shares assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
o How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist 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,
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<PAGE>
offset the effect of paying an initial sales charge on your investment (which
reduces the amount of your investment dollars used to buy shares for your
account), compared to the effect over time of higher class-based expenses on
Class B or Class C shares, for which no initial sales charge is paid.
o Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six years), you
should probably consider purchasing Class A or Class C shares rather than Class
B shares, because of the effect of the Class B contingent deferred sales charge
if you redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in the
short-term. Class C shares might be the appropriate choice (especially for
investments of less than $100,000), because there is no initial sales charge on
Class C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then the more you invest and the more your investment horizon increases toward
six years, Class C shares might not be as advantageous as Class A shares. That
is because the annual asset-based sales charge on Class C shares will have a
greater impact on your account over the longer term than the reduced front-end
sales charge available for larger purchases of Class A shares. For example,
Class A shares might be more advantageous than Class C 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 of Class B shares or $1 million or more of
Class C shares, from a single investor.
o Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
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<PAGE>
an appropriate consideration, if you plan to invest less than $100,000. If you
plan to invest more than $100,000 over the long term, Class A shares will likely
be more advantageous than Class B shares or Class C shares, as discussed above,
because of the effect of the expected lower expenses for Class A shares and the
reduced initial sales charges available for larger investments in Class A shares
under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time, using
the assumed annual performance return stated above, and therefore, you should
analyze your options carefully.
o 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 is better for you. For
example, 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. Additionally, the dividends payable to Class B and Class C
shareholders will be reduced by the additional expenses borne solely by that
class, such as the asset-based sales charge, as described below and in the
Statement of Additional Information.
o How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the Class B and Class C contingent deferred sales 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:
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<PAGE>
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, 401(k) plans and Individual
Retirement Accounts (IRAs), you can make an initial investment of as little as
$250 (if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends and distributions from the Fund or other Oppenheimer
funds (a list of them appears in the Statement of Additional Information, or you
can ask your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the Distributor.
o How Are Shares Purchased? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Distributor, directly through the Distributor, or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. When you buy
shares, be sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
o Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, it is recommended that you discuss your
investment first with a financial advisor, to be sure it is appropriate for you.
o Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S.
bank or other financial institution that is an Automated Clearing
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<PAGE>
House (ACH) member. You can then transmit funds electronically to purchase
shares, to have the Transfer Agent send redemption proceeds, or to transmit
dividends and distributions to your bank account.
Shares are purchased for your account on AccountLink 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. You should request AccountLink
privileges on the application or dealer settlement instructions used to
establish your account. Please refer to "AccountLink" below for more details.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are on the Application and in the Statement of Additional Information.
o At What Price Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (and any initial sales charge that applies)
that is next determined after the Distributor receives the purchase order in
Denver, Colorado. In most cases, to enable you to receive that day's offering
price, the Distributor or its designated agent must receive your order by the
time of day The New York Stock Exchange closes, which is normally 4:00 P.M., New
York time but may be earlier on some days (all references to time in this
Prospectus mean "New York time"). The net asset value of each class of shares is
determined as of that time on each day The New York Stock Exchange is open
(which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your order by
the close of The New York Stock Exchange, on a regular business day and transmit
it to the Distributor so that it is received before the Distributor's close of
business that day, which is normally 5:00 P.M. The Distributor may reject any
purchase order for the Fund's shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. Appendix A to this
Prospectus sets forth conditions for the waiver of, or exemption from, sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases
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<PAGE>
by exchange) by a person who was a shareholder of one of the Former Quest for
Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Front-End Sales Charge Commission as
As a Percentage of: Percentage of
Amount of
Purchase Offering Price Amount Invested Offering
Price
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
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.
</TABLE>
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<PAGE>
o Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds in the following cases:
o Purchases aggregating $1 million or more;
o Purchases by a retirement plan qualified under sections 401(a) or 401(k)
of the Internal Revenue Code, by a non-qualified deferred compensation plan (not
including Section 457 plans), employee benefit plan, group retirement plan (see
"How to Buy Shares Retirement Plans" in the Statement of Additional Information
for further details), an employee's 403(b)(7) custodial plan account, SEP IRA,
SARSEP, or SIMPLE plan (all of these plans are collectively referred to as
"Retirement Plans"); that: (1) buys shares costing $500,000 or more or (2) has,
at the time of purchase, 100 or more eligible participants, or (3) certifies
that it projects to have annual plan purchases of $200,000 or more; or
o Purchases by an OppenheimerFunds Rollover IRA if the purchases are made
(1) through a broker, dealer, bank or registered investment adviser that has
made special arrangements with the Distributor for these purchases, or (2) by a
direct rollover of a distribution from a qualified retirement plan if the
administrator of that plan has made special arrangements with the Distributor
for those purchases.
The Distributor pays dealers of record commissions on those purchases in
an amount equal to (i) 1.0% for non-Retirement Plan accounts, and (ii) for
Retirement Plan accounts, 1.0% of the first $2.5 million, plus 0.50% of the next
$2.5 million, plus 0.25% of purchases over $5 million. That commission will be
paid only on those purchases that were not previously subject to a front-end
sales charge and dealer commission. No sales commission will be paid to the
dealer, broker or financial institution on sales of Class A shares purchased
with the redemption proceeds of shares of a mutual fund offered as an investment
option in a Retirement Plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor if the
purchase occurs more than 30 days after the addition of the Oppenheimer funds as
an investment option to the Retirement Plan.
If you redeem any of those shares 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
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<PAGE>
equal to 1.0% of the lesser of (1) the aggregate net asset value of the redeemed
shares (not including shares purchased by reinvestment of dividends or capital
gain distributions) or (2) the original offering price (which is the original
net asset value) of the redeemed shares. However, the Class A contingent
deferred sales charge will not exceed the aggregate amount of the commissions
the Distributor paid to your dealer on all Class A shares of all Oppenheimer
funds you purchased subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable, the
Fund will first redeem shares that are not subject to the sales charge,
including shares purchased by reinvestment of dividends and capital gains, and
then will redeem other shares in the order that you purchased them. The Class A
contingent deferred sales charge is waived in certain cases described in
"Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 months of the end of the
calendar month of the purchase of the exchanged shares, the sales charge will
apply. Shareholders of the Fund who acquired (and still hold) Fund shares as a
result of a reorganization of Advance America Funds, Inc. into the Fund on
October 18, 1991, and who held shares of Advance America Funds, Inc. on March
30, 1990, may purchase shares of the Fund at a maximum sales charge of 4.50%
o Special Arrangements With Dealers. The Distributor may advance up to 13
months' commissions to dealers that have established special arrangements with
the Distributor for Asset Builder Plans for their clients. Until January 1,
1997, 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:
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<PAGE>
o Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together Class A and Class B shares you purchase for your individual accounts,
or jointly, or for trust or custodial accounts on behalf of your children who
are minors. A fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and Class
B shares of the Fund and other Oppenheimer funds to reduce the sales charge rate
that applies to current purchases of Class A shares. You can also include Class
A and Class B shares of Oppenheimer funds you previously purchased subject to an
initial or contingent deferred sales charge to reduce the sales charge rate for
current purchases of Class A shares, provided that you still hold your
investment in one of the Oppenheimer funds. The 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.
o Letter of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A and Class B shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine your reduced sales charge rate
for the Class A shares purchased during that period. This can include purchases
made up to 90 days before the date of the Letter. More information is contained
in the Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
o Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information.
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:
o the Manager or its affiliates;
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<PAGE>
o present or former officers, directors, trustees and employees (and their
"immediate families" as defined in "Reduced Sales Charges" in the Statement of
Additional Information) of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered into
sales arrangements with such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor children);
o dealers, brokers or registered investment advisers that have entered
into an agreement with the Distributor providing specifically for the use of
shares of the Fund in particular investment products or employee benefit plans
made available to their clients (those clients may be charged a transaction fee
by their dealer, broker, bank or adviser for the purchase or sale of Fund
shares);
|_| (1) investment advisors and financial planners who charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) Retirement Plans and deferred compensation
plans and trusts used to fund those Plans (including, for example, plans
qualified or created under sections 401(a), 403(b) or 457 of the Internal
Revenue Code), and "rabbi trusts" that buy shares for their own accounts, in
each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of such investment advisors or financial
planners who buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account of their
investment advisor or financial planner on the
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<PAGE>
books and records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements (each of these investors may be
charged a fee by the broker, agent or financial intermediary for purchasing
shares);
o directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment adviser (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts;
o any unit investment trust that has entered into an
appropriate agreement with the Distributor;
o a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995; or
o qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements are
consummated and share purchases commence by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of loan repayments by a participant
in a retirement plan for which the Manager or its affiliates acts as sponsor;
o shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
-39-
<PAGE>
(other than Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the 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
deferred sales charge was paid (this waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); this waiver must be requested when the purchase
order is placed for your shares of the Fund, and the Distributor may require
evidence of your qualification for this waiver; or
o shares purchased with the proceeds of maturing principal of units of any
Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived if
shares that would otherwise be subject to the contingent deferred sales charge
are redeemed in the following cases:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time 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);
o for distributions from a TRAC-2000 401(k) plan sponsored by
the Distributor due to the termination of the TRAC-2000 program; or
o for distributions from Retirement Plans, deferred
compensation plans or other employee benefit plans for any of the
following purposes: (1) following the death or disability (as
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<PAGE>
defined in the Internal Revenue Code) of the participant or beneficiary (the
death or disability must occur after the participant's account was established);
(2) to return excess contributions; (3) to return contributions made due to a
mistake of fact; (4) hardship withdrawals, as defined in the plan; (5) under a
Qualified Domestic Relations Order, as defined in the Internal Revenue Code; (6)
to meet the minimum distribution requirements of the Internal Revenue Code; (7)
to establish "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code; (8) for retirement distributions or loans to
participants or beneficiaries; (9) separation from service; (10)
participant-directed redemptions to purchase shares of a mutual fund (other than
a fund managed by the Manager or its subsidiary) offered as an investment option
in a Retirement Plan in which Oppenheimer funds are also offered as investment
options under a special arrangement with the Distributor; or (11) plan
termination or "in-service distributions", if the redemption proceeds are rolled
over directly to an OppenheimerFunds IRA.
o 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 service providers or
their 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
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Information.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
6 years of their purchase, a contingent deferred sales charge will be deducted
from the redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). The contingent deferred sales
charge is not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. The Class B
contingent deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 6 years, and (3) shares held the longest during the 6-year period. The
contingent deferred sales change is not imposed in the circumstances described
in "Waivers of Class B and Class C Sales Charges," below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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
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the month in which the purchase was made.
o Automatic Conversion of Class B Shares. 72 months after you purchase
Class B shares, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and Class
C Shares" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed within
12 months of their purchase, a contingent deferred sales charge of 1.0% will be
deducted from the redemption proceeds. That sales charge will not apply to
shares purchased by the reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of redemption or the
original offering price (which is the original net asset value). The contingent
deferred sales charge is not imposed on the amount of your account value
represented by the increase in net asset value over the initial purchase price
(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.
All purchases are considered to have been made on the first regular business day
of the month in which the purchase was made.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
compensate the Distributor for its services and
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costs in distributing Class B and C shares and servicing accounts. Under the
Plans, the Fund pays the Distributor an annual "asset-based sales charge" of
0.75% per year on Class B shares that are outstanding for 6 years or less and on
Class C shares. The Distributor also receives a service fee of 0.25% per year.
If either 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 shares before the Plan was terminated.
Under each Plan, both fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The asset-based sales charge allows
investors to buy Class B or C shares without a front-end sales charge while
allowing the Distributor to compensate dealers that sell those shares.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or C shares. Those services are
similar to those provided under the Class A Service Plan, described above. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after Class B or Class C shares have been sold by the dealer and retains the
service fee paid by the Fund in that year. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays sales commissions of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is 4.00% of the
purchase price. The Fund pays the asset-based sales charge to the Distributor
for its services rendered in distributing Class B shares. 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 of
distributing and selling Class B shares.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is 1.00% of the
purchase price. Those payments, retained by the Distributor during the first
year Class C shares are outstanding, are at a fixed rate that is not related
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to the Distributor's expenses. 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 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, 1996 and August 31, 1996, the end of the Class B Plan years,
the Distributor had incurred unreimbursed expenses under the Plan of $7,770,045
and $8,245,976, respectively (equal to 3.08% of the Fund's net assets
represented by Class B shares on June 30, 1996 and 3.18% of the Fund's net
assets represented by Class B shares on August 31, 1996 ), which have been
carried over into the 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 charges will not be applied to shares purchased in certain types
of transactions nor will it apply to Class B and Class C shares redeemed in
certain circumstances as described below. The reasons for this policy are
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, if the Transfer Agent is notified that these conditions
apply to the redemption:
o distributions to participants or beneficiaries from Retirement Plans, if
the distributions are made (a) under an Automatic Withdrawal Plan after the
participant reaches age 59-1/2, as long as the payments are no more than 10% of
the account value annually (measured from the date the Transfer Agent receives
the request), or (b) following the death or disability (as defined in the
Internal Revenue Code) of the participant or beneficiary (the death or
disability must have occurred after the account was established);
o redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder
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<PAGE>
including a trustee of a "grantor" trust or revocable living trust for which the
trustee is also the sole beneficiary (the death or disability must have occurred
after the account was established, and for disability you must provide evidence
of a determination of disability by the Social Security Administration);
o returns of excess contributions to Retirement Plans;
o distributions from retirement plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually measured from the date the
Transfer Agent receives the request;
o shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
o 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:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose; or
o shares issued in plans of reorganization to which the Fund
is a party.
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
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<PAGE>
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 should 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.
o Using AccountLink to Buy Shares. Purchases may be made by telephone only
after your account has been established. To purchase shares in amounts up to
$250,000 through a telephone representative, call the Distributor at
1-800-852-8457. The purchase payment will be debited from your bank account.
o PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system
that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number: 1-800-533-3310.
o Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund, to pay for these purchases.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
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<PAGE>
o Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below, for
details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o Automatic Withdrawal Plans. If your Fund account is 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.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically 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 other
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 subject to an initial sales charge and to Class A or Class B shares on
which you paid a contingent deferred sales charge when you redeemed them. This
privilege does not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your payment. Please consult the
Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your retirement
plans. If you participate in a plan sponsored by your employer, the plan trustee
or administrator must make the purchase of shares for your retirement plan
account. The Distributor offers a number of different retirement plans that can
be used by individuals and employers:
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<PAGE>
o Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
o 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable
organizations
o SEP-IRAs (Simplified Employee Pension Plans) for small business owners
or people with income from self-employment, including SAR SEP-IRAs
o Pension and Profit-Sharing Plans for self-employed persons and
other employers
o 401(k) prototype retirement plans for businesses
Please call the Distributor for the OppenheimerFunds plan documents, which
contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling (redeeming)
some or all of your shares on any regular business day. Your shares will be sold
at the 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.
o Retirement Accounts. To sell shares in an OppenheimerFunds retirement
account in your name, call the Transfer Agent for a distribution request form.
There are special income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer,
you must arrange for the distribution request to be sent by the plan
administrator or trustee. There are additional details in the Statement of
Additional Information.
o Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
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writing and must include a signature guarantee in the following situations
(there may be other situations also requiring a signature guarantee):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o A redemption check is not payable to all shareholders
listed on the account statement
o A redemption check is not sent to the address of record on
your statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners (such
as an Executor)
o Where Can I Have My Signature Guaranteed? The Transfer Agent
will accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union
or savings association, or by a foreign bank that has a U.S.
correspondent bank, or by a U.S. registered dealer or broker in
securities, municipal securities or government securities, or by a
U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing 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:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling, o
The signatures of all registered owners exactly as the
account is registered, and
o Any special requirements or documents requested by the Transfer Agent
to assure proper authorization of the person asking to sell shares.
Use the following address Send courier or Express
for requests by mail: Mail requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue,
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<PAGE>
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.
o To redeem shares through a service representative, call 1-
800-852-8457
o To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent via ACH transfer to that bank
account.
o Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by
telephone, in any 7-day period. The check must be payable to all owners of
record of the shares and must be sent to the address on the account statement.
This service is not available within 30 days of changing the address on an
account.
o Telephone Redemptions Through AccountLink or By Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive dividends
on the proceeds of the shares you redeemed while they are waiting to be
transferred.
Shareholders may also have the Transfer Agent send redemption proceeds of
$2,500 or more by Federal Funds wire to a designated commercial bank account.
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
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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 call your dealer for more
information about this procedure. Please refer to "Special Arrangements for
Repurchase of Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available
for sale in your state of residence
o The prospectuses of this Fund and the fund whose shares
you want to buy must offer the exchange privilege
o You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
o You must meet the minimum purchase requirements for the
fund you purchase by exchange
o Before exchanging into a fund, you should obtain and read
its prospectus
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At present,
Oppenheimer Money Market Fund, Inc. offers only one class of shares, which are
considered to be Class A shares for this purpose. In some cases, sales charges
may be imposed on exchange transactions. Please refer to "How to Exchange
Shares" in the Statement of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
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<PAGE>
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
o Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852- 8457 or by using
PhoneLink for automated exchanges, by calling 1- 800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1-800-525-7048. That list can change from time to time.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that is in proper form by the close
of The New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. However, either fund may delay the purchase of shares of
the fund you are exchanging into up to 7 days if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For example,
the receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
o For tax purposes, exchanges of shares involve a redemption
of the shares of the Fund you own and a purchase of the shares of
the other fund, which may result in a capital gain or loss. For
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more information about taxes affecting exchanges, please refer to "How to
Exchange Shares" in the Statement of Additional Information.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange 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.
o The offering of shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be suspended
by the Board of Trustees at any time the Board believes it is in the Fund's best
interest to do so.
o Telephone Transaction Privileges for purchases, redemptions or exchanges
may be modified, suspended or terminated by the Fund at any time. If an account
has more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone 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.
o The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions
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<PAGE>
reasonably believed to be genuine. If you are unable to reach the Transfer Agent
during periods of unusual market activity, you may not be able to complete a
telephone transaction and should consider placing your order by mail.
o Redemption or transfer requests will not be honored until the Transfer
Agent receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.
o The redemption price for shares will vary from day to day because the
values of the securities in the Fund's portfolio fluctuate, and the redemption
price, which is the net asset value per share, will normally be different for
Class A, Class B and Class C shares. Therefore, the redemption value of your
shares may be more or less than their original cost.
o Payment for redeemed shares is made ordinarily in cash and forwarded by
check or through AccountLink (as elected by the shareholder under the redemption
procedures described above) within 7 days after the Transfer Agent receives
redemption instructions in proper form, except under unusual circumstances
determined by the Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer, 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.
o Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped, and in some cases involuntary redemptions
may be made to repay the
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Distributor for losses from the cancellation of share purchase orders.
o Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with securities
from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement
of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate of
31% from taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a certified Social Security or
Employer Identification Number when you sign your application, or if you violate
Internal Revenue Service regulations on tax reporting of income.
o The Fund does not charge a redemption fee, but if your dealer or broker
handles your redemption, they may charge a fee. That fee can be avoided by
redeeming your Fund shares directly through the Transfer Agent. Under the
circumstances described in "How to Buy Shares," you may be subject to a
contingent deferred sales charge when redeeming certain Class A, Class B and
Class C shares.
o To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B 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 years ended June 30, 1996 and August 31, 1996,
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
-56-
<PAGE>
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 calendar 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 and distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested. For
other accounts, you have four options:
o Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
o Reinvest Long-Term Capital Gains Only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
o Receive All Distributions in Cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
o Reinvest Your Distributions in Another Oppenheimer Fund
Account. You can reinvest all distributions in another Oppenheimer
fund account you have established.
Taxes. If your account is not a tax-deferred retirement account,
you should be aware of the following tax implications of investing
in the Fund. Long-term capital gains are taxable as long-term
-57-
<PAGE>
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.
o "Buying a Dividend": When a fund goes ex-dividend, its share price is
reduced by the amount of the distribution. If you buy shares on or just before
the ex-dividend date, or just before the Fund declares a capital gains
distribution, you will pay the full price for the shares and then receive a
portion of the price back as a taxable dividend or capital gain.
o Taxes on Transactions: Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. Generally speaking, a capital gain
or loss is the difference between the price you paid for the shares and the
price you received when you sold them.
o Returns of Capital: In certain cases distributions made by the Fund may
be considered a non-taxable return of capital to shareholders. If that occurs,
it will be identified in notices to shareholders. A non-taxable return of
capital may reduce your tax basis in your Fund shares.
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.
-58-
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for Class A,
Class B and Class C shares of the Fund described elsewhere in this Prospectus
are modified as described below for those shareholders of (i) Quest for Value
Fund, Inc., Quest for Value Growth and Income Fund, Quest for Value Opportunity
Fund, Quest for Value Small Capitalization Fund and Quest for Value Global
Equity Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became the
investment adviser to those funds, and (ii) Quest for Value U.S. Government
Income Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for Value
National Tax-Exempt Fund and Quest for Value California Tax-Exempt Fund when
those funds merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the Oppenheimer funds
that was one of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for Value Funds
into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o Purchases by Groups, Associations and Certain Qualified Retirement Plans. The
following table sets forth the initial sales charge rates for Class A shares
purchased by a "Qualified Retirement Plan" through a single broker, dealer or
financial institution, or by members of "Associations" formed for any purpose
other than the purchase of securities if that Qualified Retirement Plan or that
Association purchased shares of any of the Former Quest for Value Funds or
received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995. For this purpose only, a "Qualified Retirement Plan" includes
any 401(k) plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a single
employer.
Front-End Front-End
Sales Sales Commission
<PAGE>
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
For purchases by Qualified Retirement plans and Associations having 50 or
more eligible employees or members, there is no initial sales charge on
purchases of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on pages 31 to 33 of this Prospectus.
Purchases made under this arrangement qualify for the lower of the sales
charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge rate
that applies under the Rights of Accumulation described above in the Prospectus.
In addition, purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they qualified to
purchase shares of any of the Former Quest For Value Funds by virtue of
projected contributions or investments of $1 million or more each year.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations, or as eligible employees in Qualified Retirement Plans
also may purchase shares for their individual or custodial accounts at these
reduced sales charge rates, upon request to the Fund's Distributor.
o Special Class A Contingent Deferred Sales Charge Rates. Class A shares of the
Fund purchased by exchange of shares of other Oppenheimer funds that were
acquired as a result of the merger of Former Quest for Value Funds into those
Oppenheimer funds, and which shares were subject to a Class A contingent
deferred sales charge prior to November 24, 1995 will be subject to a contingent
deferred sales charge at the following rates: if they are redeemed within 18
months of the end of the calendar month in which they were purchased, at a rate
equal to 1.0% if the redemption occurs within 12 months of their initial
purchase and at a rate of 0.50 of 1.0% if the redemption occurs in the
subsequent six months. Class A shares of any of the Former Quest Fund for Value
Funds purchased without an initial sales charge on or before November 22, 1995
will continue to be subject to the applicable contingent deferred sales
<PAGE>
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
o Waiver of Class A Sales Charges for Certain Shareholders. Class A shares of
the Fund purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of
Funds on February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions.
The Class A contingent deferred sales charge will not apply to redemptions of
Class A shares of the Fund purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the Employee Retirement
Income Security Act of 1974 and regulations adopted under that law.
o Participants in Qualified Retirement Plans that purchased shares of any
of the Former Quest For Value Funds pursuant to a special "strategic alliance"
with the distributor of those funds. The Fund's Distributor will pay a
commission to the dealer for purchases of Fund shares as described above in
"Class A Contingent Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
o Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the
following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, B or C shares of the Fund acquired by merger of a Former
Quest for Value Fund into the Fund or by exchange from an Oppenheimer fund that
was a Former Quest for Value Fund or into which such fund merged, if those
shares were purchased prior to March 6, 1995: in connection with
<PAGE>
(i) distributions to participants or beneficiaries of plans qualified under
Section 401(a) of the Internal Revenue Code or from custodial accounts under
Section 403(b)(7) of the Code, Individual Retirement Accounts, deferred
compensation plans under Section 457 of the Code, and other employee benefit
plans, and returns of excess contributions made to each type of plan, (ii)
withdrawals under an automatic withdrawal plan holding only either Class B or
Class C shares if the annual withdrawal does not exceed 10% of the initial value
of the account, and (iii) liquidation of a shareholder's account if the
aggregate net asset value of shares held in the account is less than the
required minimum value of such accounts.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995. In the following case, the contingent deferred sales
charge will be waived for redemptions of Class A, B or C shares of the Fund
acquired by merger of a Former Quest for Value Fund into the Fund or by exchange
from an Oppenheimer fund that was a Former Quest For Value Fund or into which
such fund merged, if those shares were purchased on or after March 6, 1995, but
prior to November 24, 1995: (1) distributions to participants or beneficiaries
from Individual Retirement Accounts under Section 408(a) of the Internal Revenue
Code or retirement plans under Section 401(a), 401(k), 403(b), and 457 of the
Code, if those distributions are made either (a) to an individual participant as
a result of separation from service or (b) following the death or disability (as
defined in the Code) of the participant or beneficiary; (2) returns of excess
contributions to such retirement plans; (3) redemptions other than from
retirement plans following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social Security
Administration); (4) withdrawals under an automatic withdrawal plan (but only
for Class B or C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and (5) liquidation of a shareholder's account if
the aggregate net asset value of shares held in the account is less than the
required minimum account value. A shareholder's account will be credited with
the amount of any contingent deferred sales charge paid on the redemption of any
Class A, B or C shares of the Fund described in this section if within 90 days
after that redemption, the proceeds are invested in the same Class of shares in
this Fund or another Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value Fund to Quest for
Value prototype 401(k) plan that were maintained on the
<PAGE>
TRAC-2000 recordkeeping system and that were transferred to an OppenheimerFunds
prototype 401(k) plan shall be eligible for an additional one-time payment by
the Distributor of 1% of the value of the plan assets transferred, but that
payment may not exceed $5,000 as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value Fund to Quest for
Value prototype 401(k) plans that were maintained on the TRAC-2000 recordkeeping
system and (i) the shares held by those plans were exchanged for Class A shares,
or (ii) the plan assets were transferred to an OppenheimerFunds prototype 401(k)
plan, shall be eligible for an additional one-time payment by the Distributor of
1% of the value of the plan assets transferred, but that payment may not exceed
$5,000.
<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 a $10,000
Hypothetical Investments.
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 6/30/86 through 6/30/96 and 8/31/96 in the case of the Fund's
Class B shares the graph will cover the period from the inception of the class
(August 17, 1993) through 6/30/96 and 8/31/96 and in the case of the Fund's
Class C share the graph will cover the period from the inception of the class
through 6/30/96 and 8/31/96. The graphs 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
6/30/86 $9,425 $10,000
6/30/87 $11,353 $13,150
6/30/88 $11,584 $11,649
6/30/89 $13,125 $14,039
6/30/90 $14,315 $16,348
6/30/91 $14,841 $17,553
6/30/92 $16,365 $19,903
6/30/93 $19,108 $22,611
6/30/94 $19,233 $22,928
6/30/95 $22,246 $28,897
6/30/96 $26,386 $36,404
8/31/96 $26,316 $35,531
Fiscal Oppenheimer S&P
Period Ended Equity Income Fund B 500 Index
- ------------ -------------------- ---------
<PAGE>
8/17/93(1)$10,000 $10,000
6/30/94 $ 9,765 $ 9,810
6/30/95 $11,216 $12,363
6/30/96 $13,188 $15,575
8/31/96 $12,941 $15,202
Fiscal Oppenheimer S & P
Period Ended Equity Income Fund C 500 Index
- ------------ -------------------- ---------
11/1/95(2)$10,000 $10,000
6/30/96 $11,050 $11,713
8/31/96 $10,901 $11,432
- ----------------------
(1) Class B shares of the Fund were first publicly offered on August 17, 1993.
Class C shares of the Fund were first publicly offered on November 1, 1995.
<PAGE>
Oppenheimer Equity Income Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche, LLP
555 Seventeenth Street
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, OppenheimerFunds, Inc. OppenheimerFunds
Distributor, Inc. or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such an
offer in such state.
<PAGE>
Oppenheimer Equity Income Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated November 1, 1996
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, 1996.
It should be read together with the Prospectus, which may be obtained by writing
to the Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free number
shown above.
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......................................19
The Manager and Its Affiliates.........................................23
Brokerage Policies of the Fund..............................................25
Performance of the Fund.....................................................26
Distribution and Service Plans..............................................30
About Your Account
How To Buy Shares...........................................................32
How To Sell Shares..........................................................39
How To Exchange Shares......................................................43
Dividends, Capital Gains and Taxes..........................................45
Additional Information About the Fund.......................................46
Financial Information About the Fund
Independent Auditors' Report................................................48
Financial Statements........................................................49
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, OppenheimerFunds, Inc. (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).
o 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.
o 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.
o 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.
o 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
2
<PAGE>
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
o 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.
o 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.
3
<PAGE>
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.
o 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 (other
than in a closing purchase transaction), it pays a premium and, except as to
calls on stock indices, has the right to buy the underlying investment from a
seller of a corresponding call on the same investment during the call period at
a fixed exercise price. In purchasing a call, the Fund benefits only if the call
is sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the 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
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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
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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.
o 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.
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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, liquid securities of any type, including equity and debt securities
of any grade, in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
o Forward Contracts. The Fund may enter into foreign currency exchange
contracts ("Forward Contracts"), which obligate the seller to deliver and the
purchaser to take a specific amount of foreign currency at a specific future
date for a fixed price. A Forward Contract involves bilateral obligations of one
party to purchase, and another party to sell, a specific currency at a future
date (which may be any fixed number of days from the date of the contract agreed
upon by the parties), at a price set at the time the contract is entered into.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. The Fund
may enter into a Forward Contract in order to "lock in" the U.S. dollar price of
a security denominated in a foreign currency which it has purchased or sold but
which has not yet settled, or to protect against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar and a foreign
currency.
There is a risk that use of Forward Contracts may reduce the gain that
would otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. 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.
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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
another currency that is subject to the hedge), or enter into a "cross hedge,"
unless it is denominated in these currencies provided the excess amount is
"covered" by liquid assets of any type including equity and debt securities of
any grade, dominated in any currency, at least equal at all time to the amount
of such excess. See "Tax Aspects of Covered Calls and Hedging Instruments" below
for a discussion of the tax treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when the Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction
("transaction hedge"). The Fund will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar value
of portfolio positions ("position hedge"). In a position hedge, for example,
when the Fund believes that foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency, or when the
Fund believes that the U.S. dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount. In this situation the Fund may, in
the alternative, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Fund believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's Custodian will identify liquid assets for a separate account
having a value equal to the aggregate amount of the Fund's commitment under
Forward Contracts to cover its short positions. The Fund will not enter into
such Forward Contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency or another currency that is the
subject of the hedge. The Fund, however, in order to avoid excess transactions
and transaction costs, may maintain a net exposure to Forward Contracts in
excess of the value of the Fund's portfolio securities or other assets
denominated in these currencies provided the excess amount is "covered" by
liquid securities
8
<PAGE>
denominated in any currency, at lest equal at all times to the amount of such
excess. As an alternative, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price 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 contact 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 differed from 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
9
<PAGE>
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
o 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
be 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.
o Regulatory Aspects of Hedging Instruments. The Fund is required to
operate within certain guidelines and restrictions with respect to its use of
Futures and options on Futures established by the Commodity Futures Trading
Commission ("CFTC"). In particular, the Fund is 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. Under the Rule, the Fund also must use short
futures and options on futures positions solely for bona fide hedging purposes
within the meaning and intent of the applicable provisions of the Commodities
Exchange Act.
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
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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.
o Tax Aspects of Covered Calls and Hedging Instruments. The Fund intends
to qualify as a "regulated investment company" under the Internal Revenue Code
(although it reserves the right not to qualify). That qualification enables the
Fund to "pass through" its income and realized capital gains to shareholders
without 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
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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.
o 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
12
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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.
o 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, less liquid
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.
o Foreign Securities. As noted in the Prospectus, the Fund may invest in
securities (which may be denominated in U.S. dollars or non-U.S. currencies)
issued or guaranteed by foreign corporations, certain supranational entities
(described below) and foreign governments or their agencies or
instrumentalities, and in securities issued by U.S. corporations denominated in
non-U.S. currencies. The types of foreign debt obligations and other securities
in which the Fund may invest are the same types of debts and equity securities
identified above. Foreign securities are subject however, to additional risks
not associated with domestic securities, as discussed below. These additional
risks may be more pronounced as to investments in securities issued by emerging
market countries or by companies located in emerging market countries.
"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 other similar
arrangements 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
13
<PAGE>
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 sub-custodians
or depositories holding them must be approved by the Fund's Board of Trustees to
the extent that approval is required under applicable rules of the Securities
and Exchange Commission.
o 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.
o Illiquid and Restricted Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the Fund
may have to cause those securities to be registered. The expenses of
registration of restricted securities may be negotiated by the Fund with the
issuer at the time such securities are purchased by the Fund, if such
registration is required before such securities may be sold publicly. When
registration must be arranged because the Fund wishes to sell the security, a
considerable period may elapse between the time the decision is made to sell the
securities and the time the Fund would be permitted to sell them. The Fund would
bear the risks of any downward price fluctuation during that period. The Fund
may also acquire, through private placements, securities having contractual
restrictions on their resale, which might limit the
14
<PAGE>
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 Manager
under Board-approved guidelines. Those guidelines take into account the trading
activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, the Fund's holding of that security may be deemed
to be illiquid.
o Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. 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. Any of these
payments 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.
o "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 liquid
assets of any
15
<PAGE>
type, including equity and debt securities of any grade, 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.
o Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated redemptions, or
pending the investment of the proceeds from 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
16
<PAGE>
that at all times while the repurchase agreement is in effect, the value of the
collateral must equal or exceed the repurchase price to fully collateralize the
repayment obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
o Temporary Defensive Investments. When the equity markets in general are
declining, the Fund may commit an increasing portion of its assets to defensive
securities. These may include the types of securities described in the
Prospectus. When investing for defensive purposes, the Fund will normally
emphasize investment in short-term debt securities (that is, securities maturing
in one year or less from the date of purchase), since those types of securities
are generally more liquid and usually may be disposed of quickly without
significant gains or losses so that the Manager may have liquid assets when it
wishes to make investments in securities consistent with its investment
objectives.
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. Under the Investment Company Act, such a "majority" vote is defined
as the vote of the holders of the lesser of (i) 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 (ii)
more than 50% of the outstanding shares.
Under these additional restrictions:
o The Fund cannot act as an underwriter of securities of other issuers;
o The Fund cannot buy or sell real estate or interests in real estate
investment trusts;
o The Fund cannot 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);
o The Fund cannot 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;
o The Fund cannot invest in securities of any company for the purpose
of management or the exercise of control;
17
<PAGE>
o The Fund cannot buy securities of other investment companies,
except in connection with a merger or consolidation;
o The Fund cannot cease to maintain its business as an investment
company as defined in the Investment Company Act; or
o The Fund cannot 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
18
<PAGE>
liable as a "partner" under certain circumstances, the risk of a Fund
shareholder incurring financial loss on account of shareholder liability is
limited to the relatively remote circumstances in which the Fund would be unable
to meet its obligations described above. Any person doing business with the
Trust, and any shareholder of the Trust, agrees under the Trust's Declaration of
Trust to look solely to the assets of the Trust for satisfaction of any claim or
demand which may arise out of any dealings with the Trust, and the Trustees
shall have no personal liability to any such person, to the extent permitted by
law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five years are listed below. All of the Trustees are also trustees, directors or
managing general partners of Oppenheimer Total Return Fund, Inc., Oppenheimer
Equity Income Fund, Oppenheimer Cash Reserves, Oppenheimer Strategic Income
Fund, Centennial America Fund, L.P., The New York Tax-Exempt Income Fund, Inc.,
Oppenheimer Variable Account Funds, Oppenheimer Champion Income Fund,
Oppenheimer International Bond Fund, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Integrity Funds,
Oppenheimer Limited-Term Government Fund, Oppenheimer Municipal Fund, Panorama
Series Fund, Inc., Centennial Money Market Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt Trust,
Daily Cash Accumulation Fund, Inc. and Centennial Tax Exempt Trust (all of the
foregoing funds are collectively referred to as the "Denver-based Oppenheimer
funds") except for Mr. Fossel and Ms. Macaskill, who are Trustees, Directors or
Managing General Partners of all the Denver-based Oppenheimer funds except
Oppenheimer Integrity Funds, Panorama Series Fund, Inc., Oppenheimer Strategic
Income Fund and Oppenheimer Variable Account Funds. In addition, Mr. Fossel is
not a Trustee of Centennial New York Tax-Exempt Trust or a Managing General
Partner of Centennial America Fund, L.P. Messrs. Bishop, Bowen, Donohue, Farrar
and Zack hold similar positions as officers of all such funds. Ms. Macaskill is
President and Mr. Swain is Chairman of the Denver-based Oppenheimer funds. As of
September 26, 1996, the Trustees and officers of the Fund as a group owned less
than 1% of its outstanding shares, not including shares held of record by an
employee benefit plan of the Manager (for which two of the officers listed
below, Ms. Macaskill and Mr. Donohue, are trustees) other than shares
beneficially owned under that plan by the officers of the Fund listed above.
Robert G. Avis, Trustee*; Age 65
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
William A. Baker, Trustee; Age 81
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
19
<PAGE>
Charles Conrad, Jr., Trustee; Age 66
19411 Merion Circle, Huntington Beach, California 92648
Chairman and Chief Executive Officer of Universal Space Lines, Inc. (a
space services management company); formerly Vice President of McDonnell
Douglas Space Systems Co. and associated with the National Aeronautics
and Space Administration.
Jon S. Fossel, Trustee*; Age 54
Box 44 Mead Street, Waccabuc, New York 10597
Member of the Board of Governors for the Investment Company Institute (a
national association of Investment Companies), Chairman of the Investment
Company Education Foundation, formerly Chairman and President of the
Manager of OppenheimerFunds, Inc. (the "Manager"), President and a
Director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent
holding company and Shareholder Services, Inc. ("SSI"), transfer agent
subsidiary of the Manager.
Sam Freedman, Trustee; Age: 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services, Chairman, Chief Executive Officer and a director of Shareholder
Services, Inc., Chairman, Chief Executive and Officer and director of
Shareholder Financial Services, Inc., Vice President and director of
Oppenheimer Acquisition Corporation and a director of OppenheimerFunds,
Inc.
Raymond J. Kalinowski, Trustee; Age 67
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International Inc. (a computer products
training company); 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 74
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; Age 75
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President and Trustee*; Age: 48
President, Chief Executive Officer and a Director of the Manager and
HarbourView Asset Management Corporation ("HarbourView"), a subsidiary of
the Manager; Chairman and a director of SSI and Shareholder Financial
Services, Inc.; President and a director of OAC and Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of the Manager; a
director of Oppenheimer Real Asset Management, Inc.; formerly an Executive
Vice President of the Manager.
20
<PAGE>
Ned M. Steel, Trustee; Age 81
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, Chief Executive Officer and Trustee*; Age 62
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.
John P. Doney, Vice President and Portfolio Manager; Age: 66
Two World Trade Center, New York, New York 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.
Andrew J. Donohue, Vice President and Secretary; Age 46
Two World Trade Center, New York, New York 10048
Executive Vice President and General Counsel of the Manager and
OppenheimerFunds Distributor, Inc. (the "Distributor"); President and a
director of Centennial; Executive Vice President, General Counsel and a
director of HarbourView, SFSI, SSI and Oppenheimer Partnership Holdings
Inc.; President and a director of Oppenheimer Real Asset Management,
Inc.; General Counsel of OAC; Executive Vice President, Chief Legal
Officer and a director of MultiSource Services, Inc. (a broker-dealer);
an officer of other Oppenheimer funds; formerly Senior Vice President
and Associate General Counsel of the Manager and the Distributor;
Partner in Kraft & McManimon (a law firm); an officer of First
Investors Corporation (a broker-dealer) and First Investors Management
Company, Inc. (broker-dealer and investment adviser); director and an
officer of First Investors Family of Funds and First Investors Life
Insurance Company.
George C. Bowen, Vice President, Assistant Secretary and Treasurer; Age
60 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; Treasurer of OAC; Vice
President and Treasurer of Oppenheimer Real Asset Management, Inc.,
Chief
21
<PAGE>
Executive Officer, Treasurer and a director of MultiSource Services,
Inc.; an officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age 37
3410 South Galena Street, Denver, Colorado 80231
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly 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.
Scott Farrar, Assistant Treasurer; Age 31
3410 South Galena Street, Denver, Colorado 80231
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly 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.
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, SFSI; an officer of other Oppenheimer
funds.
- ------------------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
o 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 (Ms. Macaskill and Mr. Swain, who are both officers and Trustees and Mr.
Fossel) receive no salary or fee from the Fund. The remaining Trustees of the
Fund (excluding Mr. Freedman, who did not become a Trustee until June 27, 1996)
received the compensation shown below from the Fund, during its fiscal year
ended June 30, 1996 and the period from July 1, 1996 to August 31, 1996 and from
all of the Denver-based Oppenheimer funds (including the Fund) for which the
served as Trustee, Director or Managing General Partner. Compensation is paid
for services in the positions listed beneath their names:
<TABLE>
<CAPTION>
Aggregate Aggregate Total Compensation
Compensation Compensation from all
from the Fund from the Fund Denver-based
Name and Position as of 6-30-96 as of 8-31-96 Oppenheimer Funds1
<S> <C> <C> <C>
22
<PAGE>
Robert G. Avis $7,926 $1,348 $53,000
Trustee
William A. Baker $10,955 $1,862 $73,255
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $9,618 $1,635 $64,309
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $9,721 $1,653 $65,000
Trustee
C. Howard Kast $9,721 $1,653 $65,000
Trustee
Robert M. Kirchner $10,213 $1,736 $68,292
Audit and Review
Committee Member
and Trustee
Ned M. Steel $7,927 $1,347 $53,000
Trustee
- ----------------------
<FN>
1 For the 1995 calendar year during which the Denver-based funds listed in the
first paragraph of this section, included Oppenheimer Strategic Investment Grade
Bond Fund and Oppenheimer Strategic Short-Term Income Fund (which ceased
operations following the acquisition of their assets by the other Oppenheimer
funds) and Panorama Series Fund, Inc. which became an Oppenheimer fund in June
of 1996.
</FN>
</TABLE>
o Major Shareholders. As of September 26, 1996, no person owned of
record or was known by the Fund to own beneficially 5% or more of the Fund's
outstanding shares except: Ronald E. Elliott, 1528 Mosswood Drive, Napa,
California 94558-1714, who held of record 45,824.484 Class C shares (6.06% of
the Class C shares outstanding as of such 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
23
<PAGE>
serve as officers of the Fund, and two of whom (Ms. Macaskill, 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.
o 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, 1994, 1995, and 1996 and August 31, 1996 the
management fees paid by the Fund to the Manager were $10,114,770, $10,347,426,
$12,078,956, and $2,134,834, 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
24
<PAGE>
no longer act as investment adviser to the Fund, the right of the Fund to use
the name "Oppenheimer" as part of its name may be withdrawn.
o The Distributor. Under its General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A, Class B and Class C shares but is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales, (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, 1994, 1995, 1996 and for the
period from July 1, 1996 through August 31, 1996 the aggregate sales charges on
sales of the Fund's Class A shares were $7,807,280 , $4,629,585, $4,966,513 and
$632,850, respectively, of which the Distributor and an affiliated broker-dealer
retained in the aggregate, $2,506,452, $1,414,085, $1,546,454 and $218,008 in
those respective years. During the Fund's fiscal years ended June 30, 1996 and
for the period from July 1, 1996 through August 31, 1996 the contingent deferred
sales charges collected by the Distributor on the Fund's Class B shares totaled
$2,939,846 and $489,862 of which $227,772 and $43,178 were paid by the
Distributor to an affiliate. During the Fund's fiscal year ended June 30, 1996
and for the period from July 1, 1996 through August 31, 1996, the contingent
deferred sales charges collected by the Distributor on the Fund's Class C shares
totaled $55,998 and $15,300 respectively of which the $1,807 and $713 were paid
by the Distributor to an affiliate. 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.
o The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer
Agent, is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the 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.
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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. In either case, brokerage is
allocated under the supervision of the Manager's executive officers.
Transactions in securities other than those for which an exchange is the primary
market are generally done with principals or market makers. In connection with
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and thereby forego the benefit of negotiated commissions
available in U.S. markets. 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
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<PAGE>
trends and portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products and
services. If a research service also assists the Manager in a non-research
capacity (such as bookkeeping or other administrative functions), then only the
percentage or component that provides assistance to the Manager in the
investment decision-making process may be paid for in commission dollars. The
Board of Trustees has permitted the Manager to use concessions on fixed price
offerings 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 broadens 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 Manager provides information as
to the commissions paid to brokers furnishing such services, together with the
Manager's representation that the amount of such commissions was reasonably
related to the value or benefit of such services.
During the Fund's fiscal years ended June 30, 1994, 1995, 1996 and for
the period from July 1, 1996 through August 31, 1996 total brokerage commissions
paid by the Fund (not including spreads or concessions on principal transactions
on a net trade basis) were $4,522,951, $2,355,811, $766,137 and $168,229,
respectively. During the fiscal year ended June 30, 1996, and for the period
from July 1, 1996 through August 31, 1996, $147,662 and $40,548 was paid to
brokers as commissions in return for research services; the aggregate dollar
amount of those transactions was $103,961,319 and $28,104,364, respectively. 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.
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
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<PAGE>
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 ar 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.
o Average Annual Total Returns. the "average annual total return"
of each class is an average annual compounded rate of return for each year in
a specified number of years. It is the rate of teturn 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 Redeemeable Value
("ERV") of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
o Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of $1,000
over an entire period of years. Its calculation uses some of the same factors
as average annual total return, but it does not average the rate of return on
an annual basis. Cumulative total return is determined as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown at net asset value, as
described below). For Class B shares, 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, 1996 were 11.79%, 10.87% and
10.19%, respectively. The "average annual total returns" on an investment in
Class A shares of the Fund (using the method described above) for the one, five
and ten year periods ended August 31, 1996 were 6.51%, 9.70% and 10.15%,
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
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<PAGE>
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, 1996 and August 31, 1996 were 163.86% and 162.94%, respectively. The
"average annual total returns" on an investment in Class B shares of the Fund
for the one year period ended June 30, 1996 and for the period from August 17,
1993 (commencement of the offering of Class B shares) through June 30, 1996 was
12.58% and 9.24%, respectively. The "average annual total returns" on an
investment in Class B shares of the Fund for the one year period ended August
31, 1996 and for the period from August 17, 1993 (commencement of the offering
of Class B shares) through June 30, 1996 were 7.11% and 8.86%, respectively. The
cumulative "total return" on Class B shares for the period from August 17, 1993
through June 30, 1996 and August 31, 1996 were 28.88% and 29.41%, respectively.
The cumulative "total return" on Class C shares for the period from November 1,
1995 through June 30, 1996 and August 31, 1996 were 9.50% and 9.01%,
respectively.
o Total Returns at Net Asset Value. From time to time the Fund may also
quote an average annual total return at net asset value or a cumulative total
return at net asset value for Class A, Class B or Class C shares. Each is based
on the difference in net asset value per share at the beginning and the end of
the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions. The
cumulative total return at net asset value of the Fund's Class A shares for the
ten-year period ended June 30, 1996 and August 31, 1996 were 179.96% and
178.99%, respectively. The average annual total returns at net asset value for
the one, five and ten-year periods ended June 30, 1996, for Class A shares were
18.61%, 12.20% and 10.84%, respectively. The "average annual total return" at
net asset value for the one, five and ten year periods ended August 31, 1996 for
Class A shares were 13.01%, 11.01% and 10.80%, 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, 1996 and August 31, 1996 were 31.88% and
31.41%, respectively. The average annual total returns at net asset value on the
Fund's Class B shares for the one year period ended June 30, 1996 and for the
period from August 17, 1993 through June 30, 1996 were 17.58% and 10.12%,
respectively. The average annual total returns at net asset value on the Fund's
Class B shares for the one year period ended August 31, 1996 and for the period
from August 17, 1996 through August 31, 1996 were 12.11% and 9.41%,
respectively. The "cumulative total return" on Class C shares from the period
November 1, 1995 (commencement of the offering of the Class) through June 30,
1996 and August 31, 1996 were 10.50% and 10.01%, 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.
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<PAGE>
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,
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<PAGE>
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 payments under the 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
payments were made and the services rendered in connection with
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<PAGE>
the distribution of shares. The report for the Class B plan is to include the
Distributor's distribution costs for that quarter, and such costs for previous
fiscal periods that have been carried forward, as explained in the Prospectus
and below. The Class A and Class B reports must also identify each recipient
that received payments. 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. 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, 1996, and the period from July 1,
1996 through August 31, 1996 payments under the Plan for Class A shares totaled
$3,872,138, and $693,619 , respectively, all of which was paid by the
Distributor to Recipients including $248,431 and $44,931, respectively, 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, 1996 and the period from July 1, 1996 through
August 31, 1996 totalled $2,077,724 and $432,504, of which $1,728,635 and
$355,295 were retained by the Distributor and $34,064 and $ 6,798 were paid to a
dealer affiliated with the Distributor, respectively. Payments made under the
Class C Plan during their fiscal years ended June 30, 1996 and for the period
from July 1, 1996 through August 31, 1996 totaled $ 16,702 and $11,319 of which
$15,925 and $9,940 were retained by the Distributor and $15 and $10 were paid to
a dealer affiliated with the Distributor, respectively.
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
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<PAGE>
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. 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 the Distributor 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
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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 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.
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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 that the
Exchange is open, by dividing the value of the Fund's net assets attributable to
that class by the number of shares of that class 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 holiday schedule (which is subject
to change) states that it will close on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. It may also close on other days. Trading may occur in debt
securities and in foreign securities when the Exchange is closed (including
weekends and holidays). Because the Fund's net asset value will not be
calculated at those times, if securities held in the Fund's portfolio are traded
at such time, the net asset values per share of Class A, Class B and Class C
shares of the Fund may be significantly affected at times when shareholders may
not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity securities
traded on a securities exchange or on the Automated Quotation System ("NASDAQ")
of the Nasdaq Stock Market, Inc. for which last sale information is regularly
reported are valued at the last reported sale price on their primary exchange or
NASDAQ that day (or, in the absence of sales that day, at values based on the
last sale price of the preceding trading day, or closing "bid" and "ask" prices
that day); (ii) securities traded on a foreign securities exchange are valued
generally at the last sales price available to the pricing service approved by
the Fund's Board of Trustees or to the Manager as reported by the principal
exchange on which the security is traded at its last trading session on or
immediately preceding the valuation date, or at the mean between "bid" and "ask"
prices obtained from the principal exchange or two active market makers in the
security on the basis of reasonable inquiry; (iii) long-term debt securities
having a remaining maturity in excess of 60 days are valued based on the mean
between the "bid" and "ask" prices determined by a portfolio pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable inquiry; (iv)
debt instruments having a maturity of more than 397 days when issued, and
non-money market type instruments having a maturity of 397 days or less when
issued, which have a remaining maturity of 60 days or less are valued at the
mean between "bid" and "ask" prices determined by a pricing service approved by
the Fund's Board of Trustees or obtained by the Manager from two active market
makers in the security on the basis of reasonable inquiry; (v) money market type
debt securities that had a maturity of less than 397 days when issued that have
a remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vi) securities
(including restricted securities) not having readily-available market quotations
are valued at fair value determined under the Board's procedures. If the Manager
is unable to locate two market makers willing to give quotes (see (ii), (iii)
and (iv) above), the security may be priced at the mean between the "bid" and
"asked" prices provided by a single active market maker (which in certain cases
may be in "bid" price if no price is available).
In the case of U.S. Government Securities and mortgage-backed
securities, where last sale information is not generally available, such pricing
procedures may include "matrix" comparisons
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to the prices for comparable instruments on the basis of quality, yield,
maturity and other special factors involved. The Manager may use pricing
services approved by the Board of Trustees to price U.S. Government Securities,
mortgage-backed securities for which last sale information is not generally
available. The Manager will monitor the accuracy of such pricing services, which
may include comparing prices used for portfolio evaluation to actual sales
prices of selected securities.
Trading in securities on European and Asian exchanges and
over-the-counter markets is normally completed before the close of the New York
Stock Exchange. Events affecting the values of foreign securities traded in
securities markets that occur between the time their prices are determined and
the close of the New York Stock Exchange will not be reflected in the Fund's
calculation of net asset value unless the Board of Trustees or the Manager,
under procedures established by the Board of Trustees, determines that the
particular event is likely to effect a material change in the value of such
security. Foreign currency, including forward contracts, will be valued at the
closing price in the London foreign exchange market that day as provided by a
reliable bank, dealer or pricing service. The values of securities denominated
in foreign currency will be converted to U.S. dollars at the closing price in
the London foreign exchange market that day as provided by a reliable bank,
dealer or pricing service.
Puts, calls and Futures are valued at the last sales price on the
principal exchange on which they are traded, or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing "bid" and
"ask" prices on the principal exchange or on NASDAQ on the valuation date, or,
if not, value shall be the closing "bid" price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between "bid" and "ask"
prices obtained by the Manager from two active market makers (which in certain
cases may be the "bid" price if no "ask" price is available).
When the Fund writes an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent credit is included in the liability section. The credit is
adjusted ("marked-to-market") to reflect the current market value of the option.
In determining the Fund's gain on investments, if a call or put written by the
Fund is exercised, the proceeds are increased by the premium received. If a call
or put written by the Fund expires, the Fund has a gain in the amount of the
premium; if the Fund enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium received was more or less than the
cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
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
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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, a spouse's siblings, aunts, uncles, nieces
and nephews.
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o The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
include the following:
Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer 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
Oppenheimer International Growth Fund
Oppenheimer Enterprise Fund
Oppenheimer Bond Fund for Growth
Oppenheimer Life Span Balanced Fund
Oppenheimer Life Span Growth Fund
Oppenheimer Life Span Income Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global 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
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Growth & Income Value Fund
Rochester Fund Municipals*
Rochester Portfolio Series-Limited Term New York Municipal Fund*
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation 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.
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*Shares of the Fund are not presently exchangeable for shares of these
funds
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund shares
may be subject to a contingent deferred sales charge).
o Letters of Intent. A Letter of Intent (referred to as a "Letter") is
an investor's statement in writing to the Distributor of the intention to
purchase Class A shares 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
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actual purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the applicable prospectus, the
sales charges paid will be adjusted to the lower rate, but only if and when the
dealer returns to the Distributor the excess of the amount of commissions
allowed or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the Distributor
will be used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value 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
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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.
o Involuntary Redemptions. The Fund's Board of Trustees has the right to
cause the involuntary redemption of the shares held in any account if the
aggregate net asset value of those shares is less than $200 or such lesser
amount as the Board may fix. The Board of Trustees will not cause the
involuntary redemption of shares in an account if the aggregate net asset value
of the shares has fallen below the stated minimum solely as a result of market
fluctuations. Should the Board elect to exercise this right, it may also fix, in
accordance with the Investment Company Act, the requirements for any notice to
be given to the shareholders in question (not less than 30 days), or the Board
may set requirements for the Shareholder to increase the investment, and set
other terms and conditions so that the shares would not be involuntarily
redeemed.
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o Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Trustees of the Fund may determine that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment of a
redemption order wholly or partly in cash. In that case the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of
securities from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. The Fund has elected
to be governed by Rule 18f-1 under the Investment Company Act, pursuant to which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund during any 90-day period for any
one shareholder. If shares are redeemed in kind, the redeeming shareholder might
incur brokerage or other costs in selling the securities for cash. The method of
valuing securities used to make redemptions in kind will be the same as the
method the Fund uses to value its portfolio securities described above under 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 A or 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
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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 on behalf of their customers. The shareholder should contact the
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
the order placed by the dealer or broker, except 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
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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.
o Automatic Exchange Plans. Shareholders can authorize the Transfer Agent
(on the OppenheimerFunds Application or signature-guaranteed instructions) to
exchange a pre-determined amount of shares of the Fund for shares (of the same
class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Exchanges made under
these plans are subject to the restrictions that apply to exchanges as set forth
in "How to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
o Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment. It may not be desirable to purchase additional Class A shares while
making automatic withdrawals because of the sales charges that apply to
purchases when made. Accordingly, a shareholder normally may not maintain an
Automatic Withdrawal Plan while simultaneously making regular purchases of Class
A shares.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent. The Transfer
Agent and the Fund shall incur no 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 transfer payments of the
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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 Municipal Fund which only offers Class A and
Class B shares, (Class B and Class C shares of Oppenheimer Cash Reserves are
generally available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds sponsored 401(k) plans). A current
list showing which funds offer which class can be obtained by calling the
Distributor at 1-800-525-7048. Prior
45
<PAGE>
to May 1, 1996, Oppenheimer Disciplined Value Fund, Oppenheimer Disciplined
Allocation Fund, Oppenheimer LifeSpan Balanced Fund, Oppenheimer LifeSpan Income
Fund and Oppenheimer LifeSpan Growth Fund offered only Class A and Class B
shares and are not eligible for exchange to or from other Oppenheimer funds.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Bond Fund for Growth, Class M shares can be exchanged only for
Class A shares of other Oppenheimer funds, including Rochester Fund Municipals
and Limited Term New York Municipal Fund. Class A shares of Rochester Fund
Municipals or Limited Term New York Municipal Fund acquired on the exchange of
Class M shares of Oppenheimer Bond Fund for Growth may be exchanged for Class M
shares of that fund. For accounts of Oppenheimer Bond Fund for Growth
established after March 8, 1996, Class M shares may be exchanged for Class A
shares of other Oppenheimer funds except Rochester Fund Municipals and Limited
Term New York Municipals. Exchanges to Class M shares of Oppenheimer Bond Fund
for Growth are permitted from Class A shares of Oppenheimer Money Market Fund,
Inc. or Oppenheimer Cash Reserves that were acquired by exchange from Class M
shares. Otherwise no exchanges of any class of any Oppenheimer fund into Class M
shares are permitted.
Class A shares of 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 (except Oppenheimer Cash Reserves) or
from any unit investment trust for which reinvestment arrangements have been
made with the Distributor may be exchanged at net asset value for shares of any
of the Oppenheimer funds. No contingent deferred sales charge is imposed on
exchanges of shares of either class purchased subject to a contingent deferred
sales charge. However, 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
46
<PAGE>
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 more than one account. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the 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
47
<PAGE>
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
48
<PAGE>
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.
49
<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,
1996, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended June 30, 1996 and 1995,
and the financial highlights for the period July 1, 1991 to June 30, 1996. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
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,
1996 by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer Equity
Income Fund at June 30, 1996, 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.
/s/ Deloitte & Touche LLP
- ----------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
July 22, 1996
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments June 30, 1996
Face Market Value
Amount(1) See Note 1
<S> <C> <C>
===================================================================================================================================
U.S. Government Obligations--14.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury--14.2%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bonds, STRIPS, Zero Coupon, 7.26%, 8/15/08(2) $150,000,000 $ 65,520,286
---------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, Zero Coupon, 7.20%, 8/15/20(2) 687,800,000 125,729,097
---------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 7.50%, 12/31/96 146,500,000 148,010,692
--------------
Total U.S. Government Obligations (Cost $330,022,764) 339,260,075
===================================================================================================================================
Foreign Government Obligations--4.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Par Bonds, 5.25%, 3/31/23(3) 5,750,000 3,158,877
---------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Past Due Interest Bonds, Series L, 6.312%, 3/31/05(4) 2,475,000 1,938,222
---------------------------------------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior SNC International Finance BV
Gtd. Nts., 8%, 8/5/03 2,000,000 1,708,750
---------------------------------------------------------------------------------------------------------------
Banco Nacional de Obras y Servicios Publicos SA Nts., 10.75%, 8/16/96 6,000,000 6,007,500
---------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Interest Due and Unpaid Bonds, 6.375%, 1/1/01(4) 9,300,000 8,730,375
---------------------------------------------------------------------------------------------------------------
Canada (Government of) Bonds, Series H62, 9.25%, 10/1/96 CAD 37,800,000 28,043,446
---------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Disc. Bonds, 6.063%, 2/28/25(4) 6,000,000 3,405,000
---------------------------------------------------------------------------------------------------------------
Nafin Securities Ltd., 6% Gtd. Bonds, 12/19/96 2,000,000 1,995,000
---------------------------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03 AUD 9,900,000 7,923,315
---------------------------------------------------------------------------------------------------------------
Panama (Republic of) Debs., 6.629%, 5/10/02(4) 4,615,400 4,338,476
---------------------------------------------------------------------------------------------------------------
Quebec, Canada (Province of) Debs., 10.25%, 4/7/98 CAD 10,000,000 7,842,591
---------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Exchangeable Gtd. Nts., 8%, 8/14/01 AUD 33,650,000 25,706,365
---------------------------------------------------------------------------------------------------------------
South Australia (Government of) Bonds, 9%, 9/23/02 AUD 3,000,000 2,372,966
---------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Collateralized Par Bonds, Series W-A, 6.75%, 3/31/20 20,000,000 12,300,000
--------------
Total Foreign Government Obligations (Cost $116,269,984) 115,470,883
===================================================================================================================================
Non-Convertible Corporate Bonds and Notes--5.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(4) 5,000,000 7,233,410
---------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 10.75% Sr. Sub. Nts., Series B, 9/1/03 5,000,000 5,275,000
---------------------------------------------------------------------------------------------------------------
California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04(6) 4,350,000 4,263,000
---------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125% Sr. Nts., 4/15/06 4,000,000 3,960,000
---------------------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000 6,210,000
---------------------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05 6,350,000 6,103,937
---------------------------------------------------------------------------------------------------------------
El Paso Electric Co., 9.40% First Mtg. Bonds, Series E, 5/1/11 6,000,000 5,985,000
---------------------------------------------------------------------------------------------------------------
Falcon Drilling, Inc., 8.875% Sr. Nts., Series B, 3/15/03 5,850,000 5,652,562
---------------------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., 6/15/06(7) 5,000,000 4,850,000
---------------------------------------------------------------------------------------------------------------
Granite Broadcasting Corp., 9.375% Sr. Sub. Nts., Series A, 12/1/05(7) 5,000,000 4,600,000
---------------------------------------------------------------------------------------------------------------
Heritage Media Corp., 8.75% Sr. Sub. Nts., 2/15/06 4,500,000 4,207,500
---------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 9.50% Sr. Sec. Nts., Series B, 5/15/05 5,000,000 4,775,000
---------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 9.25% Sr. Sub. Gtd. Nts., 2/1/06 5,000,000 4,612,500
---------------------------------------------------------------------------------------------------------------
Magellan Health Services, Inc., 11.25% Sr. Sub. Nts., Series A, 4/15/04 8,250,000 8,910,000
---------------------------------------------------------------------------------------------------------------
MagneTek, Inc., 10.75% Sr. Sub. Debs., 11/15/98 3,000,000 2,958,750
---------------------------------------------------------------------------------------------------------------
MFS Communications Co., Inc., 0%/9.375% Sr. Disc Nts., 1/15/04(6) 4,500,000 3,420,000
---------------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp., 0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(6) 3,750,000 3,281,250
---------------------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03 9,000,000 8,977,500
---------------------------------------------------------------------------------------------------------------
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 7,000,000 7,595,000
</TABLE>
6 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount(1) See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Non-Convertible Corporate
Bonds and Notes
(continued)
Sociedad Comercial del Plata SA, 11.50% Medium-Term Nts., 5/9/00 $ 1,600,000 $ 1,616,000
---------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.625% Sr. Sub. Nts., 6/1/03 2,700,000 2,659,500
---------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 10.125% Sr. Sub. Nts., 3/1/05 5,000,000 5,300,000
---------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(7) 2,500,000 1,900,000
---------------------------------------------------------------------------------------------------------------
Triton Energy Corp., 0%/9.75% Sr. Sub. Disc. Nts., 12/15/00(6) 3,500,000 3,412,500
---------------------------------------------------------------------------------------------------------------
Viacom International, Inc., 10.25% Sr. Sub. Nts., 9/15/01 12,000,000 13,040,400
---------------------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 8.75% Sr. Nts., 12/15/01 6,000,000 5,970,000
--------------
Total Non-Convertible Corporate Bonds and Notes (Cost $134,229,625) 136,768,809
===================================================================================================================================
Convertible Corporate Bonds and Notes--3.9%
- -----------------------------------------------------------------------------------------------------------------------------------
ALZA Corp., 5% Cv. Sub. Debs., 5/1/06 10,000,000 9,725,000
---------------------------------------------------------------------------------------------------------------
Banco de Galicia y Buenos Aires SA de CV,
7% Cv. Sub. Negotiable Obligation Bonds, 8/1/02 3,100,000 3,417,750
---------------------------------------------------------------------------------------------------------------
Box Energy Corp., 8.25% Cv. Sub. Nts., 12/1/02 5,000,000 5,225,000
---------------------------------------------------------------------------------------------------------------
Cooper Industries, Inc., 7.05% Cv. Unsec. Sub. Bonds, 1/1/15 6,741,000 7,196,017
---------------------------------------------------------------------------------------------------------------
ICN Pharmaceuticals, Inc., 8.50% Cv. Sub. Debs., 11/15/99 4,500,000 5,512,500
---------------------------------------------------------------------------------------------------------------
Inco Ltd., 5.75% Cv. Debs., 7/1/04 9,700,000 12,209,875
---------------------------------------------------------------------------------------------------------------
Inco Ltd., 7.75% Cv. Debs., 3/15/16 9,800,000 10,314,500
---------------------------------------------------------------------------------------------------------------
Integrated Device Technology, Inc., 5.50% Cv. Sub. Nts., 6/1/02 7,000,000 5,687,500
---------------------------------------------------------------------------------------------------------------
IntelCom Group, Inc., 7% Redeemable Cv. Sub. Payable-in-Kind Nts., 10/30/98(8) 5,000,000 6,538,540
---------------------------------------------------------------------------------------------------------------
IntelCom Group, Inc., 7% Simple Interest Redeemable Cv. Sub. Nts., 10/30/98 875,000 1,144,245
---------------------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon Cv.
Exchangeable Sub. Debs., 4.85%, 10/30/15(2)(7) 19,500,000 7,483,125
---------------------------------------------------------------------------------------------------------------
Oryx Energy Co., 7.50% Cv. Sub. Debs., 5/15/14 7,000,000 6,177,500
---------------------------------------------------------------------------------------------------------------
Stone Container Corp., 8.875% Cv. Sr. Sub. Nts., 7/15/00(7) 3,000,000 3,911,250
---------------------------------------------------------------------------------------------------------------
VLSI Technology, Inc., 8.25% Cv. Sub. Nts., 10/1/05 11,800,000 10,428,250
--------------
Total Convertible Corporate Bonds and Notes (Cost $86,748,833) 94,971,052
Shares
===================================================================================================================================
Common Stocks--51.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Materials--3.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--1.5%
Dexter Corp. 400,000 11,900,000
---------------------------------------------------------------------------------------------------------------
Dow Chemical Co. (The) 100,000 7,600,000
---------------------------------------------------------------------------------------------------------------
Du Pont (E.I.) De Nemours & Co. 200,000 15,825,000
--------------
35,325,000
- -----------------------------------------------------------------------------------------------------------------------------------
Metals--0.2%
Reynolds Metals Co. 100,000 5,212,500
- -----------------------------------------------------------------------------------------------------------------------------------
Paper--1.3%
Union Camp Corp. 200,000 9,750,000
---------------------------------------------------------------------------------------------------------------
Westvaco Corp. 375,000 11,203,125
---------------------------------------------------------------------------------------------------------------
Weyerhaeuser Co. 250,000 10,625,000
--------------
31,578,125
</TABLE>
7 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--5.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Autos & Housing--2.1%
Ford Motor Co. 500,000 $ 16,187,500
---------------------------------------------------------------------------------------------------------------
General Motors Corp. 475,000 24,878,125
---------------------------------------------------------------------------------------------------------------
Snap-On, Inc. 200,000 9,475,000
--------------
50,540,625
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment--1.9%
AMR Corp.(9) 189,900 17,280,900
---------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc. 348,640 28,937,120
--------------
46,218,020
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Retail: General--1.0%
Sears Roebuck & Co. 500,000 24,312,500
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--4.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare/Drugs--1.3%
American Home Products Corp. 200,000 12,025,000
---------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 200,000 18,000,000
--------------
30,025,000
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco--3.6%
Philip Morris Cos., Inc. 600,000 62,400,000
---------------------------------------------------------------------------------------------------------------
RJR Nabisco Holdings Corp. 240,000 7,440,000
---------------------------------------------------------------------------------------------------------------
UST, Inc. 500,000 17,125,000
--------------
86,965,000
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--2.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Services &
Producers--0.2%
Pacific Enterprises 150,000 4,443,750
- -----------------------------------------------------------------------------------------------------------------------------------
Oil-Integrated--2.4%
Mobil Corp. 100,000 11,212,500
---------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 400,000 9,900,000
---------------------------------------------------------------------------------------------------------------
Phillips Petroleum Co. 300,000 12,562,500
---------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 100,000 15,375,000
---------------------------------------------------------------------------------------------------------------
Texaco, Inc. 100,000 8,387,500
--------------
57,437,500
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--27.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Banks--21.3%
Banc One Corp. 770,000 26,180,000
---------------------------------------------------------------------------------------------------------------
Bank of Boston Corp. 505,636 25,028,982
---------------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 396,419 20,316,474
---------------------------------------------------------------------------------------------------------------
BankAmerica Corp. 600,000 45,450,000
---------------------------------------------------------------------------------------------------------------
Bankers Trust New York Corp. 100,000 7,387,500
---------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New) 1,122,000 79,241,250
---------------------------------------------------------------------------------------------------------------
Citicorp 741,398 61,258,010
---------------------------------------------------------------------------------------------------------------
Crestar Financial Corp. 275,000 14,678,125
---------------------------------------------------------------------------------------------------------------
First Chicago NBD Corp. 452,500 17,704,062
---------------------------------------------------------------------------------------------------------------
First Union Corp. 839,055 51,077,473
</TABLE>
8 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Banks
(continued)
Fleet Financial Group, Inc. 400,000 $ 17,400,000
---------------------------------------------------------------------------------------------------------------
Great Western Financial Corp. 600,000 14,325,000
---------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp. 500,000 14,125,000
---------------------------------------------------------------------------------------------------------------
KeyCorp 400,000 15,500,000
---------------------------------------------------------------------------------------------------------------
Klamath First Bancorp, Inc. 270,000 3,948,750
---------------------------------------------------------------------------------------------------------------
Magna Group, Inc. 400,000 9,600,000
---------------------------------------------------------------------------------------------------------------
Mellon Bank Corp. 450,000 25,650,000
---------------------------------------------------------------------------------------------------------------
National City Corp. 500,000 17,562,500
---------------------------------------------------------------------------------------------------------------
PNC Bank Corp. 301,600 8,972,600
---------------------------------------------------------------------------------------------------------------
Signet Banking Corp. 400,000 9,300,000
---------------------------------------------------------------------------------------------------------------
Summit Bancorp 500,000 17,562,500
---------------------------------------------------------------------------------------------------------------
U.S. Bancorp, Inc. 245,000 8,850,625
--------------
511,118,851
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial--1.5%
American Express Co. 600,000 26,775,000
---------------------------------------------------------------------------------------------------------------
Capital One Financial Corp. 300,000 8,550,000
--------------
35,325,000
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance--4.5%
Allstate Corp. 724,432 33,052,210
---------------------------------------------------------------------------------------------------------------
American General Corp. 400,000 14,550,000
---------------------------------------------------------------------------------------------------------------
American States Financial Corp. (9) 550,000 11,825,000
---------------------------------------------------------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 248,000 6,417,000
---------------------------------------------------------------------------------------------------------------
GCR Holdings Ltd. 100,000 2,650,000
---------------------------------------------------------------------------------------------------------------
General Re Corp. 50,000 7,612,500
---------------------------------------------------------------------------------------------------------------
IPC Holdings Ltd. 419,000 8,432,375
---------------------------------------------------------------------------------------------------------------
ITT Hartford Group, Inc. 150,000 7,987,500
---------------------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc. 2,141,500 16,061,250
--------------
108,587,835
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial--3.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--0.7%
AMP, Inc. 400,000 16,050,000
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing--2.5%
Keystone International, Inc. 300,000 6,225,000
---------------------------------------------------------------------------------------------------------------
Minnesota Mining & Manufacturing Co. 400,000 27,600,000
---------------------------------------------------------------------------------------------------------------
Tenneco, Inc. 500,000 25,562,500
--------------
59,387,500
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--1.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--0.5%
United Technologies Corp. 100,000 11,500,000
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Hardware--0.5%
Moore Corp. Ltd. 616,000 11,627,000
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics--0.5%
Tektronix, Inc. 275,000 12,306,250
</TABLE>
9 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--4.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--3.7%
Allegheny Power System, Inc. 300,000 $ 9,262,500
---------------------------------------------------------------------------------------------------------------
Central & South West Corp. 400,000 11,600,000
---------------------------------------------------------------------------------------------------------------
DTE Energy Co. 300,000 9,262,500
---------------------------------------------------------------------------------------------------------------
Entergy Corp. 550,000 15,606,250
---------------------------------------------------------------------------------------------------------------
Florida Progress Corp. 500,000 17,375,000
---------------------------------------------------------------------------------------------------------------
Ohio Edison Co. 400,000 8,750,000
---------------------------------------------------------------------------------------------------------------
Potomac Electric Power Co. 400,000 10,600,000
---------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado 200,000 7,350,000
--------------
89,806,250
- -----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities--0.1%
NorAm Energy Corp. 225,000 2,446,875
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone Utilities--0.4%
Portugal Telecom SA, Sponsored ADR 410,000 10,762,500
--------------
Total Common Stocks (Cost $844,970,239) 1,240,976,081
===================================================================================================================================
Preferred Stocks--4.7%
---------------------------------------------------------------------------------------------------------------
Armco, Inc., $3.625 Cum. Cv.(10) 200,000 9,475,000
---------------------------------------------------------------------------------------------------------------
Banco Commercial Portuguese International Bank Ltd.,
8% Cv. Preferred Stock, Series A 396,000 19,701,000
---------------------------------------------------------------------------------------------------------------
Case Equipment Corp., Cum. Cv., Series A(5) 65,000 7,621,250
---------------------------------------------------------------------------------------------------------------
Fidelity Federal Bank, 12% Non-Cum. Exchangeable
Perpetual Preferred Stock, Series A(10) 100,000 2,750,000
---------------------------------------------------------------------------------------------------------------
First Chicago NBD Corp., Depositary Shares
(each representing a one-hundredth interest in a share of
5.75% cum. cv. preferred stock, series B) 135,000 8,994,375
---------------------------------------------------------------------------------------------------------------
Glendale Federal Bank, F.S.B., 8.75% Non-Cum. Cv., Series E 200,000 9,600,000
---------------------------------------------------------------------------------------------------------------
Noble Drilling Corp., $1.50 Cv. Exchangeable 92,000 3,243,000
---------------------------------------------------------------------------------------------------------------
Noram Financing I, 6.25% Cv. Preferred Stock 85,000 4,611,250
---------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp., $3.875 Cum. Cv. (7) 400,000 23,850,000
---------------------------------------------------------------------------------------------------------------
Sovereign Bancorp Inc., 6.25% Cv., Series B 36,500 2,071,375
---------------------------------------------------------------------------------------------------------------
Valero Energy Corp., 6.25% Cv. Preferred 200,000 10,500,000
---------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc., $6.00 Non-Cum. Cv. Perpetual Preferred Stock, Series D 96,800 11,325,600
--------------
Total Preferred Stocks (Cost $99,577,538) 113,742,850
===================================================================================================================================
Other Securities--10.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Allstate Corp., $2.30 Debt Exchangeable for
Common Stock of PMI Group, Inc. 111,000 4,384,500
---------------------------------------------------------------------------------------------------------------
American Express Co., Debt Exchangeable for
Common Stock of First Data Corp., 6.25%, 10/15/96 450,000 29,531,250
---------------------------------------------------------------------------------------------------------------
American General Delaware, LLC, $3.00 Cv
Monthly Income Preferred Securities, Series A 75,000 3,937,500
---------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Notes for
Common Stock of Lyondell Petrochemical Co., 9/15/97 400,000 9,750,000
---------------------------------------------------------------------------------------------------------------
Browning-Ferris Industries, Inc., 7.25% Cv.
Automatic Common Exchangeable Securities 225,000 7,143,750
</TABLE>
10 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Other Securities
(continued)
Compania de Inversiones en Telecomunicaciones SA,
Provisionally Redeemable Income Debt Exchangeable for Stock, 7%, 3/3/98(7) 200,000 $ 11,725,000
<PAGE>
---------------------------------------------------------------------------------------------------------------
Continental Airlines Finance Trust, 8.50% Cv.
Trust Originated Preferred Securities(7) 250,000 18,375,000
---------------------------------------------------------------------------------------------------------------
Corning Delaware LP, 6% Cv. Monthly Income Preferred Securities 150,000 8,568,750
---------------------------------------------------------------------------------------------------------------
Elsag Bailey Financing Trust, 5.50% Cv. Trust Originated Preferred Securities(7) 250,000 12,375,000
---------------------------------------------------------------------------------------------------------------
Enron Corp., 6.25% Cv. Automatic Common Exchangeable
Securities, redeemable into Enron Oil & Gas Co. Common Stock 270,000 6,986,250
---------------------------------------------------------------------------------------------------------------
James River Corp. of Virginia, Depositary Shares each representing
a one-hundredth interest in a share of Series P, 9% Cum. Cv. Preferred
Stock, Dividend Enhanced Convertible Stock 700,000 17,675,000
---------------------------------------------------------------------------------------------------------------
MCN Corp., 8.75% Cv. Preferred Redeemable Increased
Dividend Equity Securities(9) 135,000 3,442,500
---------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6% Cv. Preferred, Structured Yield Product
Exchangeable for Cox Communications, Inc., Common Stock(9) 202,500 4,480,313
---------------------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly Income
Preferred Securities, Non-Vtg.(7) 200,000 11,275,000
---------------------------------------------------------------------------------------------------------------
Reynolds Metals Co., 7% Preferred Redeemable Increased Dividend
Equity Securities, $3.31 Cv., 12/31/97 160,000 7,420,000
---------------------------------------------------------------------------------------------------------------
RJR Nabisco Holdings Corp., $6.50 Cv., Series C 4,315,000 28,047,500
---------------------------------------------------------------------------------------------------------------
Salomon, Inc., 7.625% Cv. Preferred, Debt Exchangeable for Common Stock(9) 460,000 12,650,000
---------------------------------------------------------------------------------------------------------------
Santa Fe Energy Resources, Inc., 8.25% Dividend Enhanced Convertible Stock(10) 805,000 8,855,000
---------------------------------------------------------------------------------------------------------------
U S West, Inc., 7.625% Cv. Debt Exchangeable for Common Stock
of Enhance Financial Services Group, Inc. 415,000 11,464,375
---------------------------------------------------------------------------------------------------------------
U.S. Surgical Corp., $2.20 Depositary Shares representing one-fiftieth
share of Series A Preferred Stock 550,000 17,118,750
---------------------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., Participating Equity Preferred Shares,
$1.30 Cv., Series C(7) 600,000 10,575,000
--------------
Total Other Securities (Cost $206,995,502) 245,780,438
Units
===================================================================================================================================
Rights, Warrants and Certificates--0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Tandon Computers Wts., Exp. 11/93 379 --
---------------------------------------------------------------------------------------------------------------
Venezuela Government Wts., Exp. 4/20 100,000 --
---------------
Total Rights, Warrants and Certificates (Cost $0) --
</TABLE>
11 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Face Market Value
Amount(1) See Note 1
<S> <C> <C>
===================================================================================================================================
Structured Instrument--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
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, 5.492%, 9/1/97 and an interest rate swap between
Credit Suisse Financial Products and the Trust] (Cost $4,000,000)(7) $ 4,000,000 $ 3,979,564
===================================================================================================================================
Repurchase Agreement--3.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with J. P. Morgan Securities, Inc., 5.45%,
dated 6/28/96, to be repurchased at $94,242,783 on 7/1/96, collateralized
by U.S. Treasury Bonds, 11.25%, 2/15/15, with a value of $87,956,225,
and U.S. Treasury Nts., 8.50%, 5/15/97 with a value of $8,846,932
(Cost $94,200,000) 94,200,000 94,200,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $1,917,014,485) 99.4% 2,385,149,752
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.6 13,862,694
-------------- --------------
Net Assets 100.0% $2,399,012,446
============== ==============
</TABLE>
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
AUD--Australian Dollar
CAD--Canadian Dollar
2. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
3. Represents the current interest rate for an increasing rate security.
4. Represents the current interest rate for a variable rate security.
5. Identifies issues considered to be illiquid--See Note 5 of Notes to Financial
Statements.
6. Denotes a step bond: a zero coupon bond that converts to a fixed rate of
interest at a designated future date.
7. 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 $114,898,939 or 4.79% of the Fund's net assets, at June 30,
1996.
8. Interest or dividend is paid in kind.
9. Non-income producing security.
10. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended June 30, 1996. The
aggregate fair value of all securities of affiliated companies as of June 30,
1996 amounted to $18,330,000. Transactions during the period in which the issuer
was an affiliate are as follows:
<TABLE>
<CAPTION>
Balance Balance
June 30, 1995 Gross Additions Gross Reductions June 30, 1996
------------- --------------- ---------------- -------------
Dividend
<PAGE>
Shares Cost Shares Cost Shares Cost Shares Cost Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Armco, Inc., $3.625 Cum. Cv. -- $ -- 200,000 $9,966,165 -- $ -- 200,000 $9,966,165 $725,000
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Federal Bank, 12% Non-Cum.
Exchangeable Perpetual
Preferred Stock, Series A(11) -- -- 100,000 2,500,000 -- -- 100,000 2,500,000 150,000
- -----------------------------------------------------------------------------------------------------------------------------------
Santa Fe Energy Resources, Inc.,
8.25% Dividend Enhanced
Convertible Stock -- -- 805,000 7,144,375 -- -- 805,000 7,144,375 589,260
----------- ----------- ----------- ----------- -----------
$ -- $19,610,540 $ -- $19,610,540 $1,464,260
=========== =========== =========== =========== ==========
11. No longer an affiliate at June 30, 1996.
See accompanying Notes to Financial Statements.
</TABLE>
12 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1996
<S> <C>
===================================================================================================================================
Assets Investments, at value--see accompanying statement:
Unaffiliated companies (cost $1,897,403,945) $2,366,819,752
Affiliated companies (cost $19,610,540) 18,330,000
---------------------------------------------------------------------------------------------------------------
Cash 1,863,490
---------------------------------------------------------------------------------------------------------------
Receivables:
Interest and dividends 17,315,258
Shares of beneficial interest sold 1,615,417
---------------------------------------------------------------------------------------------------------------
Other 409,304
--------------
Total assets 2,406,353,221
===================================================================================================================================
Liabilities Payables and other liabilities:
Shares of beneficial interest redeemed 4,655,753
Distribution and service plan fees 1,159,715
Dividends 830,391
Shareholder reports 348,299
Transfer and shareholder servicing agent fees 153,656
Trustees' fees 3,404
Other 189,557
--------------
Total liabilities 7,340,775
====================================================================================================================================
Net Assets $2,399,012,446
==============
===================================================================================================================================
Composition of
Net Assets
Paid-in capital $1,872,514,684
---------------------------------------------------------------------------------------------------------------
Undistributed net investment income 2,274,563
---------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 56,078,570
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 468,144,629
--------------
Net assets $2,399,012,446
==============
===================================================================================================================================
Net Asset Value
Per Share Class A Shares:
Net asset value and redemption price per share (based on net assets
of $2,140,809,971 and 187,893,082 shares of beneficial interest outstanding) $11.39
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $12.08
---------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $252,366,388 and 22,267,580 shares of beneficial interest outstanding) $11.33
---------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $5,836,087 and 514,164 shares of beneficial interest outstanding) $11.35
See accompanying Notes to Financial Statements.
</TABLE>
13 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations For the Year Ended June 30, 1996
===================================================================================================================================
<S> <C>
Investment Income Interest $68,337,314
---------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of withholding taxes of $259,580) 52,472,894
Affiliated companies 1,464,260
------------
Total income 122,274,468
===================================================================================================================================
Expenses Management fees--Note 4 12,078,956
---------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 3,872,138
Class B 2,077,724
Class C 16,702
---------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 2,688,008
---------------------------------------------------------------------------------------------------------------
Shareholder reports 608,737
---------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 165,431
---------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 53,250
Class B 33,448
Class C 2,141
---------------------------------------------------------------------------------------------------------------
Legal and auditing fees 80,779
<PAGE>
---------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 66,081
---------------------------------------------------------------------------------------------------------------
Insurance expenses 42,476
---------------------------------------------------------------------------------------------------------------
Other 167,101
------------
Total expenses 21,952,972
===================================================================================================================================
Net Investment Income 100,321,496
===================================================================================================================================
Realized and Unrealized
Gain (Loss)
Net realized gain (loss) on:
Investments 75,856,513
Foreign currency transactions (4,049,609)
------------
Net realized gain 71,806,904
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 198,519,095
Translation of assets and liabilities denominated in foreign currencies 8,097,685
------------
Net change 206,616,780
------------
Net realized and unrealized gain 278,423,684
===================================================================================================================================
Net Increase in Net Assets Resulting From Operations $378,745,180
============
See accompanying Notes to Financial Statements.
</TABLE>
14 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Year Ended June 30,
-----------------------
1996 1995
===================================================================================================================================
<S> <C> <C>
Operations Net investment income $100,321,496 $97,932,280
---------------------------------------------------------------------------------------------------------------
Net realized gain 71,806,904 33,525,676
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 206,616,780 153,278,187
-------------- --------------
Net increase in net assets resulting from operations 378,745,180 284,736,143
===================================================================================================================================
Dividends and
Distributions to
Shareholders
Dividends from net investment income:
Class A (88,933,508) (88,319,907)
Class B (7,653,335) (5,380,964)
Class C (81,369) --
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (45,033,840) (23,241,171)
Class B (4,472,521) (1,584,662)
Class C (15,717) --
====================================================================================================================================
Beneficial Interest
Transactions
Net increase (decrease) in net assets resulting from
beneficial interest transactions--Note 2:
Class A 35,013,412 (34,706,185)
Class B 70,965,886 62,397,726
Class C 5,782,628 --
===================================================================================================================================
Net Assets Total increase 344,316,816 193,900,980
---------------------------------------------------------------------------------------------------------------
Beginning of period 2,054,695,630 1,860,794,650
-------------- --------------
End of period [including undistributed (overdistributed) net investment
income of $2,274,563 and ($970,447), respectively] $2,399,012,446 $2,054,695,630
============== ==============
See accompanying Notes to Financial Statements.
</TABLE>
15 Oppenheimer Equity Income Fund
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------------
Year Ended June 30,
1996 1995 1994 1993 1992
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $10.25 $9.44 $10.01 $9.15 $8.86
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .50 .50 .47 .50 .50
Net realized and unrealized
gain (loss) 1.36 .92 (.39) .99 .39
---------- ---------- ---------- ---------- ----------
Total income (loss) from
investment operations 1.86 1.42 .08 1.49 .89
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.48) (.48) (.47) (.48) (.48)
Dividends in excess of net investment
income -- -- (.01) -- --
Distributions from net realized gain (.24) (.13) (.12) (.15) (.12)
Distributions in excess of capital gains -- -- (.05) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions
to shareholders (.72) (.61) (.65) (.63) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.39 $10.25 $9.44 $10.01 $9.15
========== ========== ========== ========== ==========
<PAGE>
====================================================================================================================================
Total Return, at Net Asset Value(3) 18.61% 15.66% 0.65% 16.76% 10.26%
====================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $2,140,810 $1,893,249 $1,772,944 $1,790,346 $1,555,924
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,054,132 $1,797,670 $1,831,606 $1,657,692 $1,525,599
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.51% 5.15% 4.72% 5.12% 5.33%
Expenses 0.89% 0.96% 0.90% 0.79% 0.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 42.9% 45.7% 30.4% 59.0% 37.0%
Average brokerage commission rate(6) $0.0592 -- -- -- --
<CAPTION>
Class B Class C
-------------------------------------------- ----------------
Period
Ended
Year Ended June 30, June 30,
1996 1995 1994(2) 1996(1)
================================================================================
<S> <C> <C> <C>
$10.21 $9.40 $10.22 $10.76
- --------------------------------------------------------------------------------
.41 .43 .36 .28
1.35 .91 (.58) .88
-------- -------- ------- ------
1.76 1.34 (.22) 1.16
- --------------------------------------------------------------------------------
(.40) (.40) (.42) (.33)
-- -- (.01) --
(.24) (.13) (.12) (.24)
-- -- (.05) --
-------- -------- ------- ------
(.64) (.53) (.60) (.57)
- --------------------------------------------------------------------------------
$11.33 $10.21 $9.40 $11.35
======== ======== ======= ======
================================================================================
17.58% 14.87% (2.35)% 10.50%
================================================================================
$252,366 $161,447 $87,850 $5,836
- --------------------------------------------------------------------------------
$207,785 $122,471 $47,414 $2,535
- --------------------------------------------------------------------------------
3.68% 4.34% 3.99%(4) 3.53%(4)
1.72% 1.79% 1.82%(4) 1.81%(4)
- --------------------------------------------------------------------------------
42.9% 45.7% 30.4% 42.9%
$0.0592 -- -- $0.0592
</TABLE>
1. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
2. For the period from August 17, 1993 (inception of offering) to June 30, 1994.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended June 30, 1996 were $1,162,412,317 and $911,585,778, respectively.
6. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period divided by the total number of related
shares purchased and sold.
See accompanying Notes to Financial Statements.
16 Oppenheimer Equity Income Fund
<PAGE>
Notes to Financial Statements
================================================================================
1. Significant
Accounting Policies
Oppenheimer Equity Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to seek as much current
income as is compatible with prudent investment. The Fund's investment advisor
is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge. Class B
and Class C shares may be subject to a contingent deferred sales charge. All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own distribution and/or service plan,
expenses directly attributable to 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 are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount.
- --------------------------------------------------------------------------------
<PAGE>
Foreign Currency Translation. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of securities and investment income are translated at
the rates of exchange prevailing on the respective dates of such transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses 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.
- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for tax purposes. The character of the distributions
made during the year from net investment income or net realized gains may differ
from 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.
17 Oppenheimer Equity Income Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
1. Significant
Accounting Policies
(continued)
During the year ended June 30, 1996, the Fund changed the classification of
distributions to shareholders to better disclose the differences between the
financial statement amounts and distributions determined in accordance with
income tax regulations. Accordingly, during the year ended June 30, 1996,
amounts have been reclassified to reflect a decrease in undistributed net
investment income of $408,274 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================================
2. Shares of
Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1996(1) Year Ended June 30, 1995
------------------------------- --------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 20,146,940 $ 223,283,409 19,327,605 $ 207,336,132
Dividends and distributions reinvested 11,433,753 125,568,723 11,012,028 83,402,034
Redeemed (28,310,542) (313,838,720) (33,557,623) (325,444,351)
----------- ------------- ----------- ------------
Net increase (decrease) 3,270,151 $ 35,013,412 (3,217,990) $ (34,706,185)
=========== ============= =========== =============
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 8,424,677 $ 92,863,112 7,529,176 $ 72,586,104
Dividends and distributions reinvested 1,014,528 11,086,597 670,317 6,342,433
Redeemed (2,987,292) (32,983,823) (1,724,724) (16,530,811)
----------- ------------- ----------- ------------
Net increase 6,451,913 $ 70,965,886 6,474,769 $ 62,397,726
=========== ============= =========== =============
- ------------------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 523,531 $ 5,887,218 -- $ --
Dividends and distributions reinvested 8,456 94,181 -- --
Redeemed (17,823) (198,771) -- --
----------- ------------- ----------- ------------
Net increase 514,164 $ 5,782,628 -- $ --
=========== ============= =========== =============
</TABLE>
1. For the year ended June 30, 1996 for Class A and Class B shares and for the
period from November 1, 1995 (inception of offering) to June 30, 1996 for Class
<PAGE>
C shares.
18 Oppenheimer Equity Income Fund
<PAGE>
================================================================================
3. Unrealized Gains and
Losses On Investments
At June 30, 1996, net unrealized appreciation on investments of $468,135,267 was
composed of gross appreciation of $484,273,537, and gross depreciation of
$16,138,270.
================================================================================
4. Management Fees and
Other Transactions
With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.75% on the first
$100 million of average annual net assets with a reduction of 0.05% on each $100
million thereafter, to 0.50% 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, 1996, commissions (sales charges paid by
investors) on sales of Class A shares totaled $4,966,513, of which $1,546,454
was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $2,939,846 and $55,998, of which $227,772 and $1,807,
respectively, was paid to an affiliated broker/dealer. During the year ended
June 30, 1996, OFDI received contingent deferred sales charges of $360,582 and
$1,547, respectively, upon redemption of Class B and Class C shares as
reimbursement for sales commissions advanced by OFDI at the time of sale of such
shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer
and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
Under separate approved plans, each class may expend up to 0.25% of its net
assets annually to compensate 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 and Class C shares are subject to an asset-based sales charge
of 0.75% of net assets annually, to compensate 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 or Class C plan, the
Board of Trustees may allow the Fund to continue payment of the asset-based
sales charge to OFDI for distribution expenses incurred on Class B or Class C
shares sold prior to termination or discontinuance of the plan. At June 30,
1996, OFDI had incurred unreimbursed expenses of $7,770,045 for Class B and
$92,125 for Class C. During the year ended June 30, 1996, OFDI paid $248,431 and
$34,064, respectively, to an affiliated broker/dealer as compensation for Class
A and Class B personal service and maintenance expenses, and retained $1,728,635
and $16,702, respectively, as compensation for Class B and Class C sales
commissions and service fee advances, as well as financing costs.
================================================================================
5. Illiquid and
Restricted Securities
At June 30, 1996, investments in 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. A security may also be considered
illiquid if its valuation has not changed for a certain period of time. The Fund
intends to invest no more than 10% of its net assets (determined at the time of
purchase and reviewed from time to time) in illiquid or restricted securities.
The aggregate value of these securities subject to this limitation at June 30,
1996 was $7,621,250, which represents 0.32% of the Fund's net assets.
Information concerning these securities is as follows:
<TABLE>
<CAPTION>
Valuation Per Unit
Security Acquisition Date Cost Per Unit as of June 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Case Equipment Corp., Cum. Cv., Series A 6/30/94 $50.09 $117.25
</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>
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 August 31,
1996, the statements of operations for the two months then ended and the year
ended June 30, 1996, the statements of changes in net assets for the two months
ended August 31, 1996 and the years ended June 30, 1996 and 1995, and the
financial highlights for the period July 1, 1991 to August 31, 1996. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
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 August
31, 1996 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 August 31, 1996, 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.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
September 23, 1996
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments August 31, 1996
Face Market Value
Amount(1) See Note 1
===================================================================================================================================
<S> <C> <C>
U.S. Government Obligations--5.3%
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, Zero Coupon, 7.20%, 8/15/08(2) $ 150,000,000 $ 64,349,693
---------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., STRIPS, Zero Coupon, 6.78%, 2/15/04(2) 102,500,000 61,708,688
--------------
Total U.S. Government Obligations (Cost $126,743,872) 126,058,381
===================================================================================================================================
Foreign Government Obligations--4.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Past Due Interest Bonds, Series L, 6.312%, 3/31/05(3) 6,435,000 5,007,235
---------------------------------------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior SNC
International Finance BV Gtd. Nts., 8%, 8/5/03 9,000,000 7,970,625
---------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of) Capitalization Bonds, 8%, 4/15/14 10,824,321 6,985,065
---------------------------------------------------------------------------------------------------------------
Bulgaria (Republic of) Interest Arrears Bonds, 6.688%, 7/28/11(3) 17,000,000 7,607,500
---------------------------------------------------------------------------------------------------------------
Canada (Government of) Real Return Debs., 4.517%, 12/1/21(4) CAD 19,800,000 14,328,332
---------------------------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03 AUD 9,900,000 8,273,813
---------------------------------------------------------------------------------------------------------------
Quebec, Canada (Province of) Debs., 10.25%, 4/7/98 CAD 10,000,000 7,871,276
---------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Exchangeable Gtd. Nts., 8%, 8/14/01 AUD 33,650,000 27,024,327
---------------------------------------------------------------------------------------------------------------
South Australia (Government of) Bonds, 9%, 9/23/02 AUD 3,000,000 2,483,479
---------------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Front-Loaded Interest Reduction Bonds:
Series A, 6.375%, 3/31/07(3) 14,250,000 11,008,125
Series B, 6.50%, 3/31/07(3) 2,250,000 1,738,125
--------------
Total Foreign Government Obligations (Cost $96,763,028) 100,297,902
===================================================================================================================================
Non-Convertible Corporate Bonds and Notes--5.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(3) 5,000,000 7,087,730
---------------------------------------------------------------------------------------------------------------
Banco Bamerindus do Brasil SA:
11% Sr. Unsub. Unsec. Bonds, 10/6/97 465,000 454,537
11% Unsub. Unsec. Nts., 11/24/97 646,000 631,465
9% Unsub. Unsec. Bonds, 10/29/98 1,500,000 1,365,000
---------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 10.75% Sr. Sub. Nts., Series B, 9/1/03 5,000,000 5,212,500
---------------------------------------------------------------------------------------------------------------
California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04(5) 4,350,000 4,371,750
---------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125% Sr. Nts., 4/15/06 4,000,000 3,950,000
---------------------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000 6,300,000
---------------------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05 6,350,000 6,238,875
---------------------------------------------------------------------------------------------------------------
El Paso Electric Co., 9.40% First Mtg. Bonds, Series E, 5/1/11 6,000,000 6,067,500
---------------------------------------------------------------------------------------------------------------
Falcon Drilling, Inc., 8.875% Sr. Nts., Series B, 3/15/03 5,850,000 5,703,750
---------------------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., 6/15/06(6) 5,000,000 4,956,250
---------------------------------------------------------------------------------------------------------------
Granite Broadcasting Corp., 9.375% Sr. Sub. Nts., Series A, 12/1/05 5,000,000 4,787,500
---------------------------------------------------------------------------------------------------------------
Heritage Media Corp., 8.75% Sr. Sub. Nts., 2/15/06 4,500,000 4,252,500
---------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 9.50% Sr. Sec. Nts., Series B, 5/15/05 5,000,000 4,900,000
---------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 9.25% Sr. Sub. Gtd. Nts., 2/1/06 5,000,000 4,750,000
---------------------------------------------------------------------------------------------------------------
Magellan Health Services, Inc., 11.25% Sr. Sub. Nts., Series A, 4/15/04 8,250,000 8,868,750
---------------------------------------------------------------------------------------------------------------
MagneTek, Inc., 10.75% Sr. Sub. Debs., 11/15/98 3,000,000 3,015,000
</TABLE>
6 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount(1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-Convertible Corporate
Bonds and Notes
(continued)
MFS Communications Co., Inc., 0%/9.375% Sr. Disc Nts., 1/15/04(5) $ 4,500,000 $ 3,667,500
---------------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp., 0%/11.375% Sr Sub. Disc. Nts., 8/1/03(5) 3,750,000 3,337,500
---------------------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03 9,000,000 9,067,500
---------------------------------------------------------------------------------------------------------------
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 7,000,000 7,542,500
---------------------------------------------------------------------------------------------------------------
Sociedad Comercial del Plata SA, 11.50% Medium-Term Nts., 5/9/00 1,600,000 1,610,000
---------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.625% Sr. Sub. Nts., 6/1/03 2,700,000 2,605,500
---------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 10.125% Sr. Sub. Nts., 3/1/05 5,000,000 5,393,750
---------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(6) 2,500,000 1,937,500
---------------------------------------------------------------------------------------------------------------
Triton Energy Corp., 0%/9.75% Sr. Sub. Disc. Nts., 12/15/00(5) 3,500,000 3,495,625
---------------------------------------------------------------------------------------------------------------
Viacom International, Inc., 10.25% Sr. Sub. Nts., 9/15/01 12,000,000 12,891,035
---------------------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 8.75% Sr. Nts., 12/15/01 6,000,000 6,037,500
--------------
Total Non-Convertible Corporate Bonds and Notes (Cost $136,889,691) 140,499,017
===================================================================================================================================
Convertible Corporate Bonds and Notes--3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
ALZA Corp., 5% Cv. Sub. Debs., 5/1/06 10,000,000 9,787,500
---------------------------------------------------------------------------------------------------------------
Box Energy Corp., 8.25% Cv. Sub. Nts., 12/1/02 5,000,000 5,112,500
---------------------------------------------------------------------------------------------------------------
Cooper Industries, Inc., 7.05% Cv. Unsec. Sub. Bonds, 1/1/15 6,741,000 7,044,345
---------------------------------------------------------------------------------------------------------------
Inco Ltd.:
5.75% Cv. Debs., 7/1/04 9,700,000 12,270,500
7.75% Cv. Debs., 3/15/16 9,800,000 10,412,500
---------------------------------------------------------------------------------------------------------------
Integrated Device Technology, Inc., 5.50% Cv. Sub. Nts., 6/1/02 7,000,000 5,398,750
---------------------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon Cv
Exchangeable Sub. Debs., 5.25%, 10/30/15(2)(6) 19,500,000 7,312,500
---------------------------------------------------------------------------------------------------------------
Oryx Energy Co., 7.50% Cv. Sub. Debs., 5/15/14 7,000,000 6,247,500
---------------------------------------------------------------------------------------------------------------
Stone Container Corp., 8.875% Cv. Sr. Sub. Nts., 7/15/00 3,000,000 4,038,750
---------------------------------------------------------------------------------------------------------------
VLSI Technology, Inc., 8.25% Cv. Sub. Nts., 10/1/05 11,800,000 10,693,750
--------------
Total Convertible Corporate Bonds and Notes (Cost $74,305,048) 78,318,595
Shares
===================================================================================================================================
Common Stocks--53.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Materials--3.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--1.5%
Dexter Corp. 400,000 11,650,000
---------------------------------------------------------------------------------------------------------------
Dow Chemical Co. (The) 100,000 7,975,000
---------------------------------------------------------------------------------------------------------------
Du Pont (E.I.) De Nemours & Co. 200,000 16,425,000
--------------
36,050,000
- -----------------------------------------------------------------------------------------------------------------------------------
Metals--0.2%
Reynolds Metals Co. 100,000 5,350,000
- -----------------------------------------------------------------------------------------------------------------------------------
Paper--1.3%
Union Camp Corp. 200,000 9,700,000
---------------------------------------------------------------------------------------------------------------
Westvaco Corp. 375,000 10,734,375
---------------------------------------------------------------------------------------------------------------
Weyerhaeuser Co. 250,000 11,156,250
--------------
31,590,625
</TABLE>
7 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Cyclicals--5.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Autos & Housing--2.4%
Ford Motor Co. 500,000 $ 16,750,000
---------------------------------------------------------------------------------------------------------------
General Motors Corp. 400,000 19,900,000
---------------------------------------------------------------------------------------------------------------
Snap-On, Inc. 450,000 20,531,250
--------------
57,181,250
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment--1.7%
AMR Corp.(7) 189,900 15,571,800
---------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc. 348,640 24,709,860
--------------
40,281,660
- -----------------------------------------------------------------------------------------------------------------------------------
Retail: General--0.9%
Sears Roebuck & Co. 500,000 22,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare/Drugs--1.2%
American Home Products Corp. 200,000 11,850,000
---------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 200,000 17,550,000
<PAGE>
--------------
29,400,000
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco--3.3%
Philip Morris Cos., Inc. 600,000 53,850,000
---------------------------------------------------------------------------------------------------------------
RJR Nabisco Holdings Corp. 350,000 9,231,250
---------------------------------------------------------------------------------------------------------------
UST, Inc. 500,000 15,000,000
--------------
78,081,250
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--2.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Oil-Integrated--2.4%
Mobil Corp. 100,000 11,275,000
---------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 400,000 9,300,000
---------------------------------------------------------------------------------------------------------------
Phillips Petroleum Co. 300,000 12,150,000
---------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 100,000 14,937,500
---------------------------------------------------------------------------------------------------------------
Texaco, Inc. 100,000 8,875,000
--------------
56,537,500
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--28.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Banks--22.8%
Banc One Corp. 770,000 29,548,750
---------------------------------------------------------------------------------------------------------------
Bank of Boston Corp. 505,636 26,672,299
---------------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 792,838 22,100,359
---------------------------------------------------------------------------------------------------------------
BankAmerica Corp. 600,000 46,500,000
---------------------------------------------------------------------------------------------------------------
Bankers Trust New York Corp. 100,000 7,775,000
---------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New) 1,122,000 83,448,750
---------------------------------------------------------------------------------------------------------------
Citicorp 741,398 61,721,383
---------------------------------------------------------------------------------------------------------------
Commonwealth Bank, ADR(6)(7) 305,333 4,923,495
---------------------------------------------------------------------------------------------------------------
Crestar Financial Corp. 275,000 15,984,375
---------------------------------------------------------------------------------------------------------------
First Chicago NBD Corp. 452,500 19,287,812
---------------------------------------------------------------------------------------------------------------
First Union Corp. 839,055 53,594,638
---------------------------------------------------------------------------------------------------------------
Fleet Financial Group, Inc. 400,000 16,700,000
---------------------------------------------------------------------------------------------------------------
Great Western Financial Corp. 600,000 14,850,000
---------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp. 500,000 17,812,500
</TABLE>
8 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Banks (continued)
KeyCorp 400,000 $ 16,050,000
---------------------------------------------------------------------------------------------------------------
Klamath First Bancorp, Inc. 270,000 3,813,750
---------------------------------------------------------------------------------------------------------------
Magna Group, Inc. 400,000 9,950,000
---------------------------------------------------------------------------------------------------------------
Mellon Bank Corp. 450,000 24,918,750
---------------------------------------------------------------------------------------------------------------
National City Corp. 500,000 18,812,500
---------------------------------------------------------------------------------------------------------------
PNC Bank Corp. 301,600 9,425,000
---------------------------------------------------------------------------------------------------------------
Signet Banking Corp. 400,000 9,650,000
---------------------------------------------------------------------------------------------------------------
Summit Bancorp 500,000 19,375,000
---------------------------------------------------------------------------------------------------------------
U.S. Bancorp, Inc. 245,000 9,371,250
--------------
542,285,611
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial--1.5%
American Express Co. 600,000 26,250,000
---------------------------------------------------------------------------------------------------------------
Capital One Financial Corp. 300,000 9,037,500
--------------
35,287,500
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance--4.4%
Allstate Corp. 724,432 32,327,778
---------------------------------------------------------------------------------------------------------------
American General Corp. 500,000 18,250,000
---------------------------------------------------------------------------------------------------------------
American States Financial Corp. 550,000 12,650,000
---------------------------------------------------------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 248,000 6,045,000
---------------------------------------------------------------------------------------------------------------
GCR Holdings Ltd. 100,000 2,300,000
---------------------------------------------------------------------------------------------------------------
IPC Holdings Ltd. 419,000 8,641,875
---------------------------------------------------------------------------------------------------------------
ITT Hartford Group, Inc. 150,000 7,912,500
---------------------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc. 2,141,500 16,864,313
--------------
104,991,466
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial--3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--0.8%
AMP, Inc. 500,000 19,125,000
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing--2.5%
Keystone International, Inc. 300,000 6,037,500
---------------------------------------------------------------------------------------------------------------
<PAGE>
Minnesota Mining & Manufacturing Co. 400,000 27,500,000
---------------------------------------------------------------------------------------------------------------
Tenneco, Inc. 500,000 24,875,000
--------------
58,412,500
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--1.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--0.5%
United Technologies Corp. 100,000 11,275,000
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics--0.3%
Tektronix, Inc. 200,000 7,750,000
- -----------------------------------------------------------------------------------------------------------------------------------
Telecommunications-
Technology--0.3%
ICG Communications, Inc.(7)(8) 310,500 6,526,322
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--5.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--3.6%
Allegheny Power System, Inc. 300,000 8,887,500
---------------------------------------------------------------------------------------------------------------
Central & South West Corp. 400,000 10,550,000
---------------------------------------------------------------------------------------------------------------
DTE Energy Co. 300,000 8,550,000
---------------------------------------------------------------------------------------------------------------
Entergy Corp. 550,000 13,956,250
---------------------------------------------------------------------------------------------------------------
Florida Progress Corp. 500,000 17,312,500
---------------------------------------------------------------------------------------------------------------
Ohio Edison Co. 400,000 8,400,000
---------------------------------------------------------------------------------------------------------------
Potomac Electric Power Co. 400,000 9,850,000
---------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado 200,000 7,125,000
--------------
84,631,250
</TABLE>
9 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gas Utilities--0.3%
NorAm Energy Corp. 225,000 $ 3,290,625
---------------------------------------------------------------------------------------------------------------
Pacific Enterprises 150,000 4,481,250
--------------
7,771,875
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone Utilities--1.9%
GTE Corp. 500,000 19,687,500
---------------------------------------------------------------------------------------------------------------
Portugal Telecom SA, Sponsored ADR(7) 410,000 10,916,250
---------------------------------------------------------------------------------------------------------------
SBC Communications, Inc. 300,000 13,987,500
--------------
44,591,250
--------------
Total Common Stocks (Cost $891,178,615) 1,279,120,059
===================================================================================================================================
Preferred Stocks--4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Armco, Inc., $3.625 Cum. Cv 200,000 9,050,000
---------------------------------------------------------------------------------------------------------------
Banco Commercial Portuguese International Bank Ltd.,
8% Cv. Preferred Stock, Series A 396,000 19,701,000
---------------------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc. $3.75 Cv., Series B 180,000 9,427,500
---------------------------------------------------------------------------------------------------------------
Fidelity Federal Bank, 12% Non-Cum. Exchangeable
Perpetual Preferred Stock, Series A 100,000 2,750,000
---------------------------------------------------------------------------------------------------------------
First Chicago NBD Corp., Depositary Shares
(each representing a one-hundredth interest in a
share of 5.75% cum. cv. preferred stock, series B) 135,000 9,686,250
---------------------------------------------------------------------------------------------------------------
Glendale Federal Bank, F.S.B., 8.75% Non-Cum. Cv., Series E 200,000 9,400,000
---------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp., $3.875 Cum. Cv. (6) 400,000 22,500,000
---------------------------------------------------------------------------------------------------------------
Sovereign Bancorp, Inc., 6.25% Cv., Series B 36,500 2,139,813
---------------------------------------------------------------------------------------------------------------
Valero Energy Corp., 6.25% Cv. Preferred 200,000 9,725,000
---------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc., $6.00 Non-Cum. Cv. Perpetual Preferred Stock, Series D 96,800 13,600,400
--------------
Total Preferred Stocks (Cost $98,771,850) 107,979,963
===================================================================================================================================
Other Securities--9.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Allstate Corp., $2.30 Debt Exchangeable for Common Stock of PMI Group, Inc. 111,000 4,884,000
---------------------------------------------------------------------------------------------------------------
American Express Co., Debt Exchangeable for
Common Stock of First Data Corp., 6.25%, 10/15/96 200,000 12,800,000
---------------------------------------------------------------------------------------------------------------
American General Delaware, LLC, $3.00 Cv
Monthly Income Preferred Securities, Series A 75,000 3,937,500
---------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Nts. for
Common Stock of Lyondell Petrochemical Co., 9/15/97 400,000 9,150,000
---------------------------------------------------------------------------------------------------------------
Browning-Ferris Industries, Inc., 7.25% Cv
Automatic Common Exchangeable Securities 225,000 6,637,500
---------------------------------------------------------------------------------------------------------------
Continental Airlines Finance Trust,
8.50% Cv. Trust Originated Preferred Securities(6) 250,000 13,250,000
---------------------------------------------------------------------------------------------------------------
Corning Delaware LP, 6% Cv. Monthly Income Preferred Securities 150,000 8,325,000
</TABLE>
10 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Securities
(continued)
Elsag Bailey Financing Trust, 5.50% Cv
Trust Originated Preferred Securities(6) 250,000 $ 11,187,500
---------------------------------------------------------------------------------------------------------------
Enron Corp., 6.25% Cv. Automatic Common Exchangeable
Securities, redeemable into Enron Oil & Gas Co. Common Stock 270,000 6,581,250
---------------------------------------------------------------------------------------------------------------
Hollinger International, Inc., 9.75% Preferred Redeemable
Increased Dividend Equity Securities, Cv., 8/1/00 500,000 5,375,000
---------------------------------------------------------------------------------------------------------------
James River Corp. of Virginia, Depositary Shares each
representing a one-hundredth interest in a share of Series P,
9% Cum. Cv. Preferred Stock, Dividend Enhanced Convertible Stock 700,000 17,412,500
---------------------------------------------------------------------------------------------------------------
MCN Corp., 8.75% Cv. Preferred Redeemable
Increased Dividend Equity Securities 135,000 3,746,250
---------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6% Cv. Structured Yield Product
Exchangeable for Common Stock of Cox Communications, Inc., 6/1/99 400,000 8,350,000
---------------------------------------------------------------------------------------------------------------
NorAm Financing I, 6.25% Cv. Gtd. Trust Originated Preferred Securities 85,000 5,270,000
---------------------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly
Income Preferred Securities, Non-Vtg.(6) 200,000 10,362,500
---------------------------------------------------------------------------------------------------------------
Reynolds Metals Co., 7% Preferred Redeemable Increased
Dividend Equity Securities, $3.31 Cv., 12/31/97 160,000 7,620,000
---------------------------------------------------------------------------------------------------------------
RJR Nabisco Holdings Corp., $6.50 Cv., Series C 4,315,000 23,193,125
---------------------------------------------------------------------------------------------------------------
Salomon, Inc., 7.625% Cv. Preferred, Debt Exchangeable
for Common Stock of Financial Security Assurance Holdings Ltd. 460,000 12,995,000
---------------------------------------------------------------------------------------------------------------
Santa Fe Energy Resources, Inc., 8.25% Dividend Enhanced Convertible Stock(9) 805,000 8,754,375
---------------------------------------------------------------------------------------------------------------
U S West, Inc., 7.625% Cv. Debt Exchangeable for
Common Stock of Enhance Financial Services Group, Inc. 415,000 11,256,875
---------------------------------------------------------------------------------------------------------------
U.S. Surgical Corp., $2.20 Depositary Shares representing
one-fiftieth share of Series A Preferred Stock 550,000 19,800,000
---------------------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., $1.30 Cv., Participating Equity
Preferred Stock, Series C(6) 600,000 9,375,000
--------------
Total Other Securities (Cost $199,428,913) 220,263,375
Face
Amount(1)
===================================================================================================================================
Structured Instruments--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Canadian Imperial Bank of Commerce, New York Branch, 18.50% CD
Linked Nts., 9/18/96 (indexed to the Federation GKO, Zero Coupon, 9/11/96) $ 3,500,000 3,501,400
---------------------------------------------------------------------------------------------------------------
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, 5.54%, 9/1/97 and an interest rate swap
between Credit Suisse Financial Products and the Trust](6) 4,000,000 3,923,556
--------------
Total Structured Instruments (Cost $7,500,000) 7,424,956
</TABLE>
11 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Face Market Value
Amount(1) See Note 1
===================================================================================================================================
<S> <C> <C>
Repurchase Agreement--12.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Goldman, Sachs & Co., 5 25%, dated
8/30/96, to be repurchased at $305,478,092 on 9/3/96,
collateralized by U.S. Treasury Bonds, 8.75%--10.375%,
5/15/17--11/15/12, with a value
of $312,619,141 (Cost $305,300,000) $ 305,300,000 $ 305,300,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $1,936,881,017) 99.5% 2,365,262,248
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.5 12,154,306
-------------- --------------
Net Assets 100.0% $2,377,416,554
============== ==============
</TABLE>
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
AUD--Australian Dollar
CAD--Canadian Dollar
2. For zero coupon bonds, the interest rate shown is the effective yield on
the date of purchase.
3. Represents the current interest rate for a variable rate security.
4. Indexed instrument for which the principal amount and/or interest due at
maturity is affected by the relative value of a foreign index.
5. Denotes a step bond: a zero coupon bond that converts to a fixed rate of
interest at a designated future date.
6. 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 $89,728,301 or 3.77% of the Fund's
net assets, at August 31, 1996.
7. Non-income producing security.
8. Identifies issues considered to be illiquid--See Note 5 of Notes to
Financial Statements.
<PAGE>
9. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended August 31,
1996. The aggregate fair value of all securities of affiliated companies as
of August 31, 1996 amounted to $8,754,375. Transactions during the period
in which the issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
Balance June 30, 1996 Gross Additions Gross Reductions Balance August 31, 1996 Dividend
----------------------- --------------- ---------------- ----------------------- ---------
Shares Cost Shares Cost Shares Cost Shares Cost Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Santa Fe Energy Resources, Inc.,
8.25% Dividend Enhanced
Convertible Stock 805,000 $7,144,375 -- $-- -- $-- 805,000 $7,144,375 $147,315
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities August 31, 1996
===================================================================================================================================
<S> <C> <C>
Assets Investments, at value (including repurchase agreement of
$305,300,000) --see accompanying statement:
Unaffiliated companies (cost $1,929,736,642) $2,356,507,873
Affiliated companies (cost $7,144,375) 8,754,375
---------------------------------------------------------------------------------------------------------------
Receivables:
Interest and dividends 13,714,369
Investments sold 4,504,586
Shares of beneficial interest sold 1,064,370
---------------------------------------------------------------------------------------------------------------
Other 27,351
--------------
Total assets 2,384,572,924
--------------
===================================================================================================================================
Liabilities Bank overdraft 457,618
---------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 5,110,847
Distribution and service plan fees 791,028
Shareholder reports 356,453
Transfer and shareholder servicing agent fees 153,759
Trustees' fees 3,234
Other 283,431
--------------
Total liabilities 7,156,370
--------------
Net Assets $2,377,416,554
==============
===================================================================================================================================
Composition of Paid-in capital $1,858,826,553
Net Assets ---------------------------------------------------------------------------------------------------------------
Undistributed net investment income 10,933,236
---------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 79,266,067
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies 428,390,698
--------------
Net assets $2,377,416,554
==============
===================================================================================================================================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets
of $2,110,465,031 and 185,740,752 shares of beneficial interest outstanding) $ 11.36
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $ 12.05
---------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $259,569,757 and 22,998,516 shares of beneficial interest outstanding) $ 11.29
---------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $7,381,766 and 653,028 shares of beneficial interest outstanding) $ 11.30
</TABLE>
See accompanying Notes to Financial Statements
13 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
Two Months Year Ended
Ended Aug. 31, June 30,
1996(1) 1996
===================================================================================================================================
<S> <C> <C>
Investment Income Interest $11,492,450 $68,337,314
Foreign withholding taxes (3,184) --
---------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies 9,821,466 52,732,474
Foreign withholding taxes -- (259,580)
Affiliated companies 147,315 1,464,260
----------- -------------
Total income 21,458,047 122,274,468
===================================================================================================================================
Expenses Management fees--Note 4 2,134,834 12,078,956
---------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 693,619 3,872,138
Class B 432,504 2,077,724
Class C 11,319 16,702
<PAGE>
---------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 570,503 2,688,008
---------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 129,599 53,250
Class B 23,747 33,448
Class C 966 2,141
---------------------------------------------------------------------------------------------------------------
Shareholder reports 82,094 608,737
---------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 11,234 66,081
---------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 9,200 165,431
---------------------------------------------------------------------------------------------------------------
Insurance expenses 6,355 42,476
---------------------------------------------------------------------------------------------------------------
Legal and auditing fees 6,018 80,779
---------------------------------------------------------------------------------------------------------------
Other 19,699 167,101
----------- -------------
Total expenses 4,131,691 21,952,972
===================================================================================================================================
Net Investment Income 17,326,356 100,321,496
----------- -------------
===================================================================================================================================
Realized and Net realized gain (loss) on:
Unrealized Investments 19,243,143 75,856,513
Gain (Loss) Foreign currency transactions (4,723,329) (4,049,609)
----------- -------------
Net realized gain 14,519,814 71,806,904
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (44,560,796) 198,519,095
Translation of assets and liabilities
denominated in foreign currencies 4,806,865 8,097,685
----------- -------------
Net change (39,753,931) 206,616,780
----------- -------------
Net realized and unrealized gain (loss) (25,234,117) 278,423,684
----------- -------------
===================================================================================================================================
Net Increase (Decrease) in Net Assets Resulting From Operations $(7,907,761) $ 378,745,180
=========== =============
</TABLE>
1. The Fund changed its fiscal year end from June 30 to August 31. See
accompanying Notes to Financial Statements.
14 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Two Months Year Ended June 30,
Ended Aug. 31, ------------------------------
1996(1) 1996 1995
===================================================================================================================================
<S> <C> <C> <C>
Operations Net investment income $17,326,356 $100,321,496 $97,932,280
--------------------------------------------------------------------------------------------------------------------
Net realized gain 14,519,814 71,806,904 33,525,676
--------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (39,753,931) 206,616,780 153,278,187
-------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations (7,907,761) 378,745,180 284,736,143
===================================================================================================================================
Dividends and Dividends from net investment income:
Distributions Class A -- (88,933,508) (88,319,907)
to Class B -- (7,653,335) (5,380,964)
Shareholders Class C -- (81,369) --
--------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A -- (45,033,840) (23,241,171)
Class B -- (4,472,521) (1,584,662)
Class C -- (15,717) --
===================================================================================================================================
Beneficial Net increase (decrease) in net assets resulting from Interest
beneficial interest transactions--Note 2:
Transactions Class A (23,541,609) 35,013,412 (34,706,185)
Class B 8,288,875 70,965,886 62,397,726
Class C 1,564,603 5,782,628 --
===================================================================================================================================
Net Assets Total increase (decrease) (21,595,892) 344,316,816 193,900,980
--------------------------------------------------------------------------------------------------------------------
Beginning of period 2,399,012,446 2,054,695,630 1,860,794,650
-------------- -------------- --------------
End of period [including undistributed (overdistributed)
net investment income of $10,933,236, $2,274,563
and $(970,447), respectively] $2,377,416,554 $2,399,012,446 $2,054,695,630
============== ============== ==============
</TABLE>
1. The Fund changed its fiscal year end from June 30 to August 31 See
accompanying Notes to Financial Statements.
15 Oppenheimer Equity Income Fund
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
-----------------------------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994 1993 1992
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $11.39 $10.25 $9.44 $10.01 $9.15 $8.86
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .09 .50 .50 .47 .50 .50
<PAGE>
Net realized and unrealized gain (loss) (.12) 1.36 .92 (.39) .99 .39
------ ------ ------ ----- ------ -----
Total income (loss) from
investment operations (.03) 1.86 1.42 .08 1.49 .89
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.48) (.48) (.47) (.48) (.48)
Dividends in excess of net investment income -- -- -- (.01) -- --
Distributions from net realized gain -- (.24) (.13) (.12) (.15) (.12)
Distributions in excess of net realized gain -- -- -- (.05) -- --
------ ------ ------ ----- ------ -----
Total dividends and distributions
to shareholders -- (.72) (.61) (.65) (.63) (.60)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.36 $11.39 $10.25 $9.44 $10.01 $9.15
====== ====== ====== ===== ====== =====
===================================================================================================================================
Total Return, at Net Asset Value(4) (0.26)% 18.61% 15.66% 0.65% 16.76% 10.26%
===================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in millions) $2,110 $2,141 $1,893 $1,773 $1,790 $1,556
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $2,109 $2,054 $1,798 $1,832 $1,658 $1,526
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.28%(5) 4.51% 5.15% 4.72% 5.12% 5.33%
Expenses 0.94%(5) 0.89% 0.96% 0.90% 0.79% 0.82%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 13.5% 42.9% 45.7% 30.4% 59.0% 37.0%
Average brokerage commission rate(7) $0.0587 $0.0592 -- -- -- --
<CAPTION>
Financial Highlights (Continued)
Class B Class C
------------------------------------------------- ----------------------
Two Months Two Months Period
Ended Ended Ended
August 31, Year Ended June 30, August 31, June 30,
1996(2) 1996 1995 1994(3) 1996(2) 1996(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $11.33 $10.21 $9.40 $10.22 $11.35 $10.76
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .07 .41 .43 .36 .07 .28
Net realized and unrealized gain (loss) (.11) 1.35 .91 (.58) (.12) .88
------ ------ ------ ----- ------ ------
Total income (loss) from
investment operations (.04) 1.76 1.34 (.22) (.05) 1.16
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.40) (.40) (.42) -- (.33)
Dividends in excess of net investment income -- -- -- (.01) -- --
Distributions from net realized gain -- (.24) (.13) (.12) -- (.24)
Distributions in excess of net realized gain -- -- -- (.05) -- --
------ ------ ------ ----- ------ ------
Total dividends and distributions
to shareholders -- (.64) (.53) (.60) -- (.57)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.29 $11.33 $10.21 $9.40 $11.30 $11.35
====== ====== ====== ===== ====== ======
================================================================================================================================
Total Return, at Net Asset Value(4) (0.35)% 17.58% 14.87% (2.35)% (0.44)% 10.50%
================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in millions) $260 $252 $161 $88 $7 $6
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $255 $208 $122 $47 $7 $3
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.48%(5) 3.68% 4.34% 3.99%(5 2.55%(5) 3.53%(5)
Expenses 1.76%(5) 1.72% 1.79% 1.82%(5 1.79%(5) 1.81%(5)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 13.5% 42.9% 45.7% 30.4% 13.5% 42.9%
Average brokerage commission rate(7) $0.0587 $0.0592 -- -- $0.0587 $0.0592
</TABLE>
1. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
2. The Fund changed its fiscal year end from June 30 to August 31.
3. For the period from August 17, 1993 (inception of offering) to June 30,
1994.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in
the total returns. Total returns are not annualized for periods of less
than one full year.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended August 31, 1996 were
$293,833,873 and $502,985,239, respectively.
7. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period divided by the total number of related
shares purchased and sold.
See accompanying Notes to Financial Statements.
16 & 17 Oppenheimer Equity Income Fund
<PAGE>
Notes to Financial Statements
================================================================================
1. Significant
Accounting Policies
Oppenheimer Equity Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. On August 27, 1996, the Board of Trustees elected to change
the fiscal year end of the Fund from June 30 to August 31. Accordingly, these
financial statements include information for the two month period from July 1,
<PAGE>
1996 to August 31, 1996. The Fund's investment objective is to seek as much
current income as is compatible with prudent investment. The Fund's investment
adviser is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class
B and Class C shares. Class A shares are sold with a front-end sales charge.
Class B and Class C shares may be subject to a contingent deferred sales charge.
All classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own distribution and/or service plan,
expenses directly attributable to 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
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 are valued under
consistently applied procedures established by the Board of Trustees to
determine fair value in good faith. Short-term "money market type" debt
securities having a remaining maturity of 60 days or less are valued at cost (or
last determined market value) adjusted for amortization to maturity of any
premium or discount.
- --------------------------------------------------------------------------------
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 Statement of Operations.
- --------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, and Gains and Losses. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
18 Oppenheimer Equity Income Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
1. Significant
Accounting Policies
(continued)
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of the distributions made during the year from net
investment income or net realized gains may differ from the 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. In addition, to properly reflect foreign currency loss in the components
of capital, $4,504,000 of foreign exchange loss determined according to U.S.
federal income tax rules has been reclassified from net realized loss to
undistributed net investment income.
During the two months ended August 31, 1996, the Fund adjusted the
classification of distributions to shareholders to reflect the differences
between the financial statement amounts and distributions determined in
accordance with income tax regulations. Accordingly, during the two months ended
August 31, 1996, amounts have been reclassified to reflect a decrease in
undistributed net investment income and an increase in accumulated net realized
gain on investments of $4,163,684.
- --------------------------------------------------------------------------------
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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================================
2. Shares of
Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Two Months Ended Aug. 31, 1996(2) Year Ended June 30, 1996(1) Year Ended June 30, 1995
--------------------------------- --------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A:
Sold 3,550,795 $ 40,479,520 20,146,940 $223,283,409 19,327,605 $207,336,132
Dividends and distributions
reinvested -- -- 11,433,753 125,568,723 11,012,028 83,402,034
Redeemed (5,703,125) (64,021,129) (28,310,542) (313,838,720) (33,557,623) (325,444,351)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) (2,152,330) $(23,541,609) 3,270,151 $35,013,412 (3,217,990) $(34,706,185)
============ ============ ============ ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,234,485 $13,913,799 8,424,677 $92,863,112 7,529,176 $72,586,104
Dividends and distributions
reinvested -- -- 1,014,528 11,086,597 670,317 6,342,433
Redeemed (503,549) (5,624,924) (2,987,292) (32,983,823) (1,724,724) (16,530,811)
------------ ------------ ------------ ------------ ------------ ------------
Net increase 730,936 $8,288,875 6,451,913 $70,965,886 6,474,769 $62,397,726
============ ============ ============ ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 153,840 $1,732,419 523,531 $5,887,218 -- $--
Dividends and distributions
reinvested -- -- 8,456 94,181 -- --
Redeemed (14,976) (167,816) (17,823) (198,771) -- --
------------ ------------ ------------ ------------ ------------ -----------
Net increase 138,864 $1,564,603 514,164 $5,782,628 -- $--
============ ============ ============ ============ ============ ===========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. For the year ended June 30, 1996 for Class A and Class B shares and
for the period from November 1, 1995 (inception of offering) to June
30, 1996 for Class C shares.
2. The Fund changed its fiscal year end from June 30 to August 31.
19 Oppenheimer Equity Income Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
3. Unrealized Gains and
Losses on Investments
At August 31, 1996, net unrealized appreciation on investments of $428,381,231
was composed of gross appreciation of $451,459,716, and gross depreciation of
$23,078,485.
================================================================================
4. Management Fees and
Other Transactions
With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.75% of the first
$100 million of 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 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 two months ended August 31, 1996, commissions (sales charges paid
by investors) on sales of Class A shares totaled $632,850, of which $218,008 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $489,862 and $15,300, of which $43,178 was paid to an
affiliated broker/dealer for Class B. During the two months ended August 31,
1996, OFDI received contingent deferred sales charges of $70,589 upon redemption
of Class B shares as reimbursement for sales commissions advanced by OFDI at the
time of sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer
and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
Under separate approved plans, each class may expend up to 0.25% of its net
assets annually to compensate 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 and Class C shares are subject to an asset-based sales charge
of 0.75% of net assets annually, to compensate 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 or Class C plan, the
Board of Trustees may allow the Fund to continue payment of the asset-based
sales charge to OFDI for distribution expenses incurred on Class B or Class C
shares sold prior to termination or discontinuance of the plan. During the two
months ended August 31, 1996, OFDI paid $44,931 and $6,798, respectively, to an
affiliated broker/dealer as compensation for Class A and Class B personal
service and maintenance expenses, and retained $355,295 and $9,940,
respectively, as compensation for Class B and Class C sales commissions and
service fee advances, as well as financing costs. At August 31, 1996, OFDI had
incurred unreimbursed expenses of $8,245,976 for Class B and $122,658 for Class
C.
================================================================================
5. Illiquid and
Restricted Securities
At August 31, 1996, investments in 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. A security may also be considered
illiquid if its valuation has not changed for a certain period of time. The Fund
intends to invest no more than 10% of its net assets (determined at the time of
purchase and reviewed from time to time) in illiquid or restricted securities.
The aggregate value of these securities subject to this limitation at August 31,
1996 was $6,526,322, which represents 0.27% of the Fund's net assets.
Information concerning these securities is as follows:
<TABLE>
<CAPTION>
Valuation Per Unit
Security Acquisition Date Cost Per Unit As of August 31, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
ICG Communications, Inc. 10/26/93--4/15/96 $18.15 $21.02
</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
DESCRIPTION OF RATINGS
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.
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.
A-1
<PAGE>
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: 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.
Description of Fitch Investors Service, Inc. Ratings
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
A-2
<PAGE>
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity through the
life of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery of these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "DDD," "DD," or "D" categories.
Duff & Phelps' Ratings
Long-Term Debt and Preferred Stock
AAA Highest credit quality. The risk factors are negligible, being only slightly
more than for risk- free US Treasury debt.
AA+, AA & AA- High credit quality protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB & BBB- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB- Below investment grade but deemed to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within the category.
B+, B & B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions
A-3
<PAGE>
and/or company fortunes. Potential exists for frequent changes in the rating
within this category or into a higher of lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic
industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arreages.
A-4
<PAGE>
Appendix B
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
B-1
<PAGE>
Food
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
B-2
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
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
