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Oppenheimer Capital Income Fund
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6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated December 22, 1998,
Revised May 1, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated December 22, 1998. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217, or by calling the Transfer Agent at the toll-free number shown above, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies......................... 8
Investment Restrictions............................................ 23
How the Fund is Managed ............................................... 25
Organization and History........................................... 25
Trustees and Officers.............................................. 27
The Manager........................................................ 31
Brokerage Policies of the Fund......................................... 33
Distribution and Service Plans......................................... 35
Performance of the Fund................................................ 38
About Your Account
How To Buy Shares...................................................... 42
How To Sell Shares..................................................... 51
How To Exchange Shares................................................. 55
Dividends, Capital Gains and Taxes..................................... 57
Additional Information About the Fund.................................. 59
Financial Information About the Fund
Independent Auditors' Report........................................... 60
Financial Statements................................................... 61
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Corporate Industry Classifications......................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
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A B O U T T H E F U N D
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Additional Information About the Fund's Investment Policies and Risks
The investment objectives, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manger may use in selecting portfolio
securities will vary over time. The Fund is not required to use any of the
investment techniques and strategies described below at all times in seeking its
goals. It may use some of the special investment techniques and strategies at
some times or not at all.
n Investments in Equity Securities. In selecting equity investments for
the Fund's portfolio, the portfolio manager currently uses a value investing
style. In using a value approach, the manager looks for stock and other
securities that appear to be temporarily undervalued, by various measures, such
as price/earnings ratios. This approach is subject to change and may not
necessarily be used in all cases. Value investing seeks stocks having prices
that are low in relation to their real worth or future prospects, in the hope
that the Fund will realize appreciation in the value of its holdings when other
investors realize the intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying
financial condition and prospects. Some of the measures used to identify these
securities include, among others:
o Price/Earnings ratio, which is the stock's price divided by its earnings
per share. A stock having a price/earnings ratio lower than its historical
range, or lower than the market as a whole or that of similar companies may
offer attractive investment opportunities.
o Price/book value ratio, which is the stock price divided by the book
value of the company per share. It measures the company's stock price in
relation to its asset value.
o Dividend Yield, which is measured by dividing the annual dividend by the
stock price per share.
o Valuation of Assets which compares the stock price to the value of the
company's underlying assets, including their projected value in the marketplace
and liquidation value.
While the Fund currently focuses on securities of issuers having large
capitalizations, it does not limit its investments in equity securities to
issuers having a market capitalization of a specified size or range, and
therefore may invest in securities of small-, mid- and large-capitalization
issuers. At times, the Fund may focus its equity investments in securities of
one or more capitalization ranges, based upon the Manager's judgment of where
the best market opportunities are to seek the Fund's objective.
At times, the market may favor or disfavor securities of issuers of a
particular capitalization range, and securities of small capitalization issuers
may be subject to greater price volatility in general than securities of larger
companies. Therefore, if the Fund has substantial investments in smaller
capitalization companies at times of market volatility, the Fund's share price
may fluctuate more than that of funds focusing on larger capitalization issuers.
o Rights and Warrants. Warrants are options to purchase stock at set
prices. They are generally valid for a limited period of time. Their prices do
not necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants and generally have a short duration. They are
distributed directly by the issuer to its shareholders.
As a fundamental policy, the Fund may invest not more than 5% of its
total assets in warrants or rights, and not more than 2% of its total assets may
be invested in warrants and rights that are not listed on The New York Stock
Exchange or The American Stock Exchange. That limitation does not apply to
warrants and rights the Fund acquires attached to other securities or as part of
investments in units of securities that are issued with other securities. Rights
and warrants have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
o Preferred Stock. If interest rates rise, the fixed dividend on
preferred stocks may be less attractive, causing the price of preferred stocks
to decline. Preferred stock may have mandatory sinking fund provisions, as well
as call/redemption provisions prior to maturity, which can be a negative feature
when interest rates decline. Preferred stock also generally has a preference
over common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation. Preferred stock may be "participating" stock,
which means that it may be entitled to a dividend exceeding the stated dividend
in certain cases. The rights of preferred stock on distribution of a
corporation's assets in the event of a liquidation are generally subordinate to
the rights associated with a corporation's debt securities.
The Fund can invest in preferred stock of an issuer that has omitted
the dividend or may be in danger of doing so. Those investments would be made
primarily for the appreciation potential of the stock. Some preferred stock may
be convertible into common stock or exchangeable for a set number of common
shares. The prices of that type of preferred stock tend to be more volatile than
the prices of nonconvertible preferred stock, which behaves more like a
fixed-income security.
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 conversion of the convertible
securities), and
(3) the extent to which the convertible security may be a defensive
"equity substitute," providing the ability to participate in any
appreciation in the price of the issuer's common stock.
n Investments in Bonds and Other Debt Securities. The Fund can invest in
bonds, debentures and other debt securities to seek current income as part of
its investment objective. However, under normal market conditions, normally not
more than 35% of the Fund's total assets will be invested in debt securities.
However, if stock market conditions are volatile, the Manager may shift more of
the Fund's investments into debt securities as a defensive measure.
The Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., or at least "BBB" by Standard & Poor's Corporation or Duff &
Phelps, Inc., ____ or that have ____ comparable ____ ratings ____ by ____
another nationally-recognized rating organization.
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research to
evaluate a security's credit-worthiness. If the securities the Fund buys are
unrated, to be considered part of the Fund's holdings of investment-grade
securities, they must be judged by the Manager to be of comparable quality to
bonds rated as investment grade by a rating organization.
|_| Interest Rate Risks. An increase in prevailing interest rates
will tend to reduce the market value of already-issued fixed-income securities.
A decline in interest rates will tend to increase their value. Debt securities
having longer maturities are subject to potentially greater fluctuations in
their prices from changes in prevailing interest rates than securities having
shorter maturities.
Fluctuations in the market value of a fixed-income security after
the Fund buys it will not affect the amount of interest payable on the security,
and therefore the cash income from the security is not affected by changes in
interest rates. However, the effect of the change of interest rates on the value
of the security could affect the Fund's net asset value per share.
|X| U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other government agencies or corporate entities referred
to as "instrumentalities." The obligations of U.S. government agencies or
instrumentalities in which the Fund may invest may or may not be guaranteed or
supported by the "full faith and credit" of the United States. "Full faith and
credit" means generally that the taxing power of the U.S. government is pledged
to the payment of interest and repayment of principal on a security. If a
security is not backed by the full faith and credit of the United States, the
owner of the security must look principally to the agency issuing the obligation
for repayment. The owner might be able to assert a claim against the United
States if the issuing agency or instrumentality does not meet its commitment.
The Fund will invest in securities of U.S. government agencies and
instrumentalities only if the Manager is satisfied that the credit risk with
respect to such instrumentality is minimal.
|_| U.S. Treasury Obligations. These include Treasury bills
(maturities of one year or less when issued), Treasury notes (maturities of from
one to ten years), and Treasury bonds (maturities of more than ten years).
Treasury securities are backed by the full faith and credit of the United States
as to timely payments of interest and repayments of principal. They also can
include U. S. Treasury securities that have been "stripped" by a Federal Reserve
Bank, zero-coupon U.S. Treasury securities described below, and as Treasury
Inflation-Protection Securities ("TIPS").
|_| Treasury Inflation-Protection Securities. The Fund can buy these
U.S. Treasury securities, called "TIPS," that are designed to provide an
investment vehicle that is not vulnerable to inflation. The interest rate paid
by TIPS is fixed. The principal value rises or falls semi-annually based on
changes in the published Consumer Price Index. If inflation occurs, the
principal and interest payments on TIPS are adjusted to protect investors from
inflationary loss. If deflation occurs, the principal and interest payments will
be adjusted downward, although the principal will not fall below its face amount
at maturity.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association ____ pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| Special Risks of Lower-Grade Securities. While it is not
anticipated that the Fund normally will invest more than 35% of its total assets
in debt securities, the Fund can invest in them to seek current income. Because
lower rated securities tend to offer higher yields than investment grade
securities, the Fund may invest in lower-grade securities if the Manager is
trying to achieve greater income (and, in some cases, the appreciation
possibilities of lower-grade securities may be a reason they are selected for
the Fund's portfolio)
The Fund can invest up to 25% of its total assets in "lower grade" debt
securities. "Lower-grade" debt securities are those rated below "investment
grade," which means they have a rating lower than "Baa" by Moody's or lower than
"BBB" by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be of
comparable quality to debt securities rated below investment grade, they are
included in limitation on the percentage of the Fund's assets that can be
invested in lower-grade securities. The Fund can invest in securities rated as
low as "C" or "D" or which may be in default at the time the Fund buys them. The
Fund may invest no more than 10% of its total assets in lower-grade debt
securities that are not convertible
Some of the special credit risks of lower-grade securities are discussed
in the Prospectus. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of investment
grade securities. The issuer's low creditworthiness may increase the potential
for its insolvency. An overall decline in values in the high yield bond market
is also more likely during a period of a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. In the case of
foreign high yield bonds, these risks are in addition to the special risk of
foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
However, the Fund's limitations on buying these investments may reduce the
effect of those risks to the Fund, as will the Fund's policy of diversifying its
investments. Additionally, to the extent they can be converted into stock,
convertible securities may be less subject to some of these risks than
non-convertible high yield bonds, since stock may be more liquid and less
affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. Definitions of the debt security ratings categories of Moody's,
S&P and Duff & Phelps are included in Appendix A to this Statement of Additional
Information.
n Zero Coupon Securities. The Fund may buy zero-coupon and delayed
interest securities, and "stripped" securities. Stripped securities are debt
securities whose interest coupons are separated from the security and sold
separately. The Fund can buy the following types of zero-coupon or stripped
securities, among other: U.S. Treasury notes or bonds that have been stripped of
their interest coupons, U.S. Treasury bills issued without interest coupons, and
certificates representing interests in stripped securities.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value. The buyer recognizes a rate of return
determined by the gradual appreciation of the security, which is redeemed at
face value on a specified maturity date. This discount depends on the time
remaining until maturity, as well as prevailing interest rates, the liquidity of
the security and the credit quality of the issuer. In the absence of threats to
the issuer's credit quality, the discount typically decreases as the maturity
date approaches. Some zero-coupon securities are convertible, in that they are
zero-coupon securities until a predetermined date, at which time they convert to
a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their prices are generally more
volatile than the prices of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
n Real Estate Investment Trusts (REITs). The Fund may invest in real
estate investment trusts, as well as real estate development companies and
operating companies. It may also buy shares of companies engaged in other real
estate businesses. REITs are trusts that sell shares to investors and use the
proceeds to invest in real estate. A REIT may focus on a particular project,
such as a shopping center or apartment complex, or may buy many properties or
properties located in a particular geographic region.
n Foreign Securities. The Fund may purchase equity and debt securities
issued or guaranteed by foreign companies or foreign governments or their
agencies. "Foreign securities" include equity and debt securities of companies
organized under the laws of countries other than the United States and debt
securities of foreign governments. They may be traded on foreign securities
exchanges or in the foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations. That is because they are not subject to
many of the special considerations and risks, discussed below, that apply to
foreign securities traded and held abroad.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
G Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or
adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
<PAGE>
[_] Risks of Conversion to Euro. On January 1, 1999, eleven
countries in the European Union will have adopted the euro as their official
currency. However, their current currencies (for example, the franc, the mark,
and the lira) will also continue in use until January 1, 2002. After that date,
it is expected that only the euro will be used in those countries. A common
currency is expected to confer some benefits in those markets, by consolidating
the government debt market for those countries and reducing some currency risks
and costs. But the conversion to the new currency will affect the Fund
operationally and also has potential risks, some of which are listed below.
Among other things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the
competitive environment from a consolidated currency market
and greater operational costs from converting to the new
currency. This might depress stock values.
o vendors the Fund depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Fund
buys), the Manager (which must price the Fund's investments to
deal with the conversion to the euro) and brokers, foreign
markets and securities depositories. If they are not prepared,
there could be delays in settlements and additional costs to
the Fund.
o exchange contracts and derivatives that are outstanding during
the transition to the euro.
The lack of currency rate calculations between the affected currencies and
the need to update the Fund's contracts could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's Custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|_| Portfolio Turnover. "Portfolio turnover" describes the rate at which
the Fund traded its portfolio securities during its last fiscal year. For
example, if a fund sold all of its securities during the year, its portfolio
turnover rate would have been 100%. The Fund's portfolio turnover rate will
fluctuate from year to year. The Fund does not expect to have a portfolio
turnover rate of 100% or more. Increased portfolio turnover creates higher
brokerage and transaction costs for the Fund, which may reduce its overall
performance. Additionally, the realization of capital gains from selling
portfolio securities may result in distributions of taxable long-term capital
gains to shareholders, since the Fund will normally distribute all of its
capital gains realized each year, to avoid excise taxes under the Internal
Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time employ the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times
and at times may not use them.
n Investing in Small, Unseasoned Companies. The Fund can invest in
securities of small, unseasoned companies. These are companies that have been in
operation for less than three years, including the operations of any
predecessors. Securities of these companies may be subject to volatility in
their prices. They 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. Other investors that own a security issued by a small,
unseasoned issuer for which there is limited liquidity might trade the security
when the Fund is attempting to dispose of its holdings of that security. In that
case the Fund might receive a lower price for its holdings than might otherwise
be obtained. As a fundamental policy, the Fund may invest not more than 5% of
its net assets in securities of small, unseasoned issuers.
n When-Issued and Delayed-Delivery Transactions. The Fund can invest in
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of entering
into the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purpose of investment
leverage. Although the Fund will enter into delayed-delivery or when-issued
purchase transactions to acquire securities, it may dispose of a commitment
prior to settlement. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
delivery or receive against a forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books cash, U.S. government securities or other
high-grade debt obligations at least equal in value to the value of the Fund's
purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
n Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions.
It may also do so for defensive purposes when stock market conditions are
unstable or when the Manager is unable to find other attractive investments.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Manager will impose creditworthiness requirements to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
n Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of some of the Fund's investments. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
n Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Trustees. It may do so to try to provide income or to raise cash for liquidity
purposes. These loans are limited to not more than 10% of the value of the
Fund's total assets. There are some risks in connection with securities lending.
The Fund might experience a delay in receiving additional collateral to secure a
loan, or a delay in recovery of the loaned securities. The Fund presently does
not intend to lend securities in the coming year, but if it does, the value of
the loaned securities is not expected to exceed 5% of the value of the Fund's
total assets.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder's, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
n Derivatives. The Fund can invest in a variety of derivative investments
to seek income or for hedging purposes. Some derivative investments the Fund may
use are the hedging instruments described below in this Statement of Additional
Information.
|_| Structured Notes. The Fund can invest in a variety of derivative
investments that are ____ specially-designed. ____ They include "index-linked"
notes and "commodity-linked" notes. Principal and/or interest payments on these
notes depend on the performance of an underlying index. The principal and/or
interest payments on these types of notes 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 can also buy currency-indexed securities, another derivative
investment. Typically these are short-term or intermediate-term debt securities.
Their value at maturity or the rates at which they pay income are determined by
the change in value of the U.S. dollar against one or more foreign currencies or
an index. In some cases, these securities may pay an amount at maturity based on
a multiple of the amount of the relative currency movements. This type of index
security offers the potential for increased income or principal payments but at
a greater risk of loss than a typical debt security of the same maturity and
credit quality.
Other derivative investments the Fund can buy include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or it
is payable in an amount based on the price of the issuer's common stock at the
time of maturity. Both alternatives present a risk that the amount payable at
maturity will be less than the principal amount of the debt because the price of
the issuer's common stock might not be as high as the Manager expected.
n Hedging. The Fund can use hedging to attempt to protect against declines
in the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate selling securities for investment reasons. To do so, the Fund
could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures. Covered
calls may also be used to increase the Fund's income, but the
Manager does not expect to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on such futures or on securities.
The Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund. The Fund is not
obligated to use hedging instruments, even though it is permitted to use them in
the Manager's discretion, as described below.
o Futures. The Fund can buy and sell futures contracts that relate
to (1) debt securities (these are referred to as "interest rate futures"), (2)
broadly-based stock indices (these are referred to as "stock index futures") or
other indices (referred to as "financial futures"), (3) foreign currencies
(these are referred to as "forward contracts"), or (4) commodities (these are
referred to as "commodity futures").
o Stock Index Futures, Financial Futures and Interest Rate
Futures. A broadly-based stock index is used as the basis for trading stock
index futures. They may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index cannot
be purchased or sold directly. Financial futures are similar contracts based on
the future value of the basket of securities that comprise the index. These
contracts obligate the seller to deliver, and the purchaser to take, cash to
settle the futures transaction. There is no delivery made of the underlying
securities to settle the futures obligation. Either party may also settle the
transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
No payment is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
Custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are traded.
o Commodity Futures. The Fund can invest a portion of its
assets in commodity futures contracts. They may be based upon commodities in
five main commodity groups: energy, livestock, agriculture, industrial metals
and precious metals, on individual commodities within these groups, or on other
commodities. For hedging purposes, the Fund may buy and sell commodity futures
contracts, options on commodity futures contracts, and options and futures on
commodity indices.
Under a commodity futures contract, the buyer agrees to take delivery of a
specified amount of a commodity at a future date at a price agreed upon when the
contract is made. In the United States, commodity contracts are traded on
futures exchanges. The exchanges offer a central marketplace for transactions, a
clearing corporation to process trades, standardization of contract sizes and
expiration dates, and the liquidity of a secondary market. futures markets also
regulate the terms and conditions of delivery and the maximum permissible price
movement of a contract during a trading session. The exchanges have rules on
position limits. Those rules limit the amount of futures contracts that any one
party may hold in a particular commodity at one time. Those rules are designed
to prevent any one party from controlling a significant portion of the market.
Despite the daily price limits imposed by the futures exchanges,
historically the short-term price volatility of commodity futures contracts has
been greater than that for stocks and bonds. To the extent that the Fund invests
in these futures contracts, its share price may be subject to greater
volatility.
o Put and Call Options. The Fund can buy and sell certain kinds of
put options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
o Writing Covered Call Options. The Fund can write (that is,
sell) covered calls. If the Fund sells a call option, it must be covered. That
means the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable the Fund to satisfy its obligations if the
call is exercised. Up to 25% of the Fund's total assets may be subject to calls
the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for Federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
require the Fund to deliver a futures contract. It would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging policies.
o Writing Put Options. The Fund may sell put options. A put
option on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Fund will not write puts if, as a result, more than 25% of
the Fund's net assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price. If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund 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 buys a call
(other than in a closing purchase transaction), it pays a premium. The Fund then
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if it sells the call at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the
call price plus the transaction costs and the premium paid for the call and the
Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts whether or not it holds the underlying investment in
its portfolio. When the Fund purchases a put, it pays a premium and, except as
to puts on indices, has the right to sell the underlying investment to a seller
of a put on a corresponding investment during the put period at a fixed exercise
price. Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
o Buying and Selling Options on Foreign Currencies. The Fund can buy
and sell calls and puts on foreign currencies. They include puts and calls that
trade on a securities or commodities exchange or in the over-the-counter markets
or are quoted by major recognized dealers in such options. The Fund could use
these calls and puts to try to protect against declines in the dollar value of
foreign securities and increases in the dollar cost of foreign securities the
Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its Custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in a segregated account with the Fund's Custodian
bank.
o Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could have to pay a brokerage commission each time it buys a call
or put, sells a call or put, or buys or sells an underlying investment in
connection with the exercise of a call or put. Those commissions could be higher
on a relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market may decline further or for other
reasons, the Fund will realize a loss on the hedging instruments that is not
offset by a reduction in the price of the securities purchased.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar may suffer a substantial decline against a foreign currency, it
might enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund might enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a Forward Contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
o Interest Rate Swap Transactions. The Fund can enter into interest
rate swap agreements. In an interest rate swap, the Fund and another party
exchange their right to receive or their obligation to pay interest on a
security. For example, they might swap the right to receive floating rate
payments for fixed rate payments. The Fund can enter into swaps only on
securities that it owns. The Fund will not enter into swaps with respect to more
than 25% of its total assets. Also, the Fund will segregate liquid assets (such
as cash or U.S. government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party. Under
these agreements, if a default results in a loss to one party, the measure of
that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at
the time of the termination of each swap. The gains and losses on all swaps are
then netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on termination
is generally referred to as "aggregation."
o Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write 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.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
o Tax Aspects of Certain Hedging Instruments. Certain foreign
currency exchange contracts in which the Fund may invest are treated as "Section
1256 contracts" under the Internal Revenue Code. In general, gains or losses
relating to Section 1256 contracts are characterized as 60% long-term and 40%
short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are forward contracts
generally are treated as ordinary income or loss. In addition, Section 1256
contracts held by the Fund at the end of each taxable year are
"marked-to-market," and unrealized gains or losses are treated as though they
were realized. These contracts also may be marked-to-market for purposes of
determining the excise tax applicable to investment company distributions and
for other purposes under rules prescribed pursuant to the Internal Revenue Code.
An election can be made by the Fund to exempt those transactions from this
marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for Federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that
occur between the time the Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or
pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the
date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment company income available for distribution to its
shareholders.
n Temporary Defensive Investments. The Fund's temporary defensive
investments can include debt securities such as: (i) U.S. Treasury bills or
other obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; (ii) commercial paper rated A-3 or higher by Standard &
Poor's or P-3 or higher by Moody's; (iii) certificates of deposit or bankers'
acceptances or other obligations of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements.
Investment Restrictions
n What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or o more than 50% of the
outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
n Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities issued or guaranteed by any one issuer if
more than 5% of its total assets would be invested in securities of that issuer
or if it would then own more than 10% of that issuer's voting securities. This
limitation applies to 75% of the Fund's total assets. The limit does not apply
to securities issued by the U.S. government or any of its agencies or
instrumentalities.
o The Fund cannot invest in physical commodities or physical commodity
contracts. However, the Fund may buy and sell hedging instruments that are
permitted by any of its other investment policies. The Fund may also buy and
sell options, futures and other instruments backed by physical commodities or
the investment return from which is linked to changes in the price of physical
commodities.
o The Fund cannot concentrate investments. That means it cannot invest 25%
or more of its total assets in any industry.
o The Fund cannot borrow money, except for temporary emergency purposes or
under other unusual circumstances.
o The Fund cannot invest in real estate or in interests in real estate.
However, the Fund can purchase securities of issuers holding real estate or
interests in real estate (including securities of real estate investment
trusts).
o The Fund cannot engage in short sales or purchase securities on margin.
However, the Fund can make margin deposits in connection with its investments.
o The Fund cannot invest in companies for the purpose of acquiring control
or management of those companies.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
o The Fund cannot invest in or hold securities of any issuer if officers
and Trustees or directors of the Fund or the Manager individually beneficially
own more than 1/2 of 1% of the securities of that issuer and together own more
than 5% of the securities of that issuer.
o The Fund cannot buy securities from, or sell securities to, any officer
or Trustee of the Fund, or any officer or director of the Manager, or any firms
of which any of them are members (although such persons may act as brokers for
the Fund). This restriction does not apply to purchases and sales of the Fund's
shares.
o _____ The Fund cannot cease to maintain its business as an investment company,
as defined in the Investment Company Act.
o _____ The Fund cannot accept the purchase price for any of its shares without
immediately thereafter issuing an appropriate number of shares.
o _____ The Fund cannot pledge, mortgage or hypothecate its assets. Collateral,
escrow and margin arrangements in connection with any of its investments are
permitted.
o _____ The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated, or margin, collateral or escrow arrangements are established to
cover the related obligations. Examples of those activities include reverse
repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
The Fund currently has an operating policy (which is not fundamental but
will not be changed without the approval of shareholders) that prohibits the
Fund from lending money, however, that policy does not prohibit the Fund from
purchasing debt securities, entering into repurchase agreements or making loans
of portfolio securities, subject to the restrictions stated under "Loans of
Portfolio Securities."
For purposes of the Fund's policy not to concentrate its investments as
described above, the Fund has adopted the industry classifications set forth in
Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a corporation in 1967 but was reorganized as
a Massachusetts business trust in July 1986.
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. 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.
o Classes of Shares. 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 of shares: o has its own dividends and distributions, o
pays certain expenses which may be different for the different classes, o may
have a different net asset value, o may have separate voting rights on matters
in which interests of one
class are different from interests of another class, and o votes as a
class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|_| Meetings of Shareholders. 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. It will also do so 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.
If the Trustees receive a request from at least 10 shareholders 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. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Tru stees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds1:
Oppenheimer Capital Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Cash Reserves Oppenheimer Total Return Fund, Inc.
Oppenheimer Champion Income Fund Oppenheimer Variable Account Funds
Oppenheimer High Yield Fund Panorama Series Fund, Inc.
Oppenheimer International Bond Fund Centennial America Fund, L. P.
Oppenheimer Integrity Funds Centennial California Tax Exempt Trust
Oppenheimer Limited-Term Government Centennial Government Trust
Fund
Oppenheimer Main Street Funds, Inc. Centennial Money Market Trust
Oppenheimer Municipal Fund Centennial New York Tax Exempt Trust
Oppenheimer Real Asset Fund Centennial Tax Exempt Trust
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of December 1, 1998, the Trustees and
officers of the Fund as a group owned less than 1% of the outstanding shares of
the Fund. The foregoing statement does not reflect shares held of record by an
employee benefit plan for employees of the Manager other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue, are trustees of that plan.
1 Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund, Panorama Series Fund, Inc.
or Oppenheimer Variable Account Funds. Mr. Fossel and Mr. Bowen are not Trustees
of Centennial New York Tax Exempt Trust or Managing General Partners of
Centennial America Fund, L.P.
Robert G. Avis,* Trustee; Age 67
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and
A.G. Edwards, Inc. (its parent holding company); Chairman of A.G.E.
Asset Management and A.G. Edwards Trust Company (its affiliated
investment adviser and trust company, respectively).
William A. Baker, Trustee; Age 83
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen,* Trustee; Age 62
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions:
Senior Vice President (since September 1987) and Treasurer (since
March 1985) of the Manager; Vice President (since June 1983) and
Treasurer (since March 1985) of the Distributor; Vice President (since
October 1989) and Treasurer (since April 1986) of HarbourView Asset
Management ; Senior Vice President (since February 1992), Treasurer
(since July 1991) and a director (since December 1991) of Centennial
Asset Management; President, Treasurer and a director of
Centennial Capital Corporation (since June 1989); Vice President
and Treasurer (since August 1978) and Secretary (since April 1981) of
Shareholder Services, Inc.; Vice President, Treasurer and Secretary
of Shareholder Financial Services, Inc. (since November 1989);
Assistant Treasurer of Oppenheimer Acquisition Corp. (since March
1998); Treasurer of Oppenheimer Partnership Holdings, Inc. (since
November 1989); Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc. (since July 1996); Chief Executive Officer, Treasurer;
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997).
Charles Conrad, Jr., Trustee; Age 68
1501 Quail Street, Newport Beach, CA 92660
Chairman and CEO of Universal Space Lines, Inc. (a space services management
company); formerly Vice President of McDonnell Douglas Space Systems Co. prior
to which he was associated with the National Aeronautics and Space
Administration.
Jon S. Fossel, Trustee; Age 56
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., Shareholder Services, Inc. and Shareholder
Financial Services, Inc.
Sam Freedman, Trustee; Age: 58
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholder Services, Inc.
and Shareholder Financial Services, Inc., Vice President and a director of
Oppenheimer Acquisition Corp. and a director of the Manager.
Raymond J. Kalinowski, Trustee; Age 69
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products training
company).
C. Howard Kast, Trustee; Age 76
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee; Age 77
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company
(management consultants).
Bridget A. Macaskill*, President and
Trustee; Age: 50
Two World Trade Center, 34th Floor,
New York, New York 10048 President (since June 1991), Chief Executive Officer
(since September 1995) and a director (since December 1994) of the Manager;
President and a director (since June 1991) of HarbourView Asset Management
Corp.; Chairman and a director (since August 1994) of Shareholder Services, Inc.
and (since September 1995) Shareholder Financial Services, Inc.; President
(since September 1995) and a director (since October 1990) of Oppenheimer
Acquisition Corp.; President (since September 1995) and a director (since
November 1989) of Oppenheimer Partnership Holdings, Inc., a holding company
subsidiary of the Manager; a director of Oppenheimer Real Asset Management, Inc.
(since July 1996); President and a director (since October 1997) of
OppenheimerFunds International Ltd., an offshore fund management subsidiary of
the Manager, and Oppenheimer Millennium Funds plc; President and a director of
other Oppenheimer funds; a director of Hillsdown Holdings plc (a U.K. food
company).
Ned M. Steel, Trustee; Age 83
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
James C. Swain*, Chairman, Chief Executive Officer and Trustee; Age 65
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman of the Manager (since September 1988); formerly President and a
director of Centennial Asset Management Corporation, and Chairman of the Board
of Shareholder
Services, Inc.
John P. Doney, Vice President and Portfolio Manager; Age: 68.
Two World Trade Center, 34th Floor, New York, New York 10048-0203
Vice President of the Manager (since June 1992). Prior to joining the Manager he
was a Senior Vice President and Chief Investment Officer - Equities, of National
Securities & Research Corporation (a mutual fund investment adviser) and Vice
President of the National-affiliated investment companies.
Andrew J. Donohue, Vice President and Secretary; Age 48
Two World Trade Center, 34th Floor, New York, New York 10048
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President (since September 1993) and a director (since January 1992) of the
Distributor; Executive Vice President, General Counsel and a director of
HarbourView Asset Management Corp., Shareholder Services, Inc., Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc. (since
September 1995); President and a director of Centennial Asset Management Corp.
(since September 1995); President and a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); General Counsel (since May 1996) and
Secretary (since April 1997) of Oppenheimer Acquisition Corp.; Vice President
and a Director of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
<PAGE>
Brian W. Wixted, Treasurer; Age: 39.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; formerly
Principal and Chief Operating Officer, Bankers Trust Company - Mutual Fund
Services Division (1995-1999); Vice President and Chief Financial Officer of CS
First Boston Investment Management Corp. (1991-1995); and Vice President and
Accounting Manager, Merrill Lynch Asset Management (1987-1991).
Robert J. Bishop, Assistant Treasurer; Age 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Scott Farrar, Assistant Treasurer; Age 33
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Robert G. Zack, Assistant Secretary; Age 50
Two World Trade Center, 34th Floor, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of Shareholder Services, Inc. (since
May 1985), and Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary (since October 1997) of Oppenheimer Millennium Funds plc and
OppenheimerFunds International Ltd.; an officer of other Oppenheimer funds.
n Remuneration of Trustees. The officers of the Fund and three Trustees of
the Fund (Ms. Macaskill and Messrs. Bowen and Swain) are affiliated with the
Manager and receive no salary or fee from the Fund. The remaining Trustees of
the Fund received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended August 31, 1998. The compensation from all
of the Denver-based Oppenheimer funds includes the compensation from the Fund
and represents compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year 1997.
<PAGE>
- --------------------------------------------------------------------------
Total Compensation
Director's Name and Aggregate Compensation from all Denver-Based
Position from Fund Oppenheimer Funds1
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert G. Avis $7,231 $63,501
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
William A. Baker $8,546 $77,502
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Charles Conrad, Jr.3 $8,029 $72,000
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Jon. S. Fossel $7,201 $63,277
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Sam Freedman
Audit and Review Committee
Member2 $7,624 $66,501
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Raymond J. Kalinowski
Audit and Review
Committee Member2 $8,100 $71,561
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
C. Howard Kast
Audit and Review
Committee Chairman2 $8,620 $76,503
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Robert M. Kirchner3 $8,029 $72,000
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Ned M. Steel $7,231 $63,501
- --------------------------------------------------------------------------
1. For the 1997 calendar year. Compensation is only from funds on whose Board
a Director served, as described above.
2. Committee positions effective July 1, 1997.
3. Prior to July 1, 1997, Messrs. Baker, Conrad and Kirchner were members of the
Audit and Review Committee.
n Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they are entitled to receive from
the Fund. Under the plan, the compensation deferred by a Trustee or is
periodically adjusted as though an equivalent amount had been invested in shares
of one or more Oppenheimer funds selected by the Trustee. The amount paid to the
Trustee under the plan will be determined based upon the performance of the
selected funds.
Deferral of Trustee's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. The
Manager and the Fund have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers,
that would compete with or take advantage of the Fund's portfolio transactions.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
n The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Equity Portfolio Department provide the portfolio manager with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage commissions,
fees to independent 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. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class.
<PAGE>
- -------------------------------------------------------------------------------
Fiscal Year ended 8/31: Management Fees Paid to OppenheimerFunds, Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1996 (2 months)1 $2,134,834
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $14,800,449
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $19,364,160
- -------------------------------------------------------------------------------
1. Fiscal period from 7/1/96 to 8/31/96. The management fees for the 12 month
fiscal year ended 6/30/96 were $12,078,956.
The investment advisory agreement contains an indemnity of the Manager. As
long as it has 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 investment advisory agreement does not exculpate the Manager from willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
The Manager is authorized by the advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the Investment
Company Act. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Trustees.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for the
Fund and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those considerations, as a factor in selecting
brokers for the Fund's portfolio transactions, the Manager may also consider
sales of shares of the Fund and other investment companies for which the Manager
or an affiliate serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates. Other funds advised by the Manager have investment
policies similar to those of the Fund. Those other funds may purchase or sell
the same securities as the Fund at the same time as the Fund, which could affect
the supply and price of the securities. If two or more funds advised by the
Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. Instead of using a broker for those transactions, the Fund normally
deals directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. The investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research may be supplied to the Manager by
a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of Trustees permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
- --------------------------------------------------------------------------------
Fiscal Year Ended 8/31: Total Brokerage Commissions Paid by the Fund1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 (2 months) 2 $168,229
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997 $706,049
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998 $829,8753
- --------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. For the fiscal period from 7/1/96 to 8/31/96. The total brokerage commissions
paid by the Fund for the 12 month fiscal year ended 6/30/96 were $766,137.
3. In the fiscal year ended 8/31/98, the amount of transactions directed to
brokers for research services was $487,036,339 and the amount of the
commissions paid to broker-dealers for those services was $617,002.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund's
parent corporation, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of shares of the Fund's classes of shares. The
Distributor is not obligated to sell a specific number of shares. Expenses
normally attributable to sales are borne by the Distributor. They exclude
payments under the Fund's Distribution and Service Plans but include advertising
and the cost of printing and mailing prospectuses (other than prospectuses
furnished to current shareholders).
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
<PAGE>
- -------------------------------------------------------------------------------
Aggregate Class A
Front-End Front-End Commissions Commissions Commissions
Fiscal Sales Sales on Class A on Class B on Class C
Year Charges on Charges Shares Shares Shares
Ended Class A Retained by Advanced by Advanced by Advanced by
8/31: Shares Distributor Distributor1 Distributor1 Distributor1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
19962 $632,850 $218,008 N/A $489,862 $15,300
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $5,179,851 $1,573,826 N/A $4,076,061 $367,675
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $8,057,145 $2,429,799 $468,532 $8,780,583 $551,784
- -------------------------------------------------------------------------------
1. Includes amounts paid to a dealer affiliated with the Distributor's parent.
2. Fiscal period from 7/1/96 to 8/31/96. For the 12 month fiscal year ended
6/30/96 the aggregate sales charges on Class A shares were $4,966,513 of which
$1,546,454 was retained by the Distributor. For the same period, Class B
contingent deferred sales charges in the amount of $360,582 and Class C
contingent deferred sales charges in the amount of $1,547 were retained by the
Distributor.
<PAGE>
- -------------------------------------------------------------------------------
Class A Contingent Class B Contingent
Fiscal Deferred Sales Deferred Sales Class C Contingent
Year Charges Retained by Charges Retained by Deferred Sales Charges
Ended 8/31 Distributor Distributor Retained by Distributor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $0 $631,183 $23,959
- -------------------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans,"
below.
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act. Under those plans the Fund makes
payments to the Distributor for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of the
particular class.
Each plan has been approved by a vote of the Board of Trustees, including
a majority of the Independent Trustees,2 cast in person at a meeting called for
the purpose of voting on that plan. Each plan has also been approved by the
holders of a "majority" (as defined in the Investment Company Act) of the shares
of the applicable class.
2 In accordance with Rule 12b-1 of the Investment
Company Act, the term "Independent Trustees" in this Statement of Additional
Information refers to those Trustees who are not "interested persons" of the
Fund and who do not have any direct or indirect financial interest in the
operation of the distribution plan or any agreement under the plan.
Under the plans, the Manager and the Distributor, in their sole
discretion, from time to time, may use their own resources (at no direct cost to
the Fund) to make payments to brokers, dealers or other financial institutions
for distribution and administrative services they perform. The Manager may use
its profits from the advisory fee it receives from the Fund. In their sole
discretion, the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent 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.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund must obtain the approval
of both Class A and Class B shareholders for a proposed material amendment to
the Class A Plan that would materially increase payments under the Plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of
the shares of each class, voting separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan, the purpose for which the payments were made and the identity
of each recipient of a payment. The reports on the Class B Plan and Class C Plan
shall also include the Distributor's distribution costs for that quarter. Those
reports are subject to the review and approval of the Independent Trustees.
Each Plan states 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 the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in any
quarter in which the aggregate net asset value of all Fund shares of that class
held by the recipient for itself and its customers does not exceed a minimum
amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
o Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor.
The Class A service plan permits reimbursements to the Distributor at a
rate of up to 0.25% of average annual net assets of Class A shares. The Board
has set the rate at that level for shares acquired on or after April 1, 1991,
and 0.15% for shares acquired before that date. While the plan permits the Board
to authorize payments to the Distributor to reimburse itself for services under
the plan, the Board has not yet done so. The Distributor makes payments to plan
recipients quarterly at an annual rate not to exceed 0.25% of the average annual
net assets consisting of Class A shares acquired on or after April 1, 1991, and
held in the accounts of the recipients or their customers. The rate is 0.15% for
shares acquired earlier and held in such accounts.
For the fiscal year ended August 31, 1998 payments under the Class A Plan
totaled $6,047,155, all of which was paid by the Distributor to recipients. That
included $436,769 paid to an affiliate of the Distributor's parent company. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares in
any fiscal year cannot be recovered in subsequent years. The Distributor may not
use payments received under the Class A Plan to pay any of its interest
expenses, carrying charges, or other financial costs, or allocation of overhead.
o Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B and Class C plans allow the
Distributor to be compensated for its services and costs in distributing Class B
and Class C shares and servicing accounts. The types of services that recipients
provide are similar to the services provided under the Class A service plan,
described above.
The Class B and the Class C Plans permit the Distributor to retain both
the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor currently intends to pay the service fee to recipients in advance
for the first year after the shares are purchased. After the first year shares
are outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing commission to the recipient on Class C shares outstanding for a
year or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Fund pays the
asset-based sales charges to the Distributor for its services rendered in
distributing Class B and Class C shares. The payments are made to the
Distributor in recognition that the Distributor: o pays sales commissions to
authorized brokers and dealers at the time of
sale and pays service fees as described above,
o ______ may finance payment of sales commissions and/or the advance of
the service fee payment to recipients under the plans, or may provide
such financing from its own resources or from the resources of an
affiliate,
o employs personnel to support distribution of Class B and Class C
shares, and
o ______ bears the costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders) and
state "blue sky" registration fees and certain other distribution
expenses.
For the fiscal year ended August 31, 1998, payments under the Class B Plan
totaled $5,744,260 (including $85,448 paid to an affiliate of the Distributor's
parent). The Distributor retained $4,717,686 of the total amount. For the fiscal
year ended August 31, 1998, payments under the Class C Plan totaled $769,244,
(including $4,936 paid to an affiliate of the Distributor's parent). The
Distributor retained $535,009 of the total amount.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. As of
August 31, 1998, the Distributor had incurred unreimbursed expenses under the
Class B plan in the amount of $15,529,526 (equal to 2.45% of the Fund's net
assets represented by Class B shares on that date) and unreimbursed expenses
under the Class C plan of $1,178,202 (equal to 1.24% of the Fund's net assets
represented by Class C shares on that date). If either the Class B or the Class
C Plan is terminated by the Fund, the Board of 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.
All payments under the Class B and the Class C Plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication).
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each shareholder's
account. Your account's performance will vary from the model performance data if
your dividends are received in cash, or you buy or sell shares during the
period, or you bought your shares at a different time and price than the shares
used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares and total returns are
not guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
Total returns for any given past period represent historical performance
information and are not, and should not be considered, a prediction of future
returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown without sales charge,
as described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
o Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for each class of shares. Each is based on the
difference in net asset value per share at the beginning and the end of the
period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
- --------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 8/31/98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cumulative Total
Class of Returns (10
Shares years or Life of
Class) Average Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5-Year 10-Year
(or (or
1-Year life-of-class) life-of-class)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A 210.89% 229.85% 0.06% 6.17% 12.15% 13.49% 12.01%1 12.68%1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B 51.92% 82.92% 0.45% 5.32% 12.30%2 12.55%2 12.61%2 12.75%2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C 53.27% 53.27% 4.33% 5.30% 16.27%3 16.27%3 N/A N/A
- --------------------------------------------------------------------------------
1. Inception of Class A: 12/1/70
2. Inception of Class B: 8/17/93
3. Inception of Class C: 11/1/95
<PAGE>
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other income funds. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
|_| Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among domestic
stock funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) one-, three-, five- and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after considering the
fund's sales charges and expenses. Risk measures a fund's (or class's)
performance below 90-day U.S. Treasury bill returns. Risk and investment return
are combined to produce star rankings reflecting performance relative to the
average fund in a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), four stars is "above average" (next 22.5%), three stars
is "average" (next 35%), two stars is "below average" (next 22.5%) and one star
is "lowest" (bottom 10%). The current star ranking is the fund's (or class's)
3-year ranking or its combined 3- and 5-year ranking (weighted 60%/40%
respectively), or its combined 3-, 5-, and 10-year ranking (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).
Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
- ------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
- ------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions. Reduced Sales Charges. As discussed in the
Prospectus, a reduced sales charge rate may be obtained for Class A shares under
Right of Accumulation and Letters of Intent because of the economies of sales
efforts and reduction in expenses realized by the Distributor, dealers and
brokers making such sales. No sales charge is imposed in certain other
circumstances described in Appendix C to this Statement of Additional
Information because the Distributor or dealer or broker incurs little or no
selling expenses.
n Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares, you and your spouse can add
together:
o Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on
behalf of your children who are minors, and o current purchases of
Class A and Class B shares of the Fund and other Oppenheimer funds to
reduce the sales charge rate that applies to current purchases of Class
A shares, and o Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
n The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Bond Fund Oppenheimer Large Cap Growth Fund
Oppenheimer California Municipal Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street California
Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Champion Income Fund ________ Oppenheimer MidCap Fund Oppenheimer
Convertible Securities Fund Oppenheimer Multiple Strategies Fund Oppenheimer
Developing Markets Fund _____ Oppenheimer Municipal Bond Fund Oppenheimer
Disciplined Allocation Fund Oppenheimer New York Municipal Fund Oppenheimer
Disciplined Value Fund ______ Oppenheimer New Jersey Municipal Fund Oppenheimer
Discovery Fund ______________ Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Enterprise Fund _____________ Oppenheimer Quest Balanced Value Fund
Oppenheimer Europe Fund _________________ Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value Fund,
Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Growth & Income Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Gold & Special Minerals Oppenheimer Quest Value Fund, Inc.
Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Fund Limited-Term New York Municipal Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter states
the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases made
at net asset value without sales charge do not count toward satisfying the
amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such purchase,
promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter, shares
redeemed by the investor prior to the termination of the Letter of Intent period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
[_] Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended purchase amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. ____ The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include: (a) Class A shares
sold with a front-end sales charge or subject to a Class
A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
<PAGE>
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. The amount of the
Asset Builder investment may be changed or the automatic investments may be
terminated at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the Plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the Plan's applicable investments
reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
[_] Class B Conversion. The conversion of Class B shares to Class A
shares after six years is subject to the continuing availability of a private
letter ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the share 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 shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
[_] Allocation of Expenses. 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.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the value of some of the
portfolio securities may change on those days, when shareholders may not
purchase or redeem shares. Additionally, trading on European and Asian stock
exchanges and over-the-counter markets normally is completed before the close of
The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Manager determines that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.
n Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows: (1) if last sale information is regularly reported, they
are valued at the
last reported sale price on the principal exchange on which
they are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date,
they are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid"
and "asked" prices on the valuation date or, if not, at the
closing "bid" price on the valuation date.
o Equity securities traded on a foreign securities exchange generally
are valued in one of the following ways: (1) at the last sale price available to
the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its
last trading session on or immediately before the valuation date,
or
(3) at the mean between the "bid" and "asked" prices obtained from
the principal exchange on which the security is traded or, on the
basis of reasonable inquiry, from two market makers in the
security.
o Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than 397 days when
issued,
(2) debt instruments that had a maturity of 397 days or less when
issued and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days
or less when issued and which have a remaining maturity of 60
days or less.
o The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts: (1) money market debt
securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a
remaining maturity of 397 days or less.
o Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures. If the Manager is unable to locate two market makers
willing to give quotes, a security may be priced at the mean between the "bid"
and "asked" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares.
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or o Class
B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of 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.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of 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 will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Sending Redemption Proceeds by Wire. The wire of redemption proceeds may be
delayed if the Fund's custodian bank is not open for business on a day when the
Fund would normally authorize the wire to be made, which is usually the Fund's
next regular business day following the redemption. In those circumstances, the
wire will not be transmitted until the next bank business day on which the Fund
is open for business. No dividends will be paid on the proceeds of redeemed
shares awaiting transfer by wire.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other
redemption requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
<PAGE>
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the conditions of
applicable tax laws and will not be responsible for any tax penalties assessed
in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior 30 days.
Required minimum distributions from OppenheimerFunds-sponsored retirement plans
may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C to this
Statement of Additional Information.
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
o All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
o Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
o Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds sponsored 401 (k) plans.
o Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge. To
qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
[_] How Exchanges Affect Contingent Deferred Sales Charges. No
contingent deferred sales charge is imposed on exchanges of shares of any class
purchased subject to a contingent deferred sales charge. However, when Class A
shares acquired by exchange of Class A shares of other Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are redeemed
within 18 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares, the Class A contingent deferred sales charge is
imposed on the redeemed shares. The Class B contingent deferred sales charge is
imposed on Class B shares acquired by exchange if they are redeemed within 6
years of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial purchase of the
exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify which class of shares they intend to exchange.
[_] Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
[_] Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investor must obtain a Prospectus of that fund before
the exchange request may be submitted. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans will be switched to the new account unless
the Transfer Agent is instructed otherwise. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
[_] Processing Exchange Requests. Shares to be exchanged are redeemed
on the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there
can be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A shares. That is because of
the effect of the asset-based sales charge on Class B and Class C shares. Those
dividends will also differ in amount as a consequence of any difference in the
net asset values of the different classes of shares.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer Agent
at the address and toll-free numbers shown on the back cover.
The Custodian. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial. Independent Auditors. Deloitte &
Touche, LLP are the independent auditors of the Fund. They audit the Fund's
financial statements and perform other related audit services. They also act as
auditors for the Manager and certain other funds advised by the Manager and its
affiliates.
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
================================================================================
The Board of 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,
1998, the related statement of operations for the year then ended, the
statements of changes in net assets for the two-year period then ended, and the
financial highlights for the period July 1, 1993, to August 31, 1998. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at August 31, 1998, by correspondence with the custodian and brokers; and
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, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Denver, Colorado
September 22, 1998
<PAGE>
Financials
- --------------------------------------------------------------------------------
12 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments August 31, 1998
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
================================================================================
Common Stocks--49.7%
- --------------------------------------------------------------------------------
Basic Materials--2.3%
- --------------------------------------------------------------------------------
Chemicals--0.9%
Betzdearborn, Inc. 200,000 $
12,300,000
- --------------------------------------------------------------------------------
Dexter Corp. 500,000
12,375,000
- --------------------------------------------------------------------------------
Lyondell Chemical Co. 396,160
8,542,200
- --------------
33,217,200
- --------------------------------------------------------------------------------
Metals--0.2%
Reynolds Metals Co. 131,200
6,289,400
- --------------------------------------------------------------------------------
Paper--1.2%
Sonoco Products Co. 660,000
16,912,500
- --------------------------------------------------------------------------------
Stone Container Corp.(1) 259,740
2,711,036
- --------------------------------------------------------------------------------
Union Camp Corp. 200,000
7,412,500
- --------------------------------------------------------------------------------
Westvaco Corp. 375,000
7,875,000
- --------------------------------------------------------------------------------
Weyerhaeuser Co. 250,000
9,390,625
- --------------
44,301,661
- --------------------------------------------------------------------------------
Consumer Cyclicals--2.6%
- --------------------------------------------------------------------------------
Autos & Housing--0.6%
Ford Motor Co. 100,000
4,400,000
- --------------------------------------------------------------------------------
Snap-On, Inc. 675,000
17,718,750
- --------------
22,118,750
- --------------------------------------------------------------------------------
Media--0.9%
Dun & Bradstreet Corp. (New) 900,000
21,150,000
- --------------------------------------------------------------------------------
Hollinger International, Inc. 736,000
10,304,000
- --------------------------------------------------------------------------------
R.H. Donnelley Corp. 160,000
2,110,000
- --------------
33,564,000
- --------------------------------------------------------------------------------
Retail: General--1.1%
Family Dollar Stores, Inc. 1,400,000
17,762,500
- --------------------------------------------------------------------------------
Penney (J.C.) Co., Inc. 183,300
9,084,806
- --------------------------------------------------------------------------------
Sears Roebuck & Co. 300,000
13,631,250
- --------------
40,478,556
13 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Consumer Non-Cyclicals--8.6%
- --------------------------------------------------------------------------------
Food--0.8%
SUPERVALU, Inc. 1,400,000 $
28,437,500
- --------------------------------------------------------------------------------
Healthcare/Drugs--2.3%
American Home Products Corp. 300,000
15,037,500
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 300,000
29,362,500
- --------------------------------------------------------------------------------
Merck & Co., Inc. 250,000
28,984,375
- --------------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 250,000
10,390,625
- --------------
83,775,000
- --------------------------------------------------------------------------------
Healthcare/Supplies & Services--0.8%
Hillenbrand Industries, Inc. 300,000
16,068,750
- --------------------------------------------------------------------------------
United States Surgical Corp. 300,000
11,981,250
- --------------
28,050,000
- --------------------------------------------------------------------------------
Household Goods--0.8%
Fort James Corp. 644,420
18,768,733
- --------------------------------------------------------------------------------
Newell Co. 200,000
9,550,000
- --------------
28,318,733
- --------------------------------------------------------------------------------
Tobacco--3.9%
Philip Morris Cos., Inc. 2,000,000
83,125,000
- --------------------------------------------------------------------------------
RJR Nabisco Holdings Corp. 2,200,000
47,712,500
- --------------------------------------------------------------------------------
UST, Inc. 400,000
10,450,000
- --------------
141,287,500
- --------------------------------------------------------------------------------
Energy--2.1%
- --------------------------------------------------------------------------------
Oil-Integrated--2.1%
Enron Corp. 425,000
17,982,813
- --------------------------------------------------------------------------------
Mobil Corp. 100,000
6,912,500
- --------------------------------------------------------------------------------
Occidental Petroleum Corp. 878,734
16,256,579
- --------------------------------------------------------------------------------
Phillips Petroleum Co. 200,000
8,162,500
- --------------------------------------------------------------------------------
Royal Dutch Petroleum Co., NY Shares 100,000
3,975,000
- --------------------------------------------------------------------------------
Ultramar Diamond Shamrock Corp. 400,000
9,250,000
- --------------------------------------------------------------------------------
Unocal Corp. 200,000
6,262,500
- --------------------------------------------------------------------------------
USX-Marathon Group 300,000
7,800,000
- --------------
76,601,892
14 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Financial--26.8%
- --------------------------------------------------------------------------------
Banks--19.1%
Banc One Corp. 800,000 $
30,400,000
- --------------------------------------------------------------------------------
Bank of New York Co., Inc. (The) 1,300,000
31,443,750
- --------------------------------------------------------------------------------
BankAmerica Corp. 1,100,000
70,468,750
- --------------------------------------------------------------------------------
BankBoston Corp. 850,000
30,334,375
- --------------------------------------------------------------------------------
Bankers Trust Corp. 100,000
7,431,250
- --------------------------------------------------------------------------------
Chase Manhattan Corp. (New) 1,600,000
84,800,000
- --------------------------------------------------------------------------------
Citicorp 525,000
56,765,625
- --------------------------------------------------------------------------------
Crestar Financial Corp. 550,000
27,775,000
- --------------------------------------------------------------------------------
First Chicago NBD Corp. 550,000
34,856,250
- --------------------------------------------------------------------------------
First Union Corp. 2,000,000
97,000,000
- --------------------------------------------------------------------------------
Fleet Financial Group, Inc. 350,000
22,946,875
- --------------------------------------------------------------------------------
Greenpoint Financial Corp. 450,000
11,334,375
- --------------------------------------------------------------------------------
KeyCorp 750,000
19,125,000
- --------------------------------------------------------------------------------
Mellon Bank Corp. 700,000
36,400,000
- --------------------------------------------------------------------------------
National City Corp. 425,000
24,968,750
- --------------------------------------------------------------------------------
NationsBank Corp. 475,000
27,075,000
- --------------------------------------------------------------------------------
PNC Bank Corp. 301,600
12,968,800
- --------------------------------------------------------------------------------
Sovereign Bancorp, Inc. 262,216
3,195,758
- --------------------------------------------------------------------------------
Summit Bancorp 700,000
23,887,500
- --------------------------------------------------------------------------------
Union Planters Corp. 387,440
15,594,460
- --------------------------------------------------------------------------------
Washington Mutual, Inc. 750,000
24,000,000
- --------------
692,771,518
- --------------------------------------------------------------------------------
Diversified Financial--3.0%
American Express Co. 500,000
39,000,000
- --------------------------------------------------------------------------------
Anthracite Capital, Inc. 600,000
5,812,500
- --------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A 78,625
4,648,703
- --------------------------------------------------------------------------------
Capital One Financial Corp. 300,000
26,250,000
- --------------------------------------------------------------------------------
Household International, Inc. 766,650
28,318,134
- --------------------------------------------------------------------------------
Imperial Credit Commercial Mortgage Investment Corp 500,000
4,500,000
- --------------
108,529,337
- --------------------------------------------------------------------------------
Insurance--4.2%
Allstate Corp. 1,000,000
37,500,000
- --------------------------------------------------------------------------------
American General Corp. 700,000
44,975,000
- --------------------------------------------------------------------------------
Hartford Financial Services Group, Inc. 300,000
13,425,000
- --------------------------------------------------------------------------------
IPC Holdings Ltd. 359,500
8,942,563
- --------------------------------------------------------------------------------
Reliance Group Holdings, Inc. 2,141,500
27,036,438
- --------------------------------------------------------------------------------
St. Paul Cos., Inc. 700,000
21,393,750
- --------------
153,272,751
15 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Real Estate Investment Trusts--0.5%
FBR Asset Investment Corp.(2)(3) 500,000 $
7,250,000
- --------------------------------------------------------------------------------
Horizon Group Properties, Inc.(1) 30,000
105,000
- --------------------------------------------------------------------------------
Prime Retail, Inc. 600,000
5,625,000
- --------------------------------------------------------------------------------
Wilshire Real Estate Investment Trust, Inc. 330,000
4,455,000
- --------------
17,435,000
- --------------------------------------------------------------------------------
Industrial--2.0%
- --------------------------------------------------------------------------------
Electrical Equipment--0.5%
AMP, Inc. 500,000
17,843,750
- --------------------------------------------------------------------------------
Industrial Services--0.6%
- --------------------------------------------------------------------------------
Browning-Ferris Industries, Inc. 225,000
7,312,500
- --------------------------------------------------------------------------------
H&R Block, Inc. 400,000
15,650,000
- --------------
22,962,500
- --------------------------------------------------------------------------------
Manufacturing--0.9%
Cooper Industries, Inc. 163,333
6,951,861
- --------------------------------------------------------------------------------
Pall Corp. 400,000
8,200,000
- --------------------------------------------------------------------------------
Tenneco, Inc. (New) 500,000
15,843,750
- --------------
30,995,611
- --------------------------------------------------------------------------------
Utilities--5.3%
- --------------------------------------------------------------------------------
Electric Utilities--3.7%
Allegheny Energy, Inc. 300,000
7,987,500
- --------------------------------------------------------------------------------
Central & South West Corp. 500,000
13,062,500
- --------------------------------------------------------------------------------
FirstEnergy Corp. 400,000
11,550,000
- --------------------------------------------------------------------------------
Florida Progress Corp. 500,000
21,093,750
- --------------------------------------------------------------------------------
Illinova Corp. 700,000
18,068,750
- --------------------------------------------------------------------------------
New Century Energies, Inc. 200,000
9,225,000
- --------------------------------------------------------------------------------
Potomac Electric Power Co. 400,000
9,800,000
- --------------------------------------------------------------------------------
SCANA Corp. 300,000
9,206,250
- --------------------------------------------------------------------------------
Texas Utilities Co. 500,000
21,250,000
- --------------------------------------------------------------------------------
Unicom Corp. 300,000
10,687,500
- --------------
131,931,250
- --------------------------------------------------------------------------------
Telephone Utilities--1.6%
GTE Corp. 550,000
27,500,000
- --------------------------------------------------------------------------------
Portugal Telecom SA, Sponsored ADR 75,700
3,146,281
- --------------------------------------------------------------------------------
SBC Communications, Inc. 700,000
26,600,000
- --------------------------------------------------------------------------------
57,246,281
- --------------
Total Common Stocks (Cost $1,176,067,467)
1,799,428,190
16 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
========================================================================================================
<S>
<C> <C>
Preferred Stocks--4.4%
- --------------------------------------------------------------------------------------------------------
American Heritage Life Investment Corp., 8.50% Cv.
Preferred 35,000 $ 2,047,500
- --------------------------------------------------------------------------------------------------------
Armco, Inc., $3.625 Cv.
Cum 200,000
8,550,000
- --------------------------------------------------------------------------------------------------------
Banco Commercial Portuguese International Bank Ltd.,
8% Cv. Preferred Stock, Series
A 165,400 16,540,000
- --------------------------------------------------------------------------------------------------------
California Federal Preferred Capital Corp., 9.125% Non-Cum
Exchangeable Preferred, Series A,
Non-Vtg 55,000 1,454,063
- --------------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc., $3.75 Cv., Series
B 180,000 8,730,000
- --------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.50% Cv. Preferred
Stock 451,800 14,457,600
- --------------------------------------------------------------------------------------------------------
Elsag Bailey Financing Trust, 5.50% Cv. Trust Originated
Preferred
Securities(4)
250,000 10,187,500
- --------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 9% Gtd. Nts.,
12/1/06(2) 1,600,000 1,608,000
- --------------------------------------------------------------------------------------------------------
Golden State Bancorp, 8.75% Cv. Preferred Stock, Series
A 162,500 8,287,500
- --------------------------------------------------------------------------------------------------------
IXC Communications, Inc., 7.25% Cv. Cum. Jr. Preferred,
Non-Vtg.(4)(5) 53,723 5,969,968
- --------------------------------------------------------------------------------------------------------
Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable
Increased Dividend Equity
Securities 1,450,000 11,146,875
- --------------------------------------------------------------------------------------------------------
National Australia Bank Ltd., ExCaps (each ExCap consists of $25 principal
amount of 7.875% Perpetual Capital Security and a purchase contract entitling
the holder to exchange ExCaps for ordinary shares of the bank)(6) 590,000 ______
16,003,750
- --------------------------------------------------------------------------------------------------------
Newell Financial Trust I, 5.25% Cv. Preferred
Stock(1)(4) 244,000 13,999,500
- --------------------------------------------------------------------------------------------------------
PLC Capital Trust II, 6.50% Cv. Cum. Preferred Redeemable
Income Dividend Enhanced
Securities 56,500
3,121,625
- --------------------------------------------------------------------------------------------------------
St. George Bank, ADR $1.35 Cv. Structured Yield Product
Exchangeable for Common Stock of St. George Bank,
ADR(1)(2) 96,000 4,416,000
- --------------------------------------------------------------------------------------------------------
Texas Utilities Co., 9.25% Cv. Preferred Redeemable
Increased Dividend Equity
Securities 176,500 9,277,281
- --------------------------------------------------------------------------------------------------------
Trans World Airlines, Inc., $4.625 Cv. Cum. Preferred
Stock(1)(4) 200,000 11,100,000
- --------------------------------------------------------------------------------------------------------
Union Pacific Capital Trust, 6.25% Cum. Term Income
Deferrable Equity Securities,
Non-Vtg.(1) 131,400 5,863,725
- --------------------------------------------------------------------------------------------------------
WBK Trust, 6% Structured Yield Product Exchangeable
for Stock of WestPac Bank Corp.,
11/15/00 205,000 5,125,000
- --------------
Total Preferred Stocks (Cost
$156,437,127) 157,885,887
</TABLE>
17 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
=================================================================================================
<S>
<C> <C>
Other Securities--3.1%
- -------------------------------------------------------------------------------------------------
American General Delaware LLC, $3.00 Cv. Monthly
Income Preferred Securities, Series A
75,000 $ 6,150,000
- -------------------------------------------------------------------------------------------------
Corning Delaware LP, 6% Cv. Monthly Income Preferred Securities
150,000 7,200,000
- -------------------------------------------------------------------------------------------------
Enron Corp., 6.25% Cv. Automatic Common Exchangeable Securities,
Redeemable into Enron Oil & Gas Co. Common Stock
270,000 3,864,375
- -------------------------------------------------------------------------------------------------
Houston Industries, Inc., 7% Automatic Common Exchange Securities,
Exchangeable for Time Warner, Inc. Common Stock, 7/1/00
175,800 12,569,700
- -------------------------------------------------------------------------------------------------
MCN Energy Group, Inc., 8% Cv. Preferred Redeemable
Increased Dividend Equity Securities
50,000 1,787,500
- -------------------------------------------------------------------------------------------------
MCN Energy Group, Inc., 8.75% Cv. Preferred Redeemable
Increased Dividend Equity Securities
135,000 2,438,437
- -------------------------------------------------------------------------------------------------
MediaOne Group, Inc., 7.625% Cv. Debt Exchangeable
for Common Stock
415,000 17,793,125
- -------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6% Cv. Structured Yield
Product Exchangeable for Common Stock of
Cox Communications, Inc., 6/1/99
300,000 10,650,000
- -------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly Income
Preferred Securities, Non-Vtg.(4)
200,000 10,325,000
- -------------------------------------------------------------------------------------------------
Premier Parks, Inc., 7.50% Cum. Cv. Premium Income
Equity Securities, Non-Vtg
499,000 19,710,500
- -------------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc., 7.625% Cv. Preferred,
Debt Exchangeable for Common Stock of Financial Security
Assurance Holdings Ltd., 5/15/99
460,000 18,917,500
- --------------
Total Other Securities (Cost
$95,619,625) 111,406,137
<CAPTION>
Face
Amount(7)
=================================================================================================
<S>
<C> <C>
U.S. Government Obligations--14.6%
- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.94%, 5/15/21(8)
$700,000,000 200,649,400
- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 7.20%, 8/15/08(8)
150,000,000 89,549,850
- -------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 7.20%, 8/15/20(8)
800,000,000 238,468,800
- --------------
Total U.S. Government Obligations (Cost
$391,442,076) 528,668,050
=================================================================================================
Foreign Government Obligations--1.5%
- -------------------------------------------------------------------------------------------------
Argentina (Republic of) Bonds, Series L, 6.625%, 3/31/05(9)
6,175,000 4,191,281
- -------------------------------------------------------------------------------------------------
Canada (Government of) Bonds, 7.50%, 9/1/00CAD
19,460,000 12,845,331
- -------------------------------------------------------------------------------------------------
Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(4)
9,000,000 6,907,500
- -------------------------------------------------------------------------------------------------
Hashemite (Kingdom of Jordan) Disc. Bonds, 6.45%, 12/23/23(9)
1,250,000 903,125
- -------------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03AUD
9,900,000 6,249,442
- -------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Exchangeable Gtd. Nts., 8%, 8/14/01AUD
33,650,000 20,242,885
- -------------------------------------------------------------------------------------------------
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10ZAR
27,500,000 2,930,555
- -------------------------------------------------------------------------------------------------
South Australia (Government of) Bonds, 9%, 9/23/02AUD
3,000,000 1,869,092
- --------------
Total Foreign Government Obligations (Cost
$69,521,544) 56,139,211
</TABLE>
18 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount(7) See Note 1
==================================================================================================
<S>
<C> <C>
Non-Convertible Corporate Bonds and Notes--2.9%
- --------------------------------------------------------------------------------------------------
AK Steel Corp., 9.125% Sr. Nts., 12/15/06
$3,000,000 $ 3,007,500
- --------------------------------------------------------------------------------------------------
Auburn Hills Trust, 11.74% Gtd. Exchangeable Certificates, 5/1/20(9)
5,000,000 8,279,665
- --------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07
2,500,000 2,787,500
- --------------------------------------------------------------------------------------------------
California Energy, Inc., 10.25% Sr. Disc. Nts., 1/15/04
4,350,000 4,632,750
- --------------------------------------------------------------------------------------------------
Calpine Corp., 8.75% Sr. Nts., 7/15/07
875,000 879,375
- --------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06
2,400,000 1,956,000
- --------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01
6,000,000 6,330,000
- --------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05
6,350,000 6,318,250
- --------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 9.875% Sr. Sub. Debs., 4/1/23
2,000,000 2,130,000
- --------------------------------------------------------------------------------------------------
El Paso Electric Co., 9.40% First Mtg. Bonds, Series E, 5/1/11
6,000,000 6,630,000
- --------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06(2)
5,000,000 4,950,000
- --------------------------------------------------------------------------------------------------
First Nationwide Holdings, Inc., 10.625% Sr. Sub. Nts., 10/1/03
6,190,000 6,793,525
- --------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 10.625% Gtd. Sr. Nts., 12/15/01
3,000,000 3,045,000
- --------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 9.25% Gtd. Sr
Sub. Nts., 2/1/06
5,000,000 5,025,000
- --------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09
3,000,000 2,857,500
- --------------------------------------------------------------------------------------------------
Lenfest Communications, Inc., 8.375% Sr. Unsec. Nts., 11/1/05
6,000,000 6,270,000
- --------------------------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07
2,000,000 1,870,000
- --------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03(2)
9,000,000 9,292,500
- --------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 8.625% Sr. Sub. Nts., 1/15/07
2,000,000 1,985,000
- --------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(2)
1,984,872 1,421,665
- --------------------------------------------------------------------------------------------------
Viacom International, Inc., 10.25% Sr. Sub. Nts., 9/15/01
12,000,000 13,204,968
- --------------------------------------------------------------------------------------------------
WorldCom, Inc., 9.375% Sr. Nts., 1/15/04(2)
3,343,000 3,678,597
- --------------
Total Non-Convertible Corporate Bonds and Notes (Cost
$96,917,070) 103,344,795
==================================================================================================
Convertible Corporate Bonds and Notes--2.3%
- --------------------------------------------------------------------------------------------------
ALZA Corp., 5% Cv. Sub. Debs., 5/1/06
10,000,000 11,800,000
- --------------------------------------------------------------------------------------------------
Apple Computer, Inc., 6% Cv. Sub. Nts., 6/1/01
10,500,000 12,862,500
- --------------------------------------------------------------------------------------------------
Cirrus Logic, Inc., 6% Cv. Sub. Nts., 12/15/03(4)
11,000,000 7,493,750
- --------------------------------------------------------------------------------------------------
Inco Ltd., 5.75% Cv. Debs., 7/1/04
9,700,000 8,245,000
- --------------------------------------------------------------------------------------------------
Inco Ltd., 7.75% Cv. Debs., 3/15/16
9,800,000 8,807,750
- --------------------------------------------------------------------------------------------------
Integrated Device Technology, Inc., 5.50% Cv. Sub. Nts., 6/1/02
7,000,000 5,372,500
- --------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon
Exchangeable Sub. Debs., 5.25%, 10/30/15(4)(8)
19,500,000 12,918,750
- --------------------------------------------------------------------------------------------------
Oryx Energy Co., 7.50% Cv. Sub. Debs., 5/15/14
7,000,000 6,746,250
- --------------------------------------------------------------------------------------------------
VLSI Technology, Inc., 8.25% Cv. Sub. Nts., 10/1/05
10,100,000 9,405,625
- --------------
Total Convertible Corporate Bonds and Notes (Cost
$77,954,401) 83,652,125
</TABLE>
19 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount(7) See Note 1
======================================================================================================
<S>
<C> <C>
Structured Instruments--0.4%
- ------------------------------------------------------------------------------------------------------
Shoshone Partners Loan Trust Sr. Nts., 5/31/02 (representing
a basket of reference loans and a total return swap between
Chase Manhattan Bank and the Trust)(2)(10) $
7,681,000 $ 7,681,000
- ------------------------------------------------------------------------------------------------------
Shoshone Partners Loan Trust Sr. Nts., 7.44%, 4/28/02
(representing a basket of reference loans and a total return
swap between Chase Manhattan Bank and the Trust)(2)(9)
7,319,000 7,484,168
- --------------
Total Structured Instruments (Cost
$15,485,088) 15,165,168
======================================================================================================
Short-Term Notes--14.5%(11)
- ------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.50%, 10/2/98
50,000,000 49,763,194
- ------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.51%, 9/23/98
50,000,000 49,831,639
- ------------------------------------------------------------------------------------------------------
Baxter International, Inc., 5.55%, 9/3/98
30,000,000 29,990,750
- ------------------------------------------------------------------------------------------------------
Baxter International, Inc., 5.56%, 9/8/98
30,000,000 29,967,567
- ------------------------------------------------------------------------------------------------------
CIESCO, LP, 5.52%, 10/5/98
50,000,000 49,739,333
- ------------------------------------------------------------------------------------------------------
CIT Group Holdings, Inc., 5.53%, 9/2/98
50,000,000 49,992,319
- ------------------------------------------------------------------------------------------------------
Countrywide Home Loans, 5.54%, 9/28/98
25,000,000 24,895,938
- ------------------------------------------------------------------------------------------------------
Countrywide Home Loans, 5.58%, 9/2/98
26,000,000 25,995,970
- ------------------------------------------------------------------------------------------------------
First Data Corp., 5.52%, 9/22/98
40,000,000 39,871,200
- ------------------------------------------------------------------------------------------------------
First Data Corp., 5.52%, 9/8/98
50,000,000 49,946,333
- ------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.53%, 9/24/98
50,000,000 49,823,347
- ------------------------------------------------------------------------------------------------------
Norwest Corp., 5.51%, 10/8/98
50,000,000 49,716,847
- ------------------------------------------------------------------------------------------------------
Prudential Funding Corp., 5.52%, 9/14/98
25,000,000 24,950,167
- --------------
Total Short-Term Notes (Cost
$524,484,604) 524,484,604
======================================================================================================
Repurchase Agreements--7.0%
- ------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets, 5.75%, dated 8/31/98,
to be repurchased at $253,340,458 on 9/1/98, collateralized by U.S. Treasury
Bonds, 7.625%-13.125%, 5/15/01-11/15/22, with a value of $244,798,746, and U.S.
Treasury Nts., 5.50%-6.50%, 1/31/03-10/15/06,with a value of $14,033,919 (Cost
$253,300,000) 253,300,000 253,300,000
- ------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $2,857,229,002)
100.4% 3,633,474,167
- ------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other
Assets (0.4) (14,232,174)
- ----------- --------------
Net Assets
100.0% $3,619,241,993
=========== ==============
</TABLE>
20 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Non-income producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 5 of
Notes to Financial Statements.
3. 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, 1998.
The aggregate fair value of securities of affiliated companies held by the Fund
as of August 31, 1998, amounts to $7,250,000. Transactions during the period in
which the issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
Shares Shares
August 31, Gross Gross August 31,
Dividend
1997 Additions Reductions 1998
Income
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
FBR Asset Investment Corp. -- 500,000 -- 500,000
$275,000
</TABLE>
4. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $78,901,968 or 2.18% of the Fund's net
assets as of August 31, 1998.
5. Interest or dividend is paid-in-kind.
6. Units may be comprised of several components, such as debt and equity and/or
warrants to purchase equity at some point in the future. For units which
represent debt securities, face amount disclosed represents total underlying
principal.
7. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
AUD--Australian Dollar
CAD--Canadian Dollar
ZAR--South African Rand
8. For zero coupon bonds, the interest rate shown is the effective yield on
the
date of purchase.
9. Represents the current interest rate for a variable rate security.
10. When-issued security to be delivered and settled after August 31,1998.
11. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
See accompanying Notes to Financial Statements.
21 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities August 31, 1998
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $2,847,229,002)
$3,626,224,167
Affiliated companies (cost $10,000,000)
7,250,000
- --------------------------------------------------------------------------------
Receivables:
Interest and dividends
10,201,018
Shares of beneficial interest sold
5,021,164
- --------------------------------------------------------------------------------
Other
102,998
- --------------
Total assets
3,648,799,347
================================================================================
Liabilities
Bank overdraft
2,683,739
- --------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased
17,811,783
Shares of beneficial interest redeemed 6,450,657 Distribution and service plan
fees 1,338,174 Transfer and shareholder servicing agent fees 586,335 Shareholder
reports 425,446 Custodian fees 60,267 Other 200,953
- --------------
Total liabilities
29,557,354
================================================================================
Net Assets
$3,619,241,993
==============
================================================================================
Composition of Net Assets
Paid-in capital
$2,618,657,524
- --------------------------------------------------------------------------------
Undistributed net investment income
24,389,841
- --------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions
200,032,683
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments
776,161,945
- --------------
Net assets
$3,619,241,993
==============
22 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$2,889,472,020 and 210,161,974 shares of beneficial interest outstanding) $13.75
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $14.59
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $634,775,074 and
46,558,894 shares of beneficial interest outstanding) $13.63
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $94,994,899 and
6,969,876 shares of beneficial interest outstanding) $13.63
See accompanying Notes to Financial Statements.
23 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
=======================================================================================
Investment Income
Interest $
88,135,493
- ---------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $144,403)
69,819,505
Affiliated
companies 275,000
- -------------
Total income
158,229,998
=======================================================================================
Expenses
Management fees--Note 4
19,364,160
- ---------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A
6,047,155
Class B
5,744,260
Class
C
769,244
- ---------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4
3,984,343
- ---------------------------------------------------------------------------------------
Shareholder
reports 885,703
- ---------------------------------------------------------------------------------------
Registration and filing
fees 277,086
- ---------------------------------------------------------------------------------------
Custodian fees and
expenses 147,571
- ---------------------------------------------------------------------------------------
Legal, auditing and other professional
fees 82,493
- ---------------------------------------------------------------------------------------
Trustees' fees and
expenses 70,611
- ---------------------------------------------------------------------------------------
Insurance
expenses 29,675
- ---------------------------------------------------------------------------------------
Other
60,430
- -------------
Total expenses
37,462,731
=======================================================================================
Net Investment Income
120,767,267
=======================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments
235,576,019
Foreign currency transactions
(3,519,103)
- -------------
Net realized gain
232,056,916
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments
(168,879,300)
Translation of assets and liabilities denominated in foreign currencies
(7,659,603)
- -------------
Net change
(176,538,903)
- -------------
Net realized and unrealized gain
55,518,013
=======================================================================================
Net Increase in Net Assets Resulting from Operations $
176,285,280
=============
</TABLE>
See accompanying Notes to Financial Statements.
24 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August
31,
1998
1997
===========================================================================================
<S> <C>
<C>
Operations
Net investment income $ 120,767,267 $
108,795,712
- -----------------------------------------------------------------------------------------
Net realized gain 232,056,916
156,172,442
- -----------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (176,538,903)
524,310,151
--------------
- --------------
Net increase in net assets resulting from operations 176,285,280
789,278,305
=========================================================================================
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A (99,500,973)
(90,387,132)
Class B
(13,977,579) (9,876,167)
Class C
(1,859,540) (666,754)
- -----------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (154,035,012)
(74,843,781)
Class B
(26,561,696) (9,970,652)
Class C
(3,223,836) (386,132)
=========================================================================================
Beneficial Interest Transactions Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A
253,723,804 85,811,376
Class B
234,393,363 99,076,120
Class C
52,477,300 36,069,145
=========================================================================================
Net Assets
Total increase 417,721,111
824,104,328
- -----------------------------------------------------------------------------------------
Beginning of period 3,201,520,882
2,377,416,554
--------------
- --------------
End of period (including undistributed net investment
income of $24,389,841 and $18,883,337, respectively) $3,619,241,993
$3,201,520,882
==============
==============
</TABLE>
See accompanying Notes to Financial Statements.
25 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
A
- ----------------------------------------------------
Year Ended August
31, Year Ended June 30,
1998 1997
1996(2) 1996 1995
==================================================================================================
<S> <C> <C>
<C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $14.12 $11.36
$11.39 $10.25 $9.44
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .50 .47
.09 .50 .50
Net realized and unrealized gain (loss) .41 3.17
(.12) 1.36 .92
------ ------
- ------ ------ ------
Total income (loss) from investment
operations .91 3.64
(.03) 1.86 1.42
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.49) (.48)
- -- (.48) (.48)
Dividends in excess of net investment
income -- --
- -- -- --
Distributions from net realized gain (.79) (.40)
- -- (.24) (.13)
Distributions in excess of net realized gain -- --
- -- -- --
------ ------
- ------ ------ ------
Total dividends and distributions
to shareholders (1.28) (.88)
- -- (.72) (.61)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $13.75 $14.12
$11.36 $11.39 $10.25
====== ======
====== ====== ======
==================================================================================================
Total Return, at Net Asset Value(4) 6.17% 33.39%
(0.26)% 18.61% 15.66%
==================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $2,889 $2,722
$2,110 $2,141 $1,893
- --------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,072 $2,446
$2,109 $2,054 $1,798
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.47% 3.97%
3.28%(5) 4.51% 5.15%
Expenses 0.87% 0.88%
0.94%(5) 0.89% 0.96%
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 18.1% 23.7%
13.5% 42.9% 45.7%
</TABLE>
1. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
2. For the two months ended August 31, 1996. 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.
26 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- -----------------------------------------------------------
Year Ended August
31, Year Ended June 30,
1994 1998 1997
1996(2) 1996 1995 1994(3)
====================================================================================================================
<S> <C> <C> <C>
<C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $10.01 $14.01 $11.29
$11.33 $10.21 $9.40 $10.22
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .39
.37 .07 .41 .43 .36
Net realized and unrealized gain (loss) (.39) .40
3.13 (.11) 1.35 .91 (.58)
------ ------ ------
- ------ ------ ------ ------
Total income (loss) from investment
operations .08 .79
3.50 (.04) 1.76 1.34 (.22)
- --------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.47) (.38)
(.38) -- (.40) (.40) (.42)
Dividends in excess of net investment
income (.01) --
- -- -- -- -- (.01)
Distributions from net realized gain (.12) (.79)
(.40) -- (.24) (.13) (.12)
Distributions in excess of net realized gain (.05) --
- -- -- -- -- (.05)
------ ------ ------
- ------ ------ ------ ------
Total dividends and distributions
to shareholders (.65) (1.17)
(.78) -- (.64) (.53) (.60)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.44 $13.63 $14.01
$11.29 $11.33 $10.21 $9.40
====== ====== ======
====== ====== ====== ======
====================================================================================================================
Total Return, at Net Asset Value(4) 0.65% 5.32% 32.17%
(0.35)% 17.58% 14.87% (2.35)%
====================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $1,773 $635
$431 $260 $252 $161 $88
- --------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $1,832 $575
$344 $255 $208 $122 $47
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.72% 2.68%
3.16% 2.48%(5) 3.68% 4.34% 3.99%(5)
Expenses 0.90% 1.67%
1.69% 1.76%(5) 1.72% 1.79% 1.82%(5)
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 30.4% 18.1%
23.7% 13.5% 42.9% 45.7% 30.4%
</TABLE>
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, 1998 were $572,000,878 and $670,953,766, respectively.
27 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
- ---------------------------------------
Period
Ended
Year Ended August
31, June 30,
1998 1997
1996(2) 1996(1)
============================================================================================
<S> <C> <C>
<C> <C>
Per Share Operating Data
Net asset value, beginning of period $14.02 $11.30
$11.35 $10.76
- --------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .40
.07 .28
Net realized and unrealized gain (loss) .40 3.12
(.12) .88
------ ------
- ------ ------
Total income (loss) from investment operations .79 3.52
(.05) 1.16
- --------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.39) (.40)
- -- (.33)
Dividends in excess of net investment income -- --
- -- --
Distributions from net realized gain (.79) (.40)
- -- (.24)
Distributions in excess of net realized gain -- --
- -- --
------ ------
- ------ ------
Total dividends and distribution to shareholders (1.18) (.80)
- -- (.57)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $13.63 $14.02
$11.30 $11.35
====== ======
====== ======
============================================================================================
Total Return, at Net Asset Value(4) 5.30% 32.31%
(0.44)% 10.50%
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $95 $48
$7 $6
- --------------------------------------------------------------------------------------------
Average net assets (in millions) $77 $25
$7 $3
- --------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.68% 3.15%
2.55%(5) 3.53%(5)
Expenses 1.67% 1.69%
1.79%(5) 1.81%(5)
- --------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 18.1% 23.7%
13.5% 42.9%
</TABLE>
1. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
2. For the two months ended August 31, 1996. 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, 1998 were $572,000,878 and $670,953,766, respectively.
See accompanying Notes to Financial Statements.
28 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. Its secondary objective is to
conserve principal while providing an opportunity for capital appreciation. The
Fund's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund
offers Class A, Class B and Class C shares. Class A shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All classes of shares have identical rights to
earnings, assets and voting privileges, except that each class has its own
distribution and/or service plan, expenses directly attributable to that class
and exclusive voting rights with respect to matters affecting that class. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
- --------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by an
approved portfolio pricing service are valued using dealer-supplied valuations
provided the Manager is satisfied that the firm rendering the quotes is reliable
and that the quotes reflect current market value, or are valued under
consistently applied procedures established by the Board of 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. Forward foreign currency exchange contracts are valued
based on the closing prices of the forward currency contract rates in the London
foreign exchange markets on a daily basis as provided by a reliable bank or
dealer.
- --------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are
maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on
investments is separately identified from the fluctuations arising from changes
in market values of securities held and reported with all other foreign currency
gains and losses in the Fund's Statement of Operations.
29 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
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 its ultimate characterization for federal income tax purposes. Also, due to
timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders
to reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended August 31, 1998, amounts have been reclassified to reflect an
increase in undistributed net investment income of $77,329, a decrease in
paid-in capital of $1,648,429, and an increase in accumulated realized gain on
investments of $1,571,100.
30 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Discount on securities purchased is amortized over the life of
the respective securities, in accordance with federal income tax requirements.
Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes. Dividends-in-kind are recognized as income
on the ex-dividend date at the current market value of the underlying security.
Interest on payment-in-kind debt instruments is accrued as income at the coupon
rate and a market adjustment is made periodically.
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 August 31, 1998 Year Ended August
31, 1997
--------------------------
- --------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C>
Class A:
Sold 28,301,749 $425,894,349 22,312,307
$286,390,507
Dividends and distributions
reinvested 16,366,250 238,084,133 12,636,963
155,744,291
Redeemed (27,270,231) (410,254,678) (27,925,816)
(356,323,422)
----------- ------------ -----------
- ------------
Net increase 17,397,768 $253,723,804 7,023,454
$85,811,376
=========== ============ ===========
============
- ------------------------------------------------------------------------------------
Class B:
Sold 17,875,704 $267,182,429 9,869,512
$126,478,575
Dividends and distributions
reinvested 2,649,899 38,263,417 1,509,887
18,517,384
Redeemed (4,755,561) (71,052,483) (3,589,063)
(45,919,839)
----------- ------------ -----------
- ------------
Net increase 15,770,042 $234,393,363 7,790,336
$99,076,120
=========== ============ ===========
============
- ------------------------------------------------------------------------------------
Class C:
Sold 4,117,941 $61,626,191 3,032,244
$39,122,283
Dividends and distributions
reinvested 342,326 4,949,150 81,260
1,020,485
Redeemed (941,057) (14,098,041) (315,866)
(4,073,623)
----------- ------------ -----------
- ------------
Net increase 3,519,210 $52,477,300 2,797,638
$36,069,145
=========== ============ ===========
============
</TABLE>
31 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
3. Unrealized Gains and Losses on Investments
At August 31, 1998, net unrealized appreciation on investments of $776,245,165
was composed of gross appreciation of $890,740,506, and gross depreciation of
$114,495,341.
================================================================================
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 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.
For the year ended August 31, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $8,057,145, of which
$2,429,799
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 $8,780,583 and $551,784, respectively, of which $779,103
and $37,137, respectively, was paid to an affiliated broker/dealer. During the
year ended August 31, 1998, OFDI received contingent deferred sales charges of
$631,183 and $23,959, 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 Oppenheimer
funds. OFS's total costs of providing such services are allocated ratably to
these funds.
The Fund has adopted a Service Plan for Class A shares to reimburse
OFDI for a portion of its costs incurred in connection with the personal service
and maintenance of shareholder accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate that may not exceed 0.25% of the average
annual net assets of Class A shares of the Fund. OFDI uses the service fee to
reimburse brokers, dealers, banks and other financial institutions quarterly for
providing personal service and maintenance of accounts of their customers that
hold Class A shares. During the year ended August 31, 1998, OFDI paid $436,769
to an affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
32 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
The Fund has adopted a Distribution and Service Plan for Class B shares to
reimburse OFDI for its services and costs in distributing Class B shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class B shares. OFDI also receives a service
fee of 0.25% per year to reimburse dealers for providing personal services for
accounts that hold Class B shares. Each fee is computed on the average annual
net assets of Class B shares, determined as of the close of each regular
business day. During the year ended August 31, 1998, OFDI paid $85,448 to an
affiliated broker/dealer as reimbursement for Class B personal service and
maintenance expenses and retained $4,717,686 as reimbursement for Class B sales
commissions and service fee advances, as well as financing costs. 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 OFDI for distributing shares before
the Plan was terminated. As of August 31, 1998, OFDI had incurred excess
distribution and servicing costs of $15,529,526 for Class B.
The Fund has adopted a Distribution and Service Plan for Class C
shares to compensate OFDI for its costs in distributing Class C shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class C shares. OFDI also receives a service
fee of 0.25% per year to compensate dealers for providing personal services for
accounts that hold Class C shares. Each fee is computed on the average annual
net assets of Class C shares, determined as of the close of each regular
business day. During the year ended August 31, 1998, OFDI paid $4,936 to an
affiliated broker/dealer as compensation for Class C personal service and
maintenance expenses and retained $535,009 as compensation for Class C sales
commissions and service fee advances, as well as financing costs. 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 OFDI for distributing shares before
the Plan was terminated. As of August 31, 1998, OFDI had incurred excess
distribution and servicing costs of $1,178,202 for Class C.
33 Oppenheimer Equity Income Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
5. Illiquid and Restricted Securities
At August 31, 1998, investments in securities included issues that are illiquid
or restricted. Restricted securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund intends to invest no more than
10% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation at August 31, 1998, was $47,781,930, which represents
1.32% of the Fund's net assets.
================================================================================
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended
August
31, 1998.
34 Oppenheimer Equity Income Fund
<PAGE>
<PAGE>
A-5
Appendix A
- ------------------------------------------------------------------------------
RATINGS DEFINITIONS
- ------------------------------------------------------------------------------
Below are ____ summaries of the rating ____ definitions ____ used by the
nationally-recognized rating agencies listed below. Those ratings represent the
opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
- ------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category. Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- ------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation. CC: An
obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- ------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
- ------------------------------------------------------------------------------
Duff & Phelps Credit Rating Co. Ratings
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk factors
are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
Appendix B
- ------------------------------------------------------------------------------
Industry Classifications
- ------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
C-1B-1
<PAGE>
C-13
Appendix C
OppenheimerFunds Special Sales
Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers
relating to Retirement Plans do not apply to Oppenheimer municipal funds,
because shares of those funds are not available for purchase by or on
behalf of retirement plans. Other waivers apply only to shareholders of certain
funds that were merged into or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under
Sections 401(a) or 401(k)
of the Internal Revenue
Code,
(2) non-qualified deferred
compensation plans,
(3) employee benefit plans2 (4) Group Retirement Plans3 (5) 403(b)(7)
custodial plan
accounts
(6) Individual Retirement
Accounts ("IRAs"),
including traditional
IRAs, Roth IRAs, SEP-IRAs,
SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
special arrangement or waiver in a particular case is in the sole discretion of
the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers
and special arrangements may be amended or terminated at any time by a
particular fund, the Distributor, and/or OppenheimerFunds, Inc. (referred
to in this document as the "Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
- --------------
1. Certain waivers also apply to
Class M. shares of Oppenheimer
Convertible Securities Fund.
2. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings _____ accounts, payroll deduction plans or similar plans. The fund
accounts must be registered in the name of the ______ fiduciary ______ or
administrator purchasing the shares for the benefit of participants in the
plan.
3. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association ____ or ____ other
organized group of persons (the members of which may include other groups),
if the group has made special arrangements with the Distributor and all
members of the group participating in (or who are ____ eligible ____ to
participate in) ____ the ____ plan purchase Class A shares of an Oppenheimer
fund or ____ funds through a single investment dealer, broker ____ or ____
other financial institution designated by the group. Such plans include 457
plans, SEP-IRAs, SARSEPs, SIMPLE plans and 403(b) plans other than plans for
public school employees. ____ The term "Group Retirement Plan" also includes
qualified retirement plans and non-qualified deferred compensation plans and
IRAs that purchase Class A shares of an Oppenheimer fund or ____ funds
through a single investment dealer, broker ____ or ____ other financial
institution that has made special arrangements with the Distributor enabling
those plans to purchase Class A shares at net asset value but subject to the
Class A contingent deferred sales charge.
I. Applicability of Class A
Contingent Deferred Sales Charges in
Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable commission described in the Prospectus under "Class A
Contingent Deferred Sales Charge."1 This waiver provision applies to:
1 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year.
o Purchases of Class A shares
aggregating $1 million or more.
o Purchases by a Retirement Plan (other than an IRA or 403(b)(7)
custodial plan) that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to
have annual plan purchases of $200,000
or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the purchases
are made:
(1) through a broker, dealer, bank or registered investment adviser
that has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements with
the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping
arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the Retirement Plan.
On the date the plan sponsor signs the record-keeping service agreement
with Merrill Lynch, the Plan must have $3 million or more of its assets
invested in (a) mutual funds, other than those advised or managed by
Merrill Lynch Asset Management, L.P. ("MLAM"), that are made available
under a Service Agreement between Merrill Lynch and the mutual fund's
principal underwriter or distributor, and (b) funds advised or managed by
MLAM (the funds described in (a) and (b) are referred to as "Applicable
Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided under a
contract or arrangement between the Retirement Plan and Merrill Lynch. On
the date the plan sponsor signs the record keeping service agreement with
Merrill Lynch, the Plan must have $3 million or more of its assets
(excluding assets invested in money market funds) invested in Applicable
Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs that
agreement, the Plan has 500 or more eligible employees (as determined by
the Merrill Lynch plan conversion manager).
o Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before
May 1, 1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges
for Certain Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
The Manager or its
affiliates.
Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse,
a spouse's siblings, aunts, uncles, nieces and nephews;
relatives by virtue of a remarriage (step-children, step-parents,
etc.) are included.
Registered management investment companies, or separate
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose.
Dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for
their employees.
Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that the
purchase is for the purchaser's own account (or for the benefit of such
employee's spouse or minor children).
Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made
available to their clients. Those clients may be charged a transaction fee
by their dealer, broker, bank or advisor for the purchase or sale of Fund
shares.
Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an advisory,
consulting or other fee for their services and buy shares for their own
accounts or the accounts of their clients.
"Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial
intermediary that has made special arrangements with the Distributor for
those purchases.
Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales charge
but only if their accounts are linked to a master account of their
investment advisor or financial planner on the books and records of the
broker, agent or financial intermediary with which the Distributor has made
such special arrangements . Each of these investors may be charged a fee by
the broker, agent or financial intermediary for purchasing shares.
Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing or
other benefit plan which beneficially owns shares for those persons.
Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement)
and persons who are directors or trustees of the company or trust which is
the beneficial owner of such
accounts.
A unit investment trust that
has entered into an
appropriate agreement with
the Distributor.
Dealers, brokers, banks, or
registered investment advisers that have entered into an
agreement with the Distributor to sell shares to defined contribution
employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in
each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
A TRAC-2000 401(k) plan (sponsored by the former Quest for Value Advisors)
whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the
Class B and Class C TRAC-2000 program on November 24, 1995.
A qualified Retirement Plan that had agreed with the former Quest for Value
Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a
sub-transfer agency mutual fund clearinghouse, if that arrangement was
consummated and share purchases commenced by December 31, 1996.
B. Waivers of Initial and
Contingent Deferred Sales Charges
in Certain Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases):
Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment trusts for which reinvestment arrangements have
been made with the Distributor.
Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to purchase and
pay for shares of Oppenheimer funds using the proceeds of shares redeemed in the
prior 30 days from a mutual fund (other than a fund managed by the Manager or
any of its subsidiaries) on which an initial sales charge or contingent deferred
sales charge was paid. This waiver also applies to shares purchased by exchange
of shares of Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner. This waiver must be requested when the purchase order is
placed for shares of the Fund, and the Distributor may require evidence of
qualification for this waiver.
Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
Shares purchased by the reinvestment of loan repayments by a participant in
a Retirement Plan for which the Manager or an affiliate acts as sponsor.
C. Waivers of the Class A
Contingent Deferred Sales Charge
for Certain Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases:
To make Automatic Withdrawal Plan payments that are limited annually to no
more than 12% of the account value measured at the time the Plan is established,
adjusted annually.
Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account Rules and
Policies," in the applicable fund
Prospectus). For distributions from
Retirement Plans, deferred compensation plans or other employee benefit
plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue Code)
of the participant or beneficiary. The death or disability must occur after
the participant's account was established. (2) To return excess
contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.2
2 This provision does not apply to IRAs.
(5) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal
Revenue Code.
(8) For loans to participants or
beneficiaries.
(9) Separation from service.3
3 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10)Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary of
the Manager) if the plan has made _____ special arrangements with
the Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored
IRA.
For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the Oppenheimer
funds as an investment option under
the Plan. For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
III. Waivers of Class B and Class
C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in
Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: Shares redeemed involuntarily, as
described in "Shareholder Account Rules and Policies," in the applicable
Prospectus. Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
grantor trust or revocable living trust for which the trustee is also the sole
beneficiary. The death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration.
Distributions from accounts for which the broker-dealer of record has entered
into a special agreement with the Distributor allowing this
waiver. Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an independent record
keeper under a contract with Merrill Lynch.
Redemptions of Class C shares of Oppenheimer U.S. Government Trust from accounts
of clients of financial institutions that have entered into a special
arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class C
shares of an Oppenheimer fund in amounts of $1 million or more held by the
Retirement Plan for more than one year, if the redemption proceeds are
invested in Class A shares of one or more Oppenheimer funds.
o Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or disability
must occur after the participant's account was established in an
Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.4
4 This provision does not apply to IRAs.
(5) To make distributions required under a Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.5
5 This provision does not apply to loans from 403(b)(7) custodial plans.
(9) On account of the participant's separation from service.6
6 This provision does not apply to 403(b)(7) custodial plans if the participant
is less than age 55, nor to IRAs.
(10) Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the Manager)
offered as an investment option in a Retirement Plan if the plan has made
special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or "in-service"
distributions," if the redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the Oppenheimer
funds that had been offered. (13) For distributions from a participant's
account under an Automatic Withdrawal Plan after the participant reaches
age 59 1/2, as long as the aggregate value of the distributions does not
exceed 10% of the account's value annually (measured from the establishment
of the Automatic Withdrawal Plan).
B. Waivers for Shares Sold or
Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
Shares sold to the Manager or its affiliates.
Shares sold to registered management investment companies or separate accounts
of insurance companies having an agreement with the Manager or the Distributor
for that purpose. Shares issued in plans of reorganization to which the Fund is
a party.
<PAGE>
IV. Special Sales Charge
Arrangements for Shareholders of
Certain Oppenheimer Funds Who Were
Shareholders of Former Quest for
Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for
Value Funds. To be eligible, those persons must have been shareholders on
November 24, 1995, when OppenheimerFunds, Inc. became the investment advisor to
those former Quest for Value Funds.
Those funds include:
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap Value
Fund
Oppenheimer Quest Balanced Value Oppenheimer Quest Global Value Fund
Fund
Oppenheimer Quest Opportunity
Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Income Quest for Value New York Tax-Exempt
Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
purchased by such shareholder by exchange of shares of another Oppenheimer
fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24,
1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
Shareholders who were shareholders of the AMA Family of Funds on February
28, 1991 and who acquired shares of any of the Former Quest for Value
Funds by merger of a portfolio of the AMA Family of Funds.
Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
withdrawals under an automatic withdrawal plan holding only either Class B
or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
liquidation of a shareholder's account if the aggregate net asset value of
shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Connecticut Mutual Investment
Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section): o Oppenheimer U. S. Government Trust, o Oppenheimer Bond Fund, o
Oppenheimer Disciplined Value Fund and o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities CMIA LifeSpan Capital Appreciation
Account Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
n Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of
the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to
purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual
Funds that were purchased at net asset value prior to March 18, 1996, remain
subject to the prior Class A CDSC, or if any additional shares are purchased
by those shareholders at net asset value pursuant to this arrangement they
will be subject to the prior Class A CDSC.
n Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1)
<PAGE>
anypurchaser, provided the total initial amount invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the
Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
(8)
<PAGE>
in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
o the Manager and its affiliates,
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
o registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
o dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
o employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
o dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund
in specific investment products made available to their clients, and
o dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
<PAGE>
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Oppenheimer Capital Income Fund
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Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
1-800-525-7048
Custodian Bank
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
67890
PX300.1298(Rev. 5/99)
