Oppenheimer
Capital Income Fund
3
4
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Prospectus dated December 16, 1999
Oppenheimer Capital Income Fund
is a mutual fund that seeks current
income compatible with prudent
investment. As a secondary objective it
tries to conserve capital while
providing an opportunity for capital
appreciation. It invests in both equity
and debt securities.
This Prospectus contains important
information about the Fund's
objectives, its investment policies,
As with all mutual funds, the strategies and risks. It also contains Securities
and Exchange Commission has important information about how to buy not approved
or disapproved the Fund's and sell shares of the Fund and other securities nor
has it determined that account features. Please read this this Prospectus is
accurate or Prospectus carefully before you invest complete. It is a criminal
offense to and keep it for future reference about represent otherwise. your
account.
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(logo) OppenheimerFunds The
Right Way to Invest
<PAGE>
7
CONTENTS
A B O U T T H E F U N D
The Fund's Investment Objectives and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
33
A B O U T T H E F U N D
The Fund's Investment Objectives and Strategies
WHAT ARE THE FUND'S INVESTMENT OBJECTIVES? The Fund's primary objective is to
seek as much current income as is compatible with prudent investment. The Fund
has a secondary objective to conserve principal while providing an opportunity
for capital appreciation.
WHAT DOES THE FUND INVEST IN? Under normal market conditions, the Fund invests
65% of its total assets in equity and fixed-income securities that are expected
to generate income. The Fund invests mainly in equity securities, such as
dividend-paying common stocks, preferred stocks and securities convertible into
common stock, of domestic and foreign issuers of different capitalization
ranges. The Fund also buys debt securities, such as corporate and government
bonds and debentures of domestic and foreign issuers. The debt securities the
Fund buys are not limited to a specific maturity range, and the Fund can hold
debt securities having short, intermediate or long maturities.
HOW DO THE PORTFOLIO MANAGERS DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the portfolio managers mainly rely on a
value-oriented investing style for equity securities. Value investing focuses on
companies that may be currently out of favor in the market, or on opportunities
in cyclical industries. The portfolio managers look for stocks trading at lower
prices relative to the market and what is believed to be their real worth. They
may offer higher-than average dividends. Value investors hope to realize
appreciation as other investors recognize the security's intrinsic value and the
stock price rises as result.
The portfolio managers generally use a fundamental approach to analyzing
issuers (for example, price/earnings ratios and current balance sheet
information), to select stocks they think are undervalued. While this process
and the factors used may change over time and its implementation may vary in
particular cases, the portfolio managers typically search for:
o stocks of established issuers that have under-performed the market for a
year or more, but have begun to recover
o stocks that have high current income and are believed to have substantial
earnings possibilities
o stocks with low price/earnings ratios relative to other securities o stocks
with a low price relative to the underlying value of the issuer's
assets, earnings, cash flow or other factors
In value investing there is always the risk that the market will not
recognize a security's intrinsic value or that the portfolio managers have not
correctly assessed the relative value of the issuer's securities or the issuer's
worth.
In selecting debt securities, the portfolio managers look for high current
yields without taking undue credit risks, although the Fund can invest in debt
securities below investment grade.
WHO IS THE FUND DESIGNED FOR? The Fund is designed primarily for investors
seeking current income with the opportunity for some capital growth in their
investment over the long term. Those investors should have a longer investing
horizon and be willing to assume the risks of short-term share price
fluctuations that are typical for a fund with substantial investments in equity
securities. Since the Fund's income level will fluctuate, it is not designed for
investors needing an assured level of current income. Because of its primary
focus on income and long-term growth secondarily, the Fund may be appropriate
for moderately conservative investors and for retirement plans. The Fund is not
a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject to
changes in their value from a number of factors described below. There is also
the risk that poor security selection by the Fund's investment Manager,
OppenheimerFunds, Inc., will cause the Fund to underperform other funds having
similar objectives.
These risks collectively form the risk profile of the Fund, and can affect
the value of the Fund's investments, its investment performance and its price
per share. These risks mean that you can lose money by investing in the Fund.
When you redeem your shares, they may be worth more or less than what you paid
for them. There is no assurance that the Fund will achieve its investment
objectives.
RISKS OF INVESTING IN STOCKS. Stocks fluctuate in price, and their short-term
volatility at times may be great. Because the Fund typically invests a
substantial portion of its assets in common stocks and other equity securities,
the value of the Fund's portfolio will be affected by changes in the stock
markets. Market risk will affect the Fund's net asset values per share, which
will fluctuate as the values of the Fund's portfolio securities change.
A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly or
at the same time. Different stock markets may behave differently from each
other. In particular, because the Fund currently focuses its stock investments
in U.S. issuers, it will be primarily affected by changes in U.S. stock markets.
The Manager may increase the relative emphasis of the Fund's investments
in a particular industry from time to time. To the extent that the Fund does so,
its share values may fluctuate in response to events affecting that industry,
such as changes in economic conditions, government regulations, availability of
basic resources or supplies, or other events that affect that industry more than
others.
Other factors can affect a particular stock's price, such as poor earnings
reports by the issuer, loss of major customers, major litigation against the
issuer, or changes in government regulations affecting the issuer or its
industry. The Fund currently invests primarily in securities of large companies
for their dividend income but can also buy securities of small and medium-size
companies, which may have more volatile prices than stocks of large companies.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the risk
that the issuer of a security might not make interest and principal payments on
the security as they become due. If the issuer fails to pay interest, the Fund's
income might be reduced and if the issuer fails to repay principal, the value of
that security and of the Fund's shares may be reduced. While the Fund's
investments in U.S. government securities are subject to little credit risk, the
Fund's other investments in debt securities, particularly high-yield lower-grade
debt securities and debt securities of foreign governments and of domestic and
foreign companies, are subject to risks of default.
Special Risks of Lower-Grade Securities. Because the Fund can invest in
securities below investment-grade to seek high income, the Fund's credit
risks are greater than those of funds that buy only investment-grade
bonds. Lower-grade debt securities (commonly called "junk bonds") may be
subject to greater market fluctuations and greater risks of loss of income
and principal than investment-grade debt securities. Securities that are
(or that have fallen) below investment grade are exposed to a greater risk
that the issuers of those securities might not meet their debt
obligations. These risks can reduce the Fund's share prices and the income
it earns.
INTEREST RATE RISKS. The values of debt securities are subject to change when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall, and they may sell at a
discount from their face amount. The magnitude of these fluctuations will often
be greater for longer-term debt securities than shorter-term debt securities and
at times the average maturity of the Fund's debt investments may be relatively
long-term. The Fund's share prices can go up or down when interest rates change
because of the effect of the changes on the value of the Fund's investments in
debt securities.
HOW RISKY IS THE FUND OVERALL? In the short term, the stock markets can be
volatile, and the price of the Fund's shares can go up and down. The Fund's
income-oriented investments may help cushion the Fund's total return from
changes in stock prices, but fixed-income securities have their own risks and
changes in their values can also affect the Fund's share prices. In the
OppenheimerFunds spectrum, the Fund is generally less aggressive than growth
stock funds, but may be more volatile than investment-grade bond funds.
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An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the past ten calendar years and by showing how the average
annual total returns of the Fund's shares compare to those of a broad-based
market index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total returns]
For the period from 1/1/99 through 9/30/99, the cumulative return (not
annualized) for Class A shares was -6.19%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown. During the period shown in the bar
chart, the highest return (not annualized) for a calendar quarter was 11.30%
(2nd Q `97) and the lowest return (not annualized) for a calendar quarter was
- -7.93% (3rd Q `98).
5 Years 10 Years
(or life of (or life of
Average Annual Total Returns 1 Year class, class,
for the periods ending December if less) if less)
31, 1998
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Class A Shares (inception 12/1/70) 3.98% 15.02% 12.97%
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S&P 500 Index (inception 12/31/88) 28.60% 24.05% 19.19%
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Class B Shares (inception 8/17/93) 4.54% 15.23% 14.55%
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Class C Shares (inception 11/1/95) 8.44% 19.23% N/A
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The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 5.75%; for Class B, the
contingent deferred sales charges of 5% (1-year) and 2% (5-year), and 1% (life
of class); and for Class C, the 1% contingent deferred sales charge for the
1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The Fund's performance of Class A shares is compared to the S&P 500
Index, an unmanaged index of equity securities. The index performance reflects
the reinvestment of dividends but does not consider the effects of capital gains
or transaction costs, and the Fund also invests in debt securities, which are
not included in the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
August 31, 1999.
Shareholder Fees (charges paid directly from your investment):
Class A Shares Class B Shares Class C Shares
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Maximum Sales Charge (Load) on
purchases (as % of offering 5.75% None None
price)
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Maximum Deferred Sales Charge
(Load) (as % of the lower of
the original offering price or None1 5%2 1%3
redemption proceeds)
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1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
Class A Shares Class B Shares Class C Shares
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Management Fees 0.52% 0.52% 0.52%
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Distribution and/or Service 0.25% 1.00% 1.00%
(12b-1) Fees
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Other Expenses 0.12% 0.17% 0.17%
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Total Annual Operating Expenses 0.89% 1.69% 1.69%
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Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.
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EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years1
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Class A Shares $661 $843 $1,040 $1,608
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Class B Shares $672 $833 $1,118 $1,590
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Class C Shares $272 $533 $918 $1,998
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If shares are not
redeemed: 1 Year 3 Years 5 Years 10 Years1
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Class A Shares $661 $843 $1,040 $1,608
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Class B Shares $172 $533 $918 $1,590
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Class C Shares $172 $533 $918 $1,998
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In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 1. Class
B expenses for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES. The allocation of the Fund's portfolio
among different investments will vary over time based upon the Manager's
evaluation of economic and market trends. The Fund's portfolio might not always
include all of the different types of investments described below. The Statement
of Additional Information contains more detailed information about the Fund's
investment policies and risks.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of stock of any one company and by not investing too great a percentage
of the Fund's assets in any one company. Also, the Fund does not concentrate 25%
or more of its investments in any one industry. However, changes in the overall
market prices of securities and the income they pay can occur at any time. The
share price of the Fund will change daily based on changes in market prices of
securities and market conditions and in response to other economic events.
EquitySecurities. The Fund's investments in equity securities are mainly common
stocks but also include preferred stocks and securities convertible into
common stocks. The Fund currently focuses on securities of issuers that
have large capitalizations. They may pay higher dividends than small or
medium capitalization companies and their stock prices have tended to be
less volatile than securities of smaller issuers. However, the Fund can
buy stocks of issuers in all capitalization ranges.
The Fund may invest in equity securities both for current income from
dividends as well as secondarily for growth opportunities. The mix of
equities and debt securities in the Fund's portfolio will vary over time
depending on the Manager's judgment about market and economic conditions.
Equity securities include common stocks, as well as "equity equivalents"
such as preferred stocks and securities convertible into common stock.
They can include securities issued by domestic or foreign companies.
Preferred stock has a set dividend rate and ranks after bonds and before
common stocks in its claim for dividends and on assets if the issuer is
liquidated or becomes bankrupt. The Manager considers some convertible
securities to be "equity equivalents" because of the conversion feature
and in that case their rating has less impact on the investment decision
than in the case of debt securities.
What is an "Equity" Security? An equity security is an investment
representing ownership interest in a company.
Debt Securities. The Fund's investments in debt securities include securities
issued or guaranteed by the U.S. government or its agencies and
instrumentalities, and foreign and domestic corporate bonds, notes and
debentures. These are selected primarily for their income possibilities
and to help cushion fluctuations in the Fund's net asset values.
The debt securities the Fund buys may be rated by nationally-recognized
rating organizations such as Moody's Investors Services or Standard &
Poor's Ratings Service or they may be unrated securities assigned a
comparable rating by the Manager. The Fund's investments may be above or
below investment grade in credit quality.
What is a Debt Security? A debt security is essentially a loan by the buyer
to the issuer of the debt security. The issuer promises to pay back the
principal amount of the loan and normally pays interest, at a fixed or
variable rate, on the debt while it is outstanding.
o U.S. Treasury Obligations. These include Treasury bills (maturities of one
year or less when issued), Treasury notes (maturities of from one to ten
years when issued), and Treasury bonds (maturities of more than ten years
when issued). Treasury securities are backed by the full faith and credit
of the United States as to timely payments of interest and repayments of
principal. Although not rated, Treasury obligations have little credit
risk but are subject to interest rate risk.
o Special Credit Risks of Lower-Grade Securities. The Fund can invest up to
25% of its total assets in "lower-grade" securities commonly known as
"junk bonds." These are securities rated below "Baa" by Moody's Investors
Service, Inc. or "BBB" by Standard & Poors Ratings Service or having
similar ratings by other ratings organizations, or if unrated, assigned a
comparable rating by the Manager. However, the Fund cannot invest more
than 10% of its total assets in lower-grade securities that are not
convertible.
While all debt securities are subject to risks of non-payment of interest
and principal, debt securities below investment grade, whether rated or
unrated, have greater risks than investment grade securities. There may be
less of a market for them and therefore they may be harder to sell at an
acceptable price. There is a relatively greater possibility that the
issuer's earnings may be insufficient to make the payments of interest and
principal when due.
CAN THE FUND'S INVESTMENT OBJECTIVES AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objectives are fundamental policies. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy or technique is not fundamental unless this Prospectus or the
Statement of Additional Information says that it is.
OTHER INVESTMENT STRATEGIES. To seek its objectives, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of them. These techniques have risks, although some are designed to help
reduce overall investment or market risks.
Zero-Coupon and "Stripped" Securities. Some of the debt securities the Fund buys
are zero-coupon bonds (including U.S. Treasury bonds) that pay no interest
and are issued at a substantial discount from their face value. Others are
debt securities that have been "stripped" of their interest coupons, such
as Treasury Securities whose coupons have been stripped by a Federal
Reserve Bank. They may also include securities issued by private issuers.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-paying securities. The Fund
may have to pay out the imputed income on zero coupon securities without
receiving the actual cash currently.
Foreign Securities. There is no limit on the amount of the Fund's assets that
can be invested in foreign securities. However, the Fund currently does
not invest a significant portion of its assets in foreign securities and
does not intend to invest more than 35% of its total assets in foreign
securities. The Fund can buy foreign equity securities as well as debt
securities issued by foreign companies or governments and their agencies
in any country, developed or undeveloped.
o Risks of Foreign Investing. While foreign securities offer special
investment opportunities, they also have special risks. The change in value
of a foreign currency against the U.S. dollar will result in a change in
the U.S. dollar value of securities denominated in that foreign currency.
Foreign issuers are not subject to the same accounting and disclosure
requirements to which U.S. companies are subject. The value of foreign
investments may be affected by exchange control regulations, expropriation
or nationalization of a company's assets, foreign taxes, delays in
settlement of transactions, changes in governmental economic or monetary
policy in the U.S. or abroad, or other political and economic factors.
Securities in emerging market countries may be more difficult to sell and
their prices may be more volatile.
Illiquid and Restricted Securities. Investments may be illiquid because they do
not have an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. A restricted security is
one that has a contractual restriction on its resale or which cannot be
sold publicly until it is registered under the Securities Act of 1933. The
Fund will not invest more than 10% of its net assets in illiquid or
restricted securities. The Board can increase that limit to 15%. Certain
restricted securities that are eligible for resale to qualified
institutional purchasers are not subject to that limit. The Manager
monitors holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.
Derivative Investments. The Fund can invest in a number of different kinds
of "derivative" investments. In general terms, a derivative investment is an
investment contract whose value depends on (or is derived from) the value of an
underlying asset, interest rate or index. In the broadest sense, options,
futures contracts, and other hedging instruments the Fund might use may be
considered "derivative" investments. In addition to using derivatives for
hedging, the Fund might use other derivative investments because they offer the
potential for increased value. The Fund currently does not use derivatives to a
significant degree and is not required to use them in seeking its objective.
Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and the
derivative itself, may not perform the way the Manager expected it to. As
a result of these risks the Fund could realize less principal or income
from the investment than expected or its hedge might be unsuccessful. As a
result, the Fund's share prices could fall. Certain derivative investments
held by the Fund might be illiquid.
o Hedging. The Fund can buy and sell futures contracts, put and call
options, forward contracts, interest rate swaps and options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund does not currently use hedging extensively nor for
speculative purposes. It has limits on its use of hedging instruments and
is not required to use them in seeking its objective.
Some of these strategies would hedge the Fund's portfolio against price
fluctuations. Other hedging strategies, such as buying futures and call
options, would tend to increase the Fund's exposure to the securities
market.
There are also special risks in particular hedging strategies. Options
trading involves the payment of premiums and can increase portfolio
turnover. If the Manager used a hedging instrument at the wrong time or
judged market conditions incorrectly, the strategy could reduce the Fund's
return.
Temporary Defensive Investments. In times of unstable market or economic
conditions, the Fund can invest up to 100% of its assets in temporary
defensive investments. Generally they would be short-term debt securities
such as U.S. government securities, commercial paper, bank obligations or
repurchase agreements. The Fund may also hold these types of securities
pending the investment of proceeds from the sale of Fund shares or
portfolio securities or to meet anticipated redemptions of Fund shares. To
the extent the Fund invests defensively in these securities, it might not
achieve its investment objectives.
How the Fund is Managed
THE MANAGER. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Fund's Board of Trustees, under an investment advisory
agreement that states the Manager's responsibilities. The agreement sets the
fees the Fund pays to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since January 1960. The
Manager (including subsidiaries) managed more than $110 billion in assets as of
November 30, 1999, including other Oppenheimer funds with more than 5 million
shareholder accounts. The Manager is located at Two World Trade Center, 34th
Floor, New York, New York 10048-0203.
Portfolio Managers. The portfolio managers of the Fund are John Doney and
Michael Levine. They are the persons principally responsible for the day
-to-day management of the Fund's portfolio. Mr. Doney has been a Vice
President and portfolio manager of the Fund since June 22, 1992, when he
joined the Manager as a Vice President. Mr. Levine became a Vice President
and portfolio manager of the Fund on June 1, 1999 and has been a Vice
President of the Manager since April 1996. Prior to joining the Manager in
June 1994, Mr. Levine was a portfolio manager and research associate for
Amas Securities, Inc. Mr. Doney and Mr. Levine are portfolio managers and
officers of other Oppenheimer funds.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines as the Fund's
assets grow: 0.75% of the first $100 million of average annual net assets,
0.70% of the next $100 million, 0.65% of the next $100 million, 0.60% of
the next $100 million, 0.55% of the next $100 million and 0.50% of average
annual net assets in excess of $500 million. The Fund's management fee for
its last fiscal year ended August 31, 1999 was 0.52% of average annual net
assets for each class of shares.
YEAR 2000 ISSUES. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in economic uncertainties, and issuers may
incur substantial costs in attempting to prevent or fix such errors, all of
which could have a negative effect on the Fund's investments and returns.
The Manager, the Distributor and the Transfer Agent have been working on
necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's custodian bank and other parties. Therefore, any failure of
the computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
A B O U T Y O U R A C C O U N T
How to Buy Shares
HOW DO YOU BUY SHARES? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc, may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the Fund's shares.
BuyingShares Through Your Dealer. You can buy shares through any dealer, broker,
or financial institution that has a sales agreement with the Distributor.
Your dealer will place your order with the Distributor on your behalf.
BuyingShares Through the Distributor. Complete an OppenheimerFunds New Account
Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If
you don't list a dealer on the application, the Distributor will act as
your agent in buying the shares. However, we recommend that you discuss
your investment with a financial advisor before you make a purchase to be
sure that the Fund is appropriate for you.
o Paying by Federal Funds Wire. Shares purchased through the Distributor may
be paid for by Federal Funds wire. The minimum investment is $2,500.
Before sending a wire, call the Distributor's Wire Department at
1.800.525.7048 to notify the Distributor of the wire, and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink, you
pay for shares by electronic funds transfers from your bank account.
Shares are purchased for your account by a transfer of money from your
bank account through the Automated Clearing House (ACH) system. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. Please refer to "AccountLink," below for
more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of the
Fund (and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder
Application and the Statement of Additional Information.
HOW MUCH MUST YOU INVEST? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent investments
for as little as $25. You can make additional purchases of at least $25 by
telephone through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing plans and
401(k) plans, you can start your account with as little as $250. If your
IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
o The minimum investment requirement does not apply to reinvesting dividends
from the Fund or other Oppenheimer funds (a list of them appears in the
Statement of Additional Information, or you can ask your dealer or call
the Transfer Agent), or reinvesting distributions from unit investment
trusts that have made arrangements with the Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price, which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
Net Asset Value. The net asset value of each class of shares is determined as
of the close of The New York Stock Exchange, on each day the Exchange is
open for trading (referred to in this Prospectus as a "regular business
day"). The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some days. All references to time in this Prospectus mean
"New York time".
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. To determine net asset value, the Fund's Board
of Trustees has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures
for valuing illiquid and restricted securities and obligations for which
market values cannot be readily obtained.
The Offering Price. To receive the offering price for a particular day, in
most cases the Distributor or its designated agent must receive your order
by the time of day The New York Stock Exchange closes that day. If your
order is received on a day when the Exchange is closed or after it has
closed, the order will receive the next offering price that is determined
after your order is received.
BuyingThrough a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of The New York Stock Exchange and transmit
it to the Distributor so that it is received before the Distributor's
close of business on a regular business day (normally 5:00 P.M.) to
receive that day's offering price. Otherwise, the order will receive the
next offering price that is determined.
- --------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject to
different expenses and will likely have different share prices. When you buy
shares, be sure to specify the class of shares. If you do not choose a class,
your investment will be made in Class A shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge (on
investments up to $1 million for regular accounts or $500,000 for certain
retirement plans). The amount of that sales charge will vary depending on
the amount you invest. The sales charge rates are listed in "How Can You
Buy Class A Shares?" below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares. If you buy Class B shares, you pay no sales charge at the time
of
purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within six years of buying them, you will normally pay a
contingent deferred sales charge. That contingent deferred sales charge
varies depending on how long you own your shares, as described in "How Can
You Buy Class B Shares?" below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares. If you buy Class C shares, you pay no sales charge at the time
of
purchase, but you will pay an annual asset-based sales charge. If you sell
your shares within 12 months of buying them, you will normally pay a
contingent deferred sales charge of 1%, as described in "How Can You Buy
Class C Shares?" below.
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will
also depend on how much you plan to invest. For example, the reduced sales
charges available for larger purchases of Class A shares may, over time,
offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares
of Class B or Class C.
o Investing for the Shorter Term. While the Fund is intended as a long-term
investment, if you have a relatively short-term investment horizon (that
is, you plan to hold your shares for not more than six years), you should
probably consider purchasing Class A or Class C shares rather than Class B
shares. That is because of the effect of the Class B contingent deferred
sales charge if you redeem within six years, as well as the effect of the
Class B asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice (especially
for investments of less than $100,000), because there is no initial sales
charge on Class C shares, and the contingent deferred sales charge does not
apply to amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on
your account over the longer term than the reduced front-end sales charge
available for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend
to hold your shares. For that reason, the Distributor normally will not
accept purchase orders of $500,000 or more of Class B shares or $1 million
or more of Class C shares from a single investor.
o Investing for the Longer Term. If you are investing less than $100,000 for
the longer-term, for example for retirement, and do not expect to need
access to your money for seven years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail
all of the considerations in selecting a class of shares. You should
analyze your options carefully with your financial advisor before making
that choice.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B or Class C shareholders. Other
features may not be advisable (because of the effect of the contingent
deferred sales charge) for Class B or Class C shareholders. Therefore, you
should carefully review how you plan to use your investment account before
deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are
not borne by Class A shares, such as the Class B and Class C asset-based
sales charge described below and in the Statement of Additional
Information. Share certificates are not available for Class B and Class C
shares, and if you are considering using your shares as collateral for a
loan, that may be a factor to consider.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, may
receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B and Class
C contingent deferred sales charges and asset-based sales charges have the
same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional compensation from its own resources to securities dealers or
financial institutions based upon the value of shares of the Fund owned by
the dealer or financial institution for its own account or for its
customers.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
Front-End Sales
Front-End Sales Charge As a
Charge As a Percentage of Commission As
Percentage of Net Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
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Less than $25,000 5.75% 6.10% 4.75%
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$25,000 or more but 5.50% 5.82% 4.75%
less than $50,000
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$50,000 or more but 4.75% 4.99% 4.00%
less than $100,000
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$100,000 or more but 3.75% 3.90% 3.00%
less than $250,000
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$250,000 or more but 2.50% 2.56% 2.00%
less than $500,000
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$500,000 or more but 2.00% 2.04% 1.60%
less than $1 million
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Class A Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more or for certain purchases by particular types of
retirement plans described in Appendix C to the Statement of Additional
Information. The Distributor pays dealers of record commissions in an amount
equal to 1.0% of purchases of $1 million or more other than by those retirement
accounts. For those retirement plan accounts, the commission is 1.0% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of purchases
over $5 million, based on the cumulative purchases during the prior 12 months
ending with the current purchase. In either case, the commission will be paid
only on purchases that were not previously subject to a front-end sales charge
and dealer commission.1 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 of Class C shares
of one or more Oppenheimer funds held by the plan for more than one year
1 No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the lesser of (1) the aggregate net asset value of the redeemed shares at
the time of redemption (excluding shares purchased by reinvestment of
dividends or capital gain distributions) or (2) the original net asset
value of the redeemed shares. The Class A contingent deferred sales charge
will not exceed the aggregate amount of the commissions the Distributor
paid to your dealer on all purchases of Class A shares of all Oppenheimer
funds you made that were subject to the Class A contingent deferred sales
charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not
subject to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them.
The Class A contingent deferred sales charge is not charged on exchanges of
shares under the Fund's exchange privilege (described below). However, if
the shares acquired by exchange are redeemed within 18 calendar months of
the end of the calendar month in which the exchanged shares were
originally purchased, then the sales charge will apply.
Can You Reduce Class A Sales Charges? You may be eligible to buy Class A
shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales
Charges" in the Statement of Additional Information:
HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will be
deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
o the amount of your account value represented by an increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 6 years, and 3. shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Years Since Beginning of Month in Contingent Deferred Sales Charge on
Which Redemptions in That Year
Purchase Order was Accepted (As % of Amount Subject to Charge)
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0 - 1 5.0%
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1 - 2 4.0%
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2 - 3 3.0%
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3 - 4 3.0%
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4 - 5 2.0%
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5 - 6 1.0%
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6 and following None
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In the table, a "year" is a 12-month period. In applying the contingent deferred
sales charge, all purchases are considered to have been made on the first
regular business day of the month in which the purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares 72 months after you purchase them. This conversion feature
relieves Class B shareholders of the asset-based sales charge that applies
to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value
of the two classes, and no sales load or other charge is imposed. When any
Class B shares you hold convert, any other Class B shares that were
acquired by the reinvesting of dividends and distributions on the
converted shares will also convert to Class A shares. The conversion
feature is subject to the continued availability of a tax ruling described
in the Statement of Additional Information.
HOW CAN I BUY CLASS C SHARES? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
The contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the original
net asset value. The contingent deferred sales charge is not imposed on:
o the amount of your account value represented by the increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 12 months, and 3. shares held the longest during the
12-month period.
DISTRIBUTION AND SERVICE (12B-1) PLANS
Service Plan for Class A Shares. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred
for services provided to accounts that hold Class A shares. Reimbursement
is made quarterly at an annual rate of up to 0.25% of the average annual
net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
pay the Distributor for its services and costs in distributing Class B and
Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class
B shares and on Class C shares. The Distributor also receives a service
fee of 0.25% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may
cost you more than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the
first year after the shares are sold by the dealer. After the shares have
been held for a year, the Distributor pays the service fees to dealers on
a quarterly basis.
The Distributor currently pays a sales commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sales of Class B shares is
therefore 4.00% of the purchase price. The Distributor retains the Class B
asset-based sales charge.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class C shares is
therefore 1.00% of the purchase price. The Distributor pays the
asset-based sales charge as an ongoing commission to the dealer on Class C
shares that have been outstanding for a year or more.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account with
an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends and
distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.852.8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1.800.533.3310.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by phone,
by calling 1.800.533.3310. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these
purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established
by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling the
PhoneLink number and the Fund will send the proceeds directly to your
AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OPPENHEIMERFUNDS INTERNET WEB SITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
REINVESTMENT PRIVILEGE. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be used
by individuals and employers:
Individual Retirement Accounts (IRAs). These include regular IRAs, Roth IRAs,
SIMPLE IRAs, rollover IRAs and Education IRAs.
SEP-IRAs. These are Simplified Employee Pensions Plan IRAs for small business
owners or self-employed individuals.
403(b)(7) Custodial Plans. These are tax deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations.
401(k) Plans. These are special retirement plans for businesses.
Pension and Profit-Sharing Plans. These plans are designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your order
is received in proper form (which means that it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis. If you have questions
about any of these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner or from a retirement
plan account, please call the Transfer Agent first, at 1.800.525.7048, for
assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund from
fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
also require a signature guarantee):
o You wish to redeem $100,000 or more and receive a check o The redemption
check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your account
statement
o Shares are being transferred to a Fund account with a different owner or
name
o Shares are being redeemed by someone (such as an Executor) other than
the
owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a
guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal securities or
government securities, or
o a U.S. national securities exchange, a registered securities association
or a clearing agency.
If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the
signature.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting
your money and if you do not want tax withheld. If your employer holds
your retirement plan account for you in the name of the plan, you must ask
the plan trustee or administrator to request the sale of the Fund shares
in your plan account.
Sending Redemption Proceeds by Wire. While the Fund normally sends your money by
check, you can arrange to have the proceeds of the shares you sell sent by
Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The
minimum redemption you can have sent by wire is $2,500. There is a $10 fee
for each wire. To find out how to set up this feature on your account or
to arrange a wire, call the Transfer Agent at 1.800.852.8457.
HOWDO YOU SELL SHARES BY MAIL? Write a letter of instructions that includes: o
Your name o The Fund's name o Your Fund account number (from your account
statement) o The dollar amount or number of shares to be redeemed o Any
special payment instructions o Any share certificates for the shares you are
selling o The signatures of all registered owners exactly as the account is
registered,
and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
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- ---------------------------------------- ---------------------------------------
Use the following address for Send courier or express mail
- ---------------------------------------- requests to:
requests by mail: OppenheimerFunds Services
OppenheimerFunds Services 10200 E. Girard Avenue, Building D
P.O. Box 5270 Denver, Colorado 80231
Denver, Colorado 80217-5270
- -------------------------------------------------------------------------------
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular business day, your call must be received by the
Transfer Agent by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. You may not redeem shares
held in an OppenheimerFunds retirement plan account or under a share certificate
by telephone.
o To redeem shares through a service representative, call 1.800.852.8457 o To
redeem shares automatically on PhoneLink, call 1.800.533.3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
ARE THERE LIMITS ON AMOUNTS REDEEMED BY TELEPHONE?
Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by telephone
in any 7-day period. The check must be payable to all owners of record of
the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an
account.
Telephone Redemptions Through AccountLink or by Wire. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when
you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be transferred.
If you have requested Federal Funds wire privileges for your account, the
wire of the redemption proceeds will normally be transmitted on the next
bank business day after the shares are redeemed. There is a possibility
that the wire may be delayed up to seven days to enable the Fund to sell
securities to pay the redemption proceeds. No dividends are accrued or
paid on the proceeds of shares that have been redeemed and are awaiting
transmittal by wire.
CAN YOU SELL SHARES THROUGH YOUR DEALER? The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. Shares
of the Fund can be purchased by exchange of shares of other Oppenheimer funds on
the same basis. To exchange shares, you must meet several conditions:
o Shares of the fund selected for exchange must be available for sale in
your state of residence.
o The prospectuses of both funds must offer the exchange privilege. o You
must hold the shares you buy when you establish your account for at least
7 days before you can exchange them. After the account is open 7 days, you
can exchange shares every regular business day.
o You must meet the minimum purchase requirements for the fund whose shares
you purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1.800.525.7048. That list can change from time to time.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing or by
telephone:
Written Exchange Requests. Submit an OppenheimerFunds Exchange Request form,
signed by all owners of the account. Send it to the Transfer Agent at the
address on the back cover. Exchanges of shares held under certificates
cannot be processed unless the Transfer Agent receives the certificate
with the request.
Telephone Exchange Requests. Telephone exchange requests may be made either by
calling a service representative at 1.800.852.8457, or by using PhoneLink
for automated exchanges by calling 1.800.533.3310. Telephone exchanges may
be made only between accounts that are registered with the same name(s)
and address. Shares held under certificates may not be exchanged by
telephone.
ARE THERE LIMITATIONS ON EXCHANGES? There are certain exchange policies you
should be aware of:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the
policies described above. It must be received by the close of The New York
Stock Exchange that day, which is normally 4:00 P.M. but may be earlier on
some days. However, either fund may delay the purchase of shares of the
fund you are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day exchange. For example, the receipt of multiple
exchange request from a "market timer" might require the Fund to sell
securities at a disadvantageous time and/or price.
o Because excessive trading can hurt fund performance and harm shareholders,
the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so,
by applicable law, but it may impose these changes at any time for
emergency purposes.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying, selling,
and exchanging shares is contained in the Statement of Additional Information.
The offering of shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be
suspended by the Board of Trustees at any time the Board believes it is in
the Fund's best interest to do so.
Telephone transaction privileges for purchases, redemptions or exchanges may be
modified, suspended or terminated by the Fund at any time. If an account
has more than one owner, the Fund and the Transfer Agent may rely on the
instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless
the Transfer Agent receives cancellation instructions from an owner of the
account.
The Transfer Agent will record any telephone calls to verify data concerning
transactions and has adopted other procedures to confirm that telephone
instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund
will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements for
redemptions stated in this Prospectus.
Dealers that can perform account transactions for their clients by participating
in NETWORKING through the National Securities Clearing Corporation are
responsible for obtaining their clients' permission to perform those
transactions, and are responsible to their clients who are shareholders of
the Fund if the dealer performs any transaction erroneously or improperly.
The redemption price for shares will vary from day to day because the value of
the securities in the Fund's portfolio fluctuates. The redemption price,
which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less
than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by check
or through AccountLink or by Federal Funds wire (as elected by the
shareholder) within seven days after the Transfer Agent receives
redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission,
payment may be delayed or suspended. For accounts registered in the name
of a broker-dealer, payment will normally be forwarded within three
business days after redemption.
The Transfer Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the purchase
payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the account
value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of
share purchase orders.
Sharesmay be "redeemed in kind" under unusual circumstances (such as a lack of
liquidity in the Fund's portfolio to meet redemptions). This means that
the redemption proceeds will be paid with liquid securities from the
Fund's portfolio.
"Backup Withholding" of Federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
To avoid sending duplicate copies of materials to households, the Fund will
mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1.800.525.7048 to ask that
copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
DIVIDENDS. The Fund intends to declare dividends separately for each class of
shares from net investment income on a quarterly basis in March, June, September
and December and to pay them on a date selected by the Board of Trustees.
Dividends and distributions paid on Class A shares will generally be higher than
dividends for Class B and Class C shares, which normally have higher expenses
than Class A.
The Fund attempts to pay dividends on Class A shares at a constant level. There
is no assurance that it will be able to do so. The Board of Trustees may change
the targeted dividend rate at any time without prior notice to shareholders. The
amount of those dividends and the dividends paid on Class B and Class C shares
may vary over time, depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the particular class of shares. There
can be no guarantee that the Fund will pay dividends.
CAPITAL GAINS. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
WHAT CHOICES DO YOU HAVE FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends and
distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all dividends
and capital gains distributions in additional shares of the Fund.
Reinvest Dividend or Capital Gains Only. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your bank
through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
TAXES. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
Avoid "Buying a Dividend." If you buy shares on or just before the ex-dividend
date or just before the Fund declares a capital gain distribution, you
will pay the full price for the shares and then receive a portion of the
price back as a taxable dividend or capital gain.
Remember There May be Taxes on Transactions. Because the Fund's share price
fluctuates, you may have a capital gain or loss when you sell or exchange
your shares. A capital gain or loss is the difference between the price
you paid for the shares and the price you received when you sold them. Any
capital gain is subject to capital gains tax.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax adviser
about the effect of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report, along with the Fund's financial statements, is included
in the Statement of Additional Information, which is available on request.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUG. 31, JUNE 30,
CLASS A 1999 1998 1997
1996(1) 1996 1995
=================================================================================================================
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.75 $14.12 $11.36
$11.39 $10.25 $ 9.44
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .51 .50
.47 .09 .50 .50
Net realized and unrealized gain (loss) 1.03 .41 3.17
(.12) 1.36 .92
- -----------------------------------------------------------------
Total income (loss) from
investment operations 1.54 .91 3.64
(.03) 1.86 1.42
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.49) (.49)
(.48) -- (.48) (.48)
Distributions from net realized gain (1.17) (.79)
(.40) -- (.24) (.13)
- -----------------------------------------------------------------
Total dividends and distributions
to shareholders (1.66) (1.28)
(.88) -- (.72) (.61)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.63 $13.75 $14.12
$11.36 $11.39 $10.25
=================================================================
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 11.03% 6.17% 33.39%
(0.26)% 18.61% 15.66%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2,927 $2,889 $2,722
$2,110 $2,141 $1,893
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,156 $3,072 $2,446
$2,109 $2,054 $1,798
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.51% 3.47% 3.97%
3.28% 4.51% 5.15%
Expenses 0.89% 0.87%(4) 0.88%(4)
0.94%(4) 0.89%(4) 0.96%(4)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 40% 18%
24% 14% 43% 46%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999, were $1,439,646,035 and $1,230,476,899, respectively.
30 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUG. 31, JUNE 30,
CLASS B 1999 1998
1997 1996(1) 1996 1995
=================================================================================================================
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.63 $14.01 $11.29
$11.33 $10.21 $ 9.40
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .39
.37 .07 .41 .43
Net realized and unrealized gain (loss) 1.03 .40
3.13 (.11) 1.35 .91
- -----------------------------------------------------------------
Total income (loss) from
investment operations 1.42 .79
3.50 (.04) 1.76 1.34
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.37) (.38)
(.38) -- (.40) (.40)
Distributions from net realized gain (1.17) (.79)
(.40) -- (.24) (.13)
- -----------------------------------------------------------------
Total dividends and distributions
to shareholders (1.54) (1.17)
(.78) -- (.64) (.53)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.51 $13.63 $14.01
$11.29 $11.33 $10.21
=================================================================
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 10.22% 5.32% 32.17%
(0.35)% 17.58% 14.87%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $721 $635
$431 $260 $252 $161
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $749 $575
$344 $255 $208 $122
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.71% 2.68%
3.16% 2.48% 3.68% 4.34%
Expenses 1.69% 1.67%(4)
1.69%(4) 1.76%(4) 1.72%(4) 1.79%(4)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 40% 18%
24% 14% 43% 46%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999, were $1,439,646,035 and $1,230,476,899, respectively.
31 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS C 1999 1998
1997 1996(1) 1996(6)
=================================================================================================================
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.63 $14.02
$11.30 $11.35 $10.76
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .39
.40 .07 .28
Net realized and unrealized gain (loss) 1.02 .40
3.12 (.12) .88
- --------------------------------------------------------------
Total income (loss) from
investment operations 1.41 .79
3.52 (.05) 1.16
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.38) (.39)
(.40) -- (.33)
Distributions from net realized gain (1.16) (.79)
(.40) -- (.24)
- --------------------------------------------------------------
Total dividends and distributions
to shareholders (1.54) (1.18)
(.80) -- (.57)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.50 $13.63
$14.02 $11.30 $11.35
==============================================================
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 10.15% 5.30%
32.31% (0.44)% 10.50%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $119 $95
$48 $7 $6
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $120 $77
$25 $7 $3
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.70% 2.68%
3.15% 2.55% 3.53%
Expenses 1.69% 1.67%(4)
1.69%(4) 1.79%(4) 1.81%(4)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 40% 18%
24% 14% 43%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999, were $1,439,646,035 and $1,230,476,899, respectively.
6. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
32 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
78
INFORMATION AND SERVICES
For More Information on Oppenheimer Capital Income Fund:
The following additional information about the Fund is available without charge
upon request:
STATEMENT OF ADDITIONAL INFORMATION This document includes additional
information about the Fund's investment policies, risks, and operations. It is
incorporated by reference into this Prospectus (which means it is legally part
of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services
toll-free: 1.800.525.7048
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
On the Internet: You can send us a request by e-mail or
read or down-load documents on the
OppenheimerFunds web site:
http://www.oppenheimerfunds.com
- -------------------------------------------------------------------------------
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1.202.942.8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained after payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed
by:
SEC File No. 811-1512 (logo)OppenheimerFunds Distributor,
Inc.
PR0300.001.1299
Printed on recycled paper
<PAGE>
APPENDIX TO THE PROSPECTUS OF
OPPENHEIMER CAPITAL INCOME FUND
Graphic material included in the Prospectus of Oppenheimer Capital Income
Fund ("the Fund") "Annual Total Returns (Class A)(% as of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the Fund
for each of the ten most recent calendar years, without deducting sales charges.
Set forth below are the relevant data points that will appear in the bar chart:
- --------------------------------------------------------------------
Calendar Year Ended: Annual Total Returns
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/89 18.56%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/90 -1.37%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/91 17.27%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/92 7.06%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/93 14.57%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/94 -2.79%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/95 27.92%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/96 20.06%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/97 29.68%
- --------------------------------------------------------------------
- --------------------------------------------------------------------
12/31/98 10.32%
- --------------------------------------------------------------------
<PAGE>
113
- --------------------------------------------------------------------------------
Oppenheimer Capital Income Fund
- --------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated December 16, 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 16, 1999. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217, or by calling the Transfer Agent at the toll-free number shown above, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.......
The Fund's Investment Policies..........................................
Other Investment Techniques and Strategies..............................
Investment Restrictions.................................................
How the Fund is Managed ....................................................
Organization and History................................................
Trustees and Officers...................................................
The Manager.............................................................
Brokerage Policies of the Fund..............................................
Distribution and Service Plans..............................................
Performance of the Fund.....................................................
About Your Account
How To Buy Shares...........................................................
How To Sell Shares..........................................................
How To Exchange Shares......................................................
Dividends, Capital Gains and Taxes..........................................
Additional Information About the Fund.......................................
Financial Information About the Fund
Independent Auditors' Report................................................
Financial Statements........................................................
Appendix A: Ratings Definitions..........................................A-1
Appendix B: Industry Classifications.....................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers................C-1
- --------------------------------------------------------------------------------
<PAGE>
A B O U T T H E F U N D
- --------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment 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 can use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use any of the
investment techniques and strategies described below at all times in seeking its
goals. It can 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 can invest in securities of small-, mid- and large-capitalization
issuers. At times, the Fund can 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 cannot invest more than 5% of its total
assets in warrants or rights, and not more than 2% of its total assets can 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. Preferred stock, unlike common stock, has a stated
dividend rate payable from the corporation's earnings. Preferred stock dividends
may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid before dividends can be paid to the issuer's common stock.
"Participating" preferred stock may be entitled to a dividend exceeding the
stated dividend in certain cases.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as provisions allowing the
stock to be called or redeemed prior to its maturity, which can have a negative
impact on the stock's price when interest rates decline. Preferred stock
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation. The rights
of preferred stock on distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
o Convertible Securities. Convertible securities are debt securities
that are convertible into an issuer's common stock. Convertible securities rank
senior to common stock in a corporation's capital structure and therefore are
subject to less risk than common stock in case of the issuer's bankruptcy or
liquidation.
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease when
interest rates rise. If the conversion value exceeds the investment value, the
security will behave more like an equity security. In that case, it will likely
sell at a premium over its conversion value, and its price will tend to
fluctuate directly with the price of the underlying security.
While some convertible securities are a form of debt security, in many
cases their conversion feature (allowing conversion into equity securities)
caused them to be regarded by the Manager more as "equity equivalents." As a
result, the rating assigned to the security has less impact on the Manager's
investment decision than in the case of non-convertible debt fixed-income
securities.
To determine whether convertible securities should be regarded as "equity
equivalents," the Manager examines the following factors:
o whether, at the option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
o whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible securities),
and
o the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation
in the price of the issuer's common stock.
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.
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 can rely to some
extent on the ratings of ratings organizations or it can 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 Risk. Interest rate risk refers to the fluctuations
in value of debt securities resulting from the inverse relationship between
price and yield. For example, an increase in general interest rates will tend to
reduce the market value of already-issued debt securities, and a decline in
general interest rates will tend to increase their value. In addition, debt
securities with longer maturities, which tend to have higher yields, are subject
to potentially greater fluctuations in value from changes in interest rates than
obligations with shorter maturities.
Fluctuations in the market value of debt securities after the Fund buys
them will not affect the interest income payable on those securities (unless the
coupon rate is a floating rate pegged to an index or other measure) . However,
those price fluctuations will be reflected in the valuations of the securities,
and therefore the Fund's net asset values will be affected by those
fluctuations.
|X| U.S. Government Securities. The Fund can buy securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities.
Securities issued by the U.S. Treasury are backed by the full faith and credit
of the U.S. government and are subject to very little credit risk. Obligations
of U.S. government agencies or instrumentalities (including mortgage-backed
securities) may or may not be guaranteed or supported by the "full faith and
credit" of the United States. Some are backed by the right of the issuer to
borrow from the U.S. Treasury; others, by discretionary authority of the U.S.
government to purchase the agencies' obligations; while others are supported
only by the credit of the instrumentality. If a security is not backed by the
full faith and credit of the United States, the owner of the security must look
principally to the agency issuing the obligation for repayment and might not be
able to assert a claim against the United States in the event that the agency or
instrumentality does not meet its commitment.
|_| U.S. Treasury Obligations. These include Treasury bills (having
maturities of one year or less when issued), Treasury notes (having maturities
of from one to ten years), and Treasury bonds (having maturities of more than
ten years). Treasury securities are backed by the full faith and credit of the
United States as to timely payments of interest and repayments of principal.
Other U.S. Treasury securities the Fund can buy include U. S. Treasury
securities that have been "stripped" by a Federal Reserve Bank, zero-coupon U.S.
Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS").
|_| Treasury Inflation-Protection Securities. The Fund can buy these
U.S. Treasury securities, called "TIPS," that are designed to provide an
investment vehicle that is not vulnerable to inflation. The interest rate paid
by TIPS is fixed. The principal value rises or falls semi-annually based on
changes in the published Consumer Price Index. If inflation occurs, the
principal and interest payments on TIPS are adjusted to protect investors from
inflationary loss. If deflation occurs, the principal and interest payments will
be adjusted downward, although the principal will not fall below its face amount
at maturity.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| Special Risks of Lower-Grade Securities. 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 the limitation on
the percentage of the Fund's assets that can be invested in lower-grade
securities. The Fund can invest in securities rated as low as "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 can 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 can invest in real
estate investment trusts, as well as real estate development companies and
operating companies. It can 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 can purchase equity and debt securities
issued or guaranteed by foreign companies or foreign governments or their
agencies. "Foreign securities" include equity and debt securities of companies
organized under the laws of countries other than the United States and debt
securities of foreign governments. They may be traded on foreign securities
exchanges or in the foreign over-the-counter markets. The debt obligations of a
foreign government and its agencies and instrumentalities may or may not be
supported by the full faith and credit of the foreign government.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations. That is because they are not subject to
many of the special considerations and risks, discussed below, that apply to
foreign securities traded and held abroad.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Risks of Foreign Investing. Investments in foreign securities may offer
special opportunities for investing but also present special additional risks
and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting
standards in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments
abroad by U.S. investors, through taxation or other restrictions, and it is
possible that such restrictions could be re-imposed.
|_| Risks of Conversion to Euro. On January 1, 1999, eleven countries
in the European Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect: o issuers in which the Fund invests, because of changes
in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress
securities values.
o vendors the Fund depends on to carry out its business, such as its
custodian bank (which holds the foreign securities the Fund buys), the
Manager (which must price the Fund's investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in
settlements and additional costs to the Fund.
o exchange contracts and derivatives that are outstanding during the
transition to the euro. The lack of currency rate calculations between
the affected currencies and the need to update the Fund's contracts
could pose extra costs to the Fund.
The Manager has upgraded (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's custodian bank has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio managers will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|_| 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. The Financial Highlights table at the end of the Prospectus shows
the Fund's portfolio turnover rates during prior fiscal years.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
can 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 cannot invest 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 can purchase or sell securities on a
"delayed-delivery" basis. When-issued and delayed-delivery are terms that refer
to securities whose terms and indenture have been created, but the securities
are not available for immediate delivery even though the market for them exists.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 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
until it receives the security at settlement.
The Fund can engage in when-issued transactions to secure what the Manager
considers to be an advantageous price and yield at the time the Fund enters into
the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it can dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
n Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of 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 monitor the vendor's creditworthiness to confirm that
the vendor is financially sound and will continuously monitor the collateral's
value.
n Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's illiquid or restricted investments. To enable
the Fund to sell its holdings of a restricted security not registered under the
Securities Act of 1933, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may be negotiated
by the Fund with the issuer at the time the Fund buys the securities. When the
Fund must arrange registration because the Fund wishes to sell the security, a
considerable period may elapse between the time the decision is made to sell the
security and the time the security is registered so that the Fund could sell it.
The Fund would bear the risks of any downward price fluctuation during that
period.
The Fund can acquire restricted securities through private placements.
Those securities have contractual restrictions on their public resale. Those
restrictions might limit the Fund's ability to dispose of the securities and
might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable within
seven days.
n Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Trustees. It might do so to try to provide income or to raise cash for liquidity
purposes. These loans are limited to not more than 10% of the value of the
Fund's 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 its 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
for income, for capital appreciation or for hedging purposes. Some derivative
investments the Fund can use are the hedging instruments described below in this
Statement of Additional Information.
The Fund can invest in "index-linked" notes. Principal and/or interest
payments on these notes depend on the performance of an underlying index.
Currency-indexed securities are another derivative the Fund can use. Typically
these are short-term or intermediate-term debt securities. Their value at
maturity or the rates at which they pay income are determined by the change in
value of the U.S. dollar against one or more foreign currencies or an index. In
some cases, these securities may pay an amount at maturity based on a multiple
of the amount of the relative currency movements. This type of index security
offers the potential for increased income or principal payments but at a greater
risk of loss than a typical debt security of the same maturity and credit
quality.
Other derivative investments the Fund can use include "debt exchangeable
for common stock" of an issuer or "equity-linked debt securities" of an issuer.
At maturity, the debt security is exchanged for common stock of the issuer or it
is payable in an amount based on the price of the issuer's common stock at the
time of maturity. Both alternatives present a risk that the amount payable at
maturity will be less than the principal amount of the debt because the price of
the issuer's common stock might not be as high as the Manager expected.
n Hedging. The Fund can use hedging to attempt to protect against declines
in the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have appreciated, or
to facilitate selling securities for investment reasons. To do so, the Fund
could:
o sell futures contracts, o buy puts on futures or on securities, or
o write covered calls on securities or futures. Covered calls can also be
used to increase the Fund's income, but the Manager does not expect to
engage extensively in that practice.
The Fund might use hedging to establish a position in the securities
market as a temporary substitute for purchasing particular securities. In that
case, the Fund would normally seek to purchase the securities and then terminate
that hedging position. T he Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
can employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
o Futures. The Fund can buy and sell futures contracts that relate to
(1) 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 money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund can 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 can 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 liquid
assets identifying on the Fund's books to enable the Fund to satisfy its
obligations if the call is exercised. Up to 25% of the Fund's total assets can
be subject to calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's custodian bank, or a securities depository acting for the
custodian bank, will act as the Fund's escrow agent, through the facilities of
the Options Clearing Corporation ("OCC"), as to the investments on which the
Fund has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund can
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 can also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by identifying an
equivalent dollar amount of liquid assets on the Fund's books. The Fund will
identify additional liquid assets on its books if the value of the identified
assets drops below 100% of the current value of the future. Because of this
segregation requirement, in no circumstances would the Fund's receipt of an
exercise notice as to that future require the Fund to deliver a futures
contract. It would simply put the Fund in a short futures position, which is
permitted by the Fund's hedging policies.
o Writing Put Options. The Fund can sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying investment at the exercise price during the option
period. The Fund will not write puts if, as a result, more than 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 liquid assets
identified on the Fund's books. 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 can decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
o Purchasing Calls and Puts. The Fund can purchase calls to protect
against the possibility that the Fund's portfolio will not participate in an
anticipated rise in the securities market. When the Fund buys a call (other than
in a closing purchase transaction), it pays a premium. The Fund then has the
right to buy the underlying investment from a seller of a corresponding call on
the same investment during the call period at a fixed exercise price. The Fund
benefits only if it sells the call at a profit or if, during the call period,
the market price of the underlying investment is above the sum of the call price
plus the transaction costs and the premium paid for the call and the Fund
exercises the call. If the Fund does not exercise the call or sell it (whether
or not at a profit), the call will become worthless at its expiration date. In
that case the Fund will have paid the premium but lost the right to purchase the
underlying investment.
The Fund can buy puts whether or not it holds the underlying investment in
its portfolio. When the Fund purchases a put, it pays a premium and, except as
to puts on indices, has the right to sell the underlying investment to a seller
of a put on a corresponding investment during the put period at a fixed exercise
price. Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
can 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 can 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 can 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 can 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 can
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 can 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 can 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 can 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 identify liquid assets on its
books (such as cash or U.S. government securities) to cover any amounts it could
owe under swaps that exceed the amounts it is entitled to receive, and it will
adjust that amount daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party. Under
these agreements, if a default results in a loss to one party, the measure of
that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at
the time of the termination of each swap. The gains and losses on all swaps are
then netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on termination
is generally referred to as "aggregation."
o Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same advisor as the Fund (or an advisor that is an affiliate of the Fund's
advisor). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
o Tax Aspects of Certain Hedging Instruments. Certain foreign currency
exchange contracts in which the Fund may invest are treated as "Section 1256
contracts" under the Internal Revenue Code. In general, gains or losses relating
to Section 1256 contracts are characterized as 60% long-term and 40% short-term
capital gains or losses under the Code. However, foreign currency gains or
losses arising from Section 1256 contracts that are forward contracts generally
are treated as ordinary income or loss. In addition, Section 1256 contracts held
by the Fund at the end of each taxable year are "marked-to-market," and
unrealized gains or losses are treated as though they were realized. These
contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under
rules prescribed pursuant to the Internal Revenue Code. An election can be made
by the Fund to exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that occur
between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency
and the time the Fund actually collects such receivables or pays such
liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the
date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
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 can buy and sell hedging instruments that are
permitted by any of its other investment policies. The Fund can 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 borrowing
money, 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. Additionally, the
Trustees shall have no personal liability to any such person, to the extent
permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. 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 Cash Reserves Oppenheimer Senior Floating Rate Fund
Oppenheimer Champion Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Capital Income Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Government
Fund Centennial California Tax Exempt Trust
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Small Cap
Fund. 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, 1999, 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. Mr. Armstrong is not a Trustee of Oppenheimer Cash
Reserves, Oppenheimer Champion Income Fund, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Real Asset Fund, any of the Centennial Trusts or a Managing General
Partner of Centennial America Fund, L.P. Mr. Cameron is not a Trustee or
Director of Oppenheimer Cash Reserves, Oppenheimer Champion Income Fund,
Oppenheimer High Yield Fund, Oppenheimer Integrity Fund, Oppenheimer
Limited-Term Government Fund, Oppenheimer Municipal Fund, Oppenheimer Strategic
Income Fund, Panorama Series Fund, Inc., Centennial California Tax Exempt Trust,
Centennial Government Trust, Centennial Money Market Trust, Centennial New York
Tax Exempt Trust, Centennial Tax Exempt Trust or a Managing General Partner of
Centennial America Fund, L.P.
William L. Armstrong, Trustee, Age: 62
11 Carriage Lane, Littleton, Colorado 80121
Chairman of the following private mortgage banking companies: Cherry Creek
Mortgage Company (since 1991), Centennial State Mortgage Company (since 1994),
The El Paso Mortgage Company (since 1993), Transland Financial Services, Inc.
(since 1997), and Ambassador Media Corporation (since 1984); Chairman of the
following private companies: Frontier Real Estate, Inc. (residential real estate
brokerage) (since 1994), Frontier Title (title insurance agency) (since 1995)
and Great Frontier Insurance (insurance agency) (since 1995); Director of the
following public companies: Storage Technology Corporation (computer equipment
company) (since 1991), Helmerich & Payne, Inc. (oil and gas drilling/production
company) (since 1992), UNUMProvident (insurance company) (since 1991); formerly
Director of the following public companies: International Family Entertainment
(television channel) (1991 - 1997) and Natec Resources, Inc. (air pollution
control equipment and services company) (1991 - 1995); formerly U.S. Senator
(January 1979 - January 1991).
Robert G. Avis*, Trustee, Age: 68
One North Jefferson Ave., St. Louis, Missouri 63103
Chairman, President and Chief Executive Officer of A.G. Edwards Capital, Inc.
(general partnership of private equity funds), Director of A.G. Edwards & Sons,
Inc. (a broker-dealer) and Director of A.G. Edwards Trust Companies (trust
companies), formerly, Vice Chairman of A.G. Edwards & Sons, Inc. and A.G.
Edwards, Inc. (its parent holding company) and Chairman of A.G.E. Asset
Management (an investment advisor).
William A. Baker, Trustee, Age: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
George C. Bowen, Trustee, Age: 63
9224 Bauer Court, Lone Tree, Colorado 80124
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 Corporation; Senior Vice President (since
February 1992), Treasurer (since July 1991) Assistant Secretary and a director
(since December 1991) of Centennial Asset Management Corporation; 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).
Edward L. Cameron, Trustee; Age: 61
Spring Valley Road, Morristown, NJ 07960
Formerly (until 1999) a Partner with PricewaterhouseCoopers LLC (an accounting
firm) and Chairman, Price Waterhouse LLP Global Investment Management Industry
Services Group.
Jon S. Fossel, Trustee, Age: 57
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp., the Manager's parent holding company, and
Shareholder Services, Inc. and Shareholder Financial Services, Inc., transfer
agent subsidiaries of the Manager.
Sam Freedman, Trustee, Age: 59
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services,
Chairman, Chief Executive Officer and a director of Shareholder Services, Inc.,
Chairman, Chief Executive Officer and director of Shareholder Financial
Services, Inc., Vice President and director of Oppenheimer Acquisition Corp. and
a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Trustee, Age: 70
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products training
company), self-employed consultant (securities matters).
C. Howard Kast, Trustee, Age: 78
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee, Age: 78
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Trustee, Age: 51
Two World Trade Center, New York, New York 10048-0203
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation, an investment advisor
subsidiary of the Manager; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President (since September 1995) and a
director (since November 1989) of Oppenheimer Partnership Holdings, Inc., a
holding company subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund management
subsidiary of the Manager and of Oppenheimer Millennium Funds plc; President and
a director of other Oppenheimer funds; a director of Prudential Corporation plc
(a U.K. financial service company).
Ned M. Steel, Trustee, Age: 84
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: 66 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation, an investment advisor subsidiary of the Manager and
Chairman of the Board of Shareholder Services, Inc.
John P. Doney, Vice President and Portfolio Manager; Age: 69 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 in June 1992, he was Senior Vice
President and Chief Investment Officer - Equities of National Securities &
Research Corporation (mutual fund advisor) and Vice President of the National
Affiliated Investment Companies.
Michael S. Levine, Vice President and Portfolio Manager, Age: 34 Two World Trade
Center, 34th Floor, New York, New York 10048-0203 Vice President of the Manager
(since April 1996); formerly Assistant Portfolio Manager of the Manager (from
June 1994 - April 1996) and portfolio manager and research associate for Amas
Securities, Inc. (from February 1990 - February 1994).
Andrew J. Donohue, Vice President and Secretary, Age: 49
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView Asset Management Corporation, Shareholder Services,
Inc., Shareholder Financial Services, Inc. and (since September 1995)
Oppenheimer Partnership Holdings, Inc.; President and a director of Centennial
Asset Management Corporation (since September 1995); President, General Counsel
and a director of Oppenheimer Real Asset Management, Inc. (since July 1996);
General Counsel (since May 1996) and Secretary (since April 1997) of Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 41
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 34
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.
Brian W. Wixted, Treasurer, Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer
of HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.
(since April 1999); Assistant Treasurer of Oppenheimer Acquisition Corp. (since
April 1999); Assistant Secretary of Centennial Asset Management Corporation
(since April 1999); formerly Principal and Chief Operating Officer, Bankers
Trust Company - Mutual Fund Services Division (March 1995 - March 1999); Vice
President and Chief Financial Officer of CS First Boston Investment Management
Corp. (September 1991 - March 1995); and Vice President and Accounting Manager,
Merrill Lynch Asset Management (November 1987 - September 1991).
Robert G. Zack, Assistant Secretary, Age: 51
Two World Trade Center, 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 of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); 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, 1999. The compensation from all
of the Denver-based Oppenheimer funds includes the compensation from the Fund
and represents compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year 1998.
<PAGE>
- ---------------------------------------------------------------------------
Total Compensation
Aggregate Compensation from all Denver-Based
Trustee's Name and Position from Fund Oppenheimer Funds1
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
William H. Armstrong2 $1,736 NONE
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Robert G. Avis $11,215 $67,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
William A. Baker $11,466 $69,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
George Bowen3 $1,859 NONE
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Edward Cameron2 $0 NONE
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Jon. S. Fossel
Review Committee Member $11,370 $67,496
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Sam Freedman
Review Committee Member $12,205 $73,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Raymond J. Kalinowski
Audit Committee Member $12,086 $73,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
C. Howard Kast
Audit and Review
Committee Chairman $12,879 $76,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Robert M. Kirchner
Audit Committee Member $11,335 $67,998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Ned M. Steel $11,215 $67,998
- ---------------------------------------------------------------------------
1. For the 1998 calendar year.
Messrs. Armstrong and Cameron were not Trustees or Directors of the
Denver-based Oppenheimer funds during 1998.
3. Mr. Bowen did not receive compensation during the 1998 calendar year as he
was affiliated with the Manager during that period.
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.
n Major Shareholders. As of December 1, 1999 there are no persons who
owned of record or were known by the Fund to own beneficially 5% or more of any
class of the Fund's outstanding shares.
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 bank 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1997 $14,800,449
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1998 $19,364,160
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $20,872,455
- -------------------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss the Fund sustains for any
investment, adoption of any investment policy, or the purchase, sale or
retention of any security.
The agreement permits the Manager to act as investment advisor for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
advisor or general distributor. If the Manager shall no longer act as investment
advisor to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
The Manager is authorized by the advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the Investment
Company Act. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
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 advisor.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates. Other funds advised by the Manager have investment
policies similar to those of the Fund. Those other funds may purchase or sell
the same securities as the Fund at the same time as the Fund, which could affect
the supply and price of the securities. If two or more funds advised by the
Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. Instead of using a broker for those transactions, the Fund normally
deals directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. The investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research may be supplied to the Manager by
a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1997 $706,049
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1998 $829,875
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1999 $1,803,9302
- --------------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. In the fiscal year ended 8/31/99, the amount of transactions directed to
brokers for research services was $525,218,886 and the amount of the
commissions paid to broker-dealers for those services was $820,401.
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $5,280,270 $1,692,621 $533,123 $5,659,987 $484,484
- -------------------------------------------------------------------------------
1. Includes amounts paid to a dealer affiliated with the Distributor's parent.
<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
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1999 $3,248 $1,405,862 $38,726
- -------------------------------------------------------------------------------
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.
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. 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. 2 This provision does not apply to IRAs.
Under the plans, the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time, may use their own
resources (at no direct cost to the Fund) to make payments to brokers, dealers
or other financial institutions for distribution and administrative services
they perform. The Manager may use its profits from the advisory fee it receives
from the Fund. In their sole discretion, the Distributor and the Manager may
increase or decrease the amount of payments they make from their own resources
to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of 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 and the purpose for which the payments were made. 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. 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 and
held in the accounts of the recipients or their customers.
For the fiscal year ended August 31, 1999 payments under the Class A Plan
totaled $6,477,338, all of which was paid by the Distributor to recipients. That
included $483,135 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.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
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.
<PAGE>
- --------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 8/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distributor's
Distributor's Unreimbursed
Total Amount Aggregate Expenses as %
Payments Retained by Unreimbursed of Net Assets
Class: Under Plan Distributor Expenses Under Plan of Class
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Plan $7,487,764 $6,131,624 $15,983,560 2.22%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Plan $1,195,262 $718,537 $1,535,378 1.29%
- --------------------------------------------------------------------------------
1. Includes $112,584 paid to an affiliate of the Distributor's parent company.
2. Includes $24,407 paid to an affiliate of the Distributor's parent company.
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:
o 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.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
Total returns for any given past period represent historical performance
information and are not, and should not be considered, a prediction of future
returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted from
the initial investment ("P") (unless the return is shown without sales charge,
as described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for 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 8/31/99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 175.36% 192.16% 4.64% 11.03% 13.80% 13.49% 10.66% 11.32%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B 101.66%2 101.66%2 5.26% 10.22% 13.99% 14.23% 12.32%2 12.32%2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C 68.83%3 68.83%3 9.16% 10.15% 14.64%3 14.64%3 N/A N/A
- --------------------------------------------------------------------------------
1. Inception of Class A: 12/1/70
2. Inception of Class B: 8/17/93. Because Class B shares convert to Class A
shares 72 months after purchase, the "Life-of-Class" return for Class B shares
uses Class A performance for the period after conversion. 3. Inception of Class
C: 11/1/95
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 equity 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
ranking and/or star rating of the performance of its classes of shares by
Morningstar, Inc., an independent mutual fund monitoring service. Morningstar
rates and ranks mutual funds in broad investment categories: domestic stock
funds, international stock funds, taxable bond funds and municipal bond funds.
The Fund is included in the domestic stock category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one-,
three-, five- and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk 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 ratings reflecting performance
relative to the other fund in the fund's category. Five stars is the "highest"
rating (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) overall rating, which is the fund's 3-year rating or its
combined 3- and 5-year rating (weighted 60%/40% respectively), or its combined
3-, 5-, and 10-year ranking (weighted 40%/30%/30%, respectively), depending on
the inception date of the fund (or class). Ratings are subject to change
monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk adjusted. For example if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
|_| 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.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
o Class A and Class B shares you purchase for your individual accounts,
or for your joint accounts, or for trust or custodial accounts on
behalf of your children who are minors, and
o current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
o Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
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 Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Champion Income Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Convertible Securities Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Capital Income Fund Inc.
Oppenheimer Europe Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Florida Municipal Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Global Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer Real Asset Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Growth Fund Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Insured Municipal Fund Oppenheimer Trinity Core Fund
Oppenheimer Intermediate Municipal Fund Oppenheimer Trinity Growth Fund
Oppenheimer International Bond Fund Oppenheimer Trinity Value Fund
Oppenheimer International Growth Fund Oppenheimer U.S. Government Trust
Oppenheimer International Small Company
Fund Oppenheimer World Bond Fund
Oppenheimer Large Cap Growth Fund Limited-Term New York Municipal Fund
Oppenheimer Limited-Term Government Fund Rochester Fund Municipals
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 (the minimum is $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 are only
available if your bank is an ACH member. Asset Builder Plans may not be used to
buy shares for OppenheimerFunds employer - sponsored qualified retirement
accounts. 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 debited automatically. Normally the debt will be
made two business days prior to the investment dates you selected in your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) your financial advisor (or the Distributor)
and request an application from the Distributor. Complete the application and
return it. You may change the amount of the Asset Builder payment or you can
terminate these at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 10 days) after receipt of your
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the Plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the Plan's applicable investments
reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|_| 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 bank 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 bank expenses, share issuance costs, organization and
start-up costs, interest, taxes and brokerage commissions, and non-recurring
expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and U. S.
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the 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 liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of 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.
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 Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund may not be exchanged for shares
of any other fund.
o Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may
not be acquired by exchange of shares of any class of any other
Oppenheimer funds except Class A shares of Oppenheimer Money Market
Fund or Oppenheimer Cash Reserves acquired by exchange of Class M
shares.
o Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares
of Senior Floating Rate Fund that are exchanged for shares of the other
Oppenheimer funds may not be exchanged back for Class A shares of
Senior Floating Rate Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged
only for Class B shares of other Oppenheimer funds and no exchanges may
be made to Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash
Reserves or Oppenheimer Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Oppenheimer Capital
Preservation Fund, and only those participants may exchange shares of
other Oppenheimer funds for shares of Oppenheimer Capital Preservation
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
an early withdrawal charge or 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 sales charge 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.
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.
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days notice prior to materially amending
or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
o 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.
o 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.
o 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. 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.
o 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. When you
exchange some or all of your shares from one fund to another, any special
account feature such as an Asset Builder Plan or Automatic Withdrawal Plan, will
be switched to the new fund account unless you tell the Transfer Agent not to do
so. However, special redemption and exchange features such as Automatic Exchange
Plans and Automatic Withdrawal Plans cannot be switched to an account in
Oppenheimer Senior Floating Rate Fund.
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 Bank. The Bank of New York is the custodian bank of the Fund's
assets. The custodian bank's responsibilities include safeguarding and
controlling the Fund's portfolio securities and handling the delivery of such
securities to and from the Fund. It will be the practice of the Fund to deal
with the custodian bank in a manner uninfluenced by any banking relationship the
custodian bank may have with the Manager and its affiliates. The Fund's cash
balances with the custodian bank 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
================================================================================
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER CAPITAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Capital Income Fund (formerly
Oppenheimer Equity Income Fund) as of August 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended August 31, 1999 and 1998 and the financial highlights for the
period July 1, 1994, to August 31, 1999. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1999, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Oppenheimer
Capital Income Fund as of August 31, 1999, 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, 1999
<PAGE>
<PAGE>
STATEMENT OF INVESTMENTS August 31, 1999
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
====================================================================================================================
<S>
<C> <C>
COMMON STOCKS--60.8%
- --------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--2.2%
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.7%
Dexter
Corp.
500,000 $ 18,218,750
- --------------------------------------------------------------------------------------------------------------------
Engelhard
Corp.
485,000 9,669,687
- -------------
27,888,437
- --------------------------------------------------------------------------------------------------------------------
PAPER--1.5%
International Paper
Co.
344,820 16,228,091
- --------------------------------------------------------------------------------------------------------------------
Smurfit-Stone Container
Corp.(1) 257,142
5,448,196
- --------------------------------------------------------------------------------------------------------------------
Sonoco Products
Co.
660,000 15,675,000
- --------------------------------------------------------------------------------------------------------------------
Westvaco
Corp.
375,000 9,820,312
- --------------------------------------------------------------------------------------------------------------------
Weyerhaeuser
Co.
200,000 11,250,000
- -------------
58,421,599
- --------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.1%
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.4%
Allied Waste Industries,
Inc.(1) 200,000
2,550,000
- --------------------------------------------------------------------------------------------------------------------
Republic Services,
Inc.(1)
625,000 6,796,875
- --------------------------------------------------------------------------------------------------------------------
Waste Management,
Inc.
240,000 5,235,000
- -------------
14,581,875
- --------------------------------------------------------------------------------------------------------------------
MANUFACTURING--2.7%
AlliedSignal,
Inc.
400,000 24,500,000
- --------------------------------------------------------------------------------------------------------------------
Cooper Industries,
Inc.
163,333 8,472,899
- --------------------------------------------------------------------------------------------------------------------
Mettler-Toledo International,
Inc.(1) 50,000
1,331,250
- --------------------------------------------------------------------------------------------------------------------
Pall
Corp.
800,000 15,900,000
- --------------------------------------------------------------------------------------------------------------------
Temple-Inland,
Inc.
250,000 15,500,000
- --------------------------------------------------------------------------------------------------------------------
Tenneco,
Inc.
88,200 1,775,025
- --------------------------------------------------------------------------------------------------------------------
Tyco International
Ltd.
331,512 33,586,309
- -------------
101,065,483
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES--2.1%
- --------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: LONG DISTANCE--0.2%
MCI WorldCom,
Inc.(1)
102,500 7,764,375
- --------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--1.9%
GTE
Corp.
565,000 38,773,125
- --------------------------------------------------------------------------------------------------------------------
SBC Communications,
Inc.
625,400 30,019,200
- --------------------------------------------------------------------------------------------------------------------
US West,
Inc.
30,000 1,567,500
- --------------
70,359,825
</TABLE>
14 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
CONSUMER CYCLICALS--4.4%
- --------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--1.0%
Dana
Corp.
30,000 $ 1,306,875
- --------------------------------------------------------------------------------------------------------------------
Delphi Automotive Systems
Corp. 647,700
12,144,375
- --------------------------------------------------------------------------------------------------------------------
Snap-On,
Inc.
675,000 22,823,437
- -------------
36,274,687
- --------------------------------------------------------------------------------------------------------------------
CONSUMER SERVICES--1.1%
Dun & Bradstreet
Corp.
900,000 23,568,750
- --------------------------------------------------------------------------------------------------------------------
H&R Block,
Inc.
300,000 16,687,500
- --------------------------------------------------------------------------------------------------------------------
Stewart Enterprises,
Inc.
65,000 351,406
- --------------------------------------------------------------------------------------------------------------------
United Road Services,
Inc.(1) 370,000
1,341,250
- -------------
41,948,906
- --------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.1%
Harrah's Entertainment,
Inc.(1) 215,000
4,837,500
- --------------------------------------------------------------------------------------------------------------------
MEDIA--0.9%
Deluxe
Corp.
650,000 22,140,625
- --------------------------------------------------------------------------------------------------------------------
Hollinger International,
Inc. 700,000
7,525,000
- --------------------------------------------------------------------------------------------------------------------
R.H. Donnelley
Corp.
160,000 2,770,000
- -------------
32,435,625
- --------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.7%
Family Dollar Stores,
Inc. 700,000
13,781,250
- --------------------------------------------------------------------------------------------------------------------
Sears Roebuck &
Co.
300,000 11,250,000
- -------------
25,031,250
- --------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--0.6%
AutoZone,
Inc.(1)
102,500 2,440,781
- --------------------------------------------------------------------------------------------------------------------
Blockbuster, Inc., Cl.
A(1) 75,000
1,115,625
- --------------------------------------------------------------------------------------------------------------------
CSK Auto
Corp.(1)
750,000 17,812,500
- -------------
21,368,906
- --------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.2%
- --------------------------------------------------------------------------------------------------------------------
BROADCASTING--0.9%
AMFM,
Inc.(1)
175,000 8,618,750
- --------------------------------------------------------------------------------------------------------------------
CBS
Corp.(1)
57,500 2,702,500
- --------------------------------------------------------------------------------------------------------------------
Clear Channel Communications,
Inc.(1) 45,000
3,152,812
- --------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., Cl.
A(1) 67,500 3,813,750
- --------------------------------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc., A
Shares(1) 150,000 3,459,375
</TABLE>
15 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
BROADCASTING Continued
Infinity Broadcasting Corp., Cl.
A(1) 125,000 $ 3,382,812
- --------------------------------------------------------------------------------------------------------------------
RCN
Corp.(1)
250,000 10,500,000
- -------------
35,629,999
- --------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--0.6%
SFX Entertainment, Inc., Cl.
A(1) 525,000
21,623,437
- --------------------------------------------------------------------------------------------------------------------
FOOD--1.0%
General Mills,
Inc.
100,000 8,375,000
- --------------------------------------------------------------------------------------------------------------------
Nabisco Group Holdings
Corp. 1,662,000
29,500,500
- -------------
37,875,500
- --------------------------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--0.7%
Albertson's,
Inc.
50,000 2,396,875
- --------------------------------------------------------------------------------------------------------------------
SUPERVALU,
Inc.
1,000,000 22,500,000
- -------------
24,896,875
- --------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--1.1%
Fort James
Corp.
803,433 25,910,714
- --------------------------------------------------------------------------------------------------------------------
Newell Rubbermaid,
Inc.
345,700 14,173,700
- -------------
40,084,414
- --------------------------------------------------------------------------------------------------------------------
TOBACCO--2.9%
Philip Morris Cos.,
Inc.
2,202,500 82,456,094
- --------------------------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings,
Inc.(1) 565,341 15,511,544
- --------------------------------------------------------------------------------------------------------------------
UST,
Inc.
400,000 12,675,000
- -------------
110,642,638
- --------------------------------------------------------------------------------------------------------------------
ENERGY--4.8%
- --------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES--0.2%
Coastal
Corp.
200,000 8,662,500
- --------------------------------------------------------------------------------------------------------------------
OIL: DOMESTIC--3.8%
Atlantic Richfield
Co.
238,000 20,929,125
- --------------------------------------------------------------------------------------------------------------------
Conoco, Inc., Cl.
B
1,164,200 31,287,875
- --------------------------------------------------------------------------------------------------------------------
Enron Oil & Gas
Co.
270,000 6,446,250
- --------------------------------------------------------------------------------------------------------------------
Phillips Petroleum
Co.
275,000 14,025,000
- --------------------------------------------------------------------------------------------------------------------
Tosco
Corp.
150,000 3,825,000
- --------------------------------------------------------------------------------------------------------------------
Ultramar Diamond Shamrock
Corp. 416,900
10,891,512
</TABLE>
16 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
OIL: DOMESTIC Continued
Unocal
Corp.
500,000 $ 20,937,500
- --------------------------------------------------------------------------------------------------------------------
USX-Marathon
Group
800,000 24,900,000
- --------------------------------------------------------------------------------------------------------------------
Valero Energy
Corp.
500,000 10,625,000
- -------------
143,867,262
- --------------------------------------------------------------------------------------------------------------------
OIL: INTERNATIONAL--0.8%
Chevron
Corp.
200,000 18,450,000
- --------------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co., NY
Shares 200,000
12,375,000
- -------------
30,825,000
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL--28.5%
- --------------------------------------------------------------------------------------------------------------------
BANKS--15.6%
Bank of America
Corp.
1,355,260 81,993,230
- --------------------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc.
(The) 900,000
32,175,000
- --------------------------------------------------------------------------------------------------------------------
Bank One
Corp.
1,418,500 56,917,313
- --------------------------------------------------------------------------------------------------------------------
BankBoston
Corp.
750,000 34,828,125
- --------------------------------------------------------------------------------------------------------------------
Charter One Financial,
Inc. 600,000
14,043,750
- --------------------------------------------------------------------------------------------------------------------
Chase Manhattan
Corp.
1,123,360 94,011,190
- --------------------------------------------------------------------------------------------------------------------
Commercial Federal
Corp.
357,500 8,311,875
- --------------------------------------------------------------------------------------------------------------------
Compass Bancshares,
Inc.
90,000 2,390,625
- --------------------------------------------------------------------------------------------------------------------
First Union
Corp.
1,997,980 82,916,170
- --------------------------------------------------------------------------------------------------------------------
Fleet Financial Group,
Inc. 500,000
19,906,250
- --------------------------------------------------------------------------------------------------------------------
Hibernia Corp., Cl.
A
100,000 1,293,750
- --------------------------------------------------------------------------------------------------------------------
KeyCorp
600,000 17,400,000
- --------------------------------------------------------------------------------------------------------------------
Mellon Bank
Corp.
886,600 29,590,275
- --------------------------------------------------------------------------------------------------------------------
National City
Corp.
383,000 10,580,375
- --------------------------------------------------------------------------------------------------------------------
PNC Bank
Corp.
301,600 15,777,450
- --------------------------------------------------------------------------------------------------------------------
Summit
Bancorp
712,450 23,778,019
- --------------------------------------------------------------------------------------------------------------------
SunTrust Banks,
Inc.
400,000 25,725,000
- --------------------------------------------------------------------------------------------------------------------
U.S.
Bancorp
700,000 21,612,500
- --------------------------------------------------------------------------------------------------------------------
Union Planters
Corp.
389,324 16,424,606
- -------------
589,675,503
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--4.7%
American Express
Co.
186,000 25,575,000
- --------------------------------------------------------------------------------------------------------------------
Anthracite Capital,
Inc.
600,000 4,050,000
- --------------------------------------------------------------------------------------------------------------------
Associates First Capital Corp., Cl.
A 157,250 5,395,641
- --------------------------------------------------------------------------------------------------------------------
C.I.T. Group, Inc., Cl.
A 127,500
3,036,094
- --------------------------------------------------------------------------------------------------------------------
Capital One Financial
Corp. 401,300
15,149,075
</TABLE>
17 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
DIVERSIFIED FINANCIAL Continued
Citigroup,
Inc.
2,011,900 $ 89,403,806
- --------------------------------------------------------------------------------------------------------------------
Household International,
Inc. 694,732
26,226,133
- --------------------------------------------------------------------------------------------------------------------
Imperial Credit Commercial Mortgage Investment
Corp. 500,000 5,468,750
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co.,
Inc.
27,500 2,052,188
- -------------
176,356,687
- --------------------------------------------------------------------------------------------------------------------
INSURANCE--4.7%
ACE
Ltd.
35,000 750,313
- --------------------------------------------------------------------------------------------------------------------
Aetna,
Inc.
292,300 22,726,325
- --------------------------------------------------------------------------------------------------------------------
Allstate
Corp.
712,998 23,395,247
- --------------------------------------------------------------------------------------------------------------------
American General
Corp.
698,200 49,572,200
- --------------------------------------------------------------------------------------------------------------------
Enhance Financial Services Group,
Inc. 703,425 14,420,213
- --------------------------------------------------------------------------------------------------------------------
Everest Reinsurance Holdings,
Inc. 325,000
9,018,750
- --------------------------------------------------------------------------------------------------------------------
Hartford Financial Services Group,
Inc. 200,000 9,087,500
- --------------------------------------------------------------------------------------------------------------------
IPC Holdings
Ltd.
359,964 7,761,724
- --------------------------------------------------------------------------------------------------------------------
Reliance Group Holdings,
Inc. 1,541,500
7,322,125
- --------------------------------------------------------------------------------------------------------------------
St. Paul Cos.,
Inc.
1,000,000 32,062,500
- --------------------------------------------------------------------------------------------------------------------
XL Capital
Ltd.
12,500 628,906
- -------------
176,745,803
- --------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--2.2%
Archstone Communities
Trust 400,000
8,550,000
- --------------------------------------------------------------------------------------------------------------------
Avalonbay Communities,
Inc. 300,000
10,575,000
- --------------------------------------------------------------------------------------------------------------------
Cornerstone Properties,
Inc. 500,000
7,968,750
- --------------------------------------------------------------------------------------------------------------------
Developers Diversified Realty
Corp. 60,000
896,250
- --------------------------------------------------------------------------------------------------------------------
Equity Office Properties
Trust 750,000
19,171,875
- --------------------------------------------------------------------------------------------------------------------
Equity Residential Properties
Trust 375,000
16,500,000
- --------------------------------------------------------------------------------------------------------------------
FBR Asset Investment
Corp.(2)(9)
500,000 6,750,000
- --------------------------------------------------------------------------------------------------------------------
Horizon Group Properties,
Inc.(1) 30,000
93,750
- --------------------------------------------------------------------------------------------------------------------
Prime Retail,
Inc.
600,000 4,500,000
- --------------------------------------------------------------------------------------------------------------------
Reckson Associates Realty
Corp. 425,000
8,818,750
- -------------
83,824,375
- --------------------------------------------------------------------------------------------------------------------
SAVINGS & LOANS--1.3%
Golden State Bancorp,
Inc.(1) 390,650
7,837,416
- --------------------------------------------------------------------------------------------------------------------
Greenpoint Financial
Corp. 400,000
10,350,000
- --------------------------------------------------------------------------------------------------------------------
Greenpoint Financial
Corp.(1)(2)
50,000 1,176,150
- --------------------------------------------------------------------------------------------------------------------
Sovereign Bancorp,
Inc.
461,440 4,628,820
- --------------------------------------------------------------------------------------------------------------------
Washington Mutual,
Inc.
780,000 24,765,000
- -------------
48,757,386
</TABLE>
18 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
HEALTHCARE--1.4%
- --------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--1.4%
Bristol-Myers Squibb
Co. 600,000 $
42,225,000
- --------------------------------------------------------------------------------------------------------------------
Pharmacia & Upjohn,
Inc.
198,700 10,382,075
- -------------
52,607,075
- --------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.8%
- --------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES--0.1%
First Data
Corp.
100,000 4,400,000
- --------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--0.4%
Structural Dynamics Research
Corp.(1) 450,000
7,256,250
- --------------------------------------------------------------------------------------------------------------------
Unigraphics Solutions,
Inc.(1) 202,500
6,872,344
- -------------
14,128,594
- --------------------------------------------------------------------------------------------------------------------
ELECTRONICS--0.9%
Motorola,
Inc.
350,000 32,287,500
- --------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY--0.4%
Eastman Kodak
Co.
200,000 14,687,500
- --------------------------------------------------------------------------------------------------------------------
UTILITIES--5.3%
- --------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--4.3%
Allegheny Energy,
Inc.
300,000 10,125,000
- --------------------------------------------------------------------------------------------------------------------
Central & South West
Corp. 603,000
13,642,875
- --------------------------------------------------------------------------------------------------------------------
DQE,
Inc.
190,700 7,377,706
- --------------------------------------------------------------------------------------------------------------------
FirstEnergy
Corp.
400,000 11,425,000
- --------------------------------------------------------------------------------------------------------------------
Florida Progress
Corp.
600,100 28,129,688
- --------------------------------------------------------------------------------------------------------------------
Illinova
Corp.
699,500 22,296,563
- --------------------------------------------------------------------------------------------------------------------
New Century Energies,
Inc. 321,000
11,596,125
- --------------------------------------------------------------------------------------------------------------------
Potomac Electric Power
Co. 409,100
10,841,150
- --------------------------------------------------------------------------------------------------------------------
SCANA
Corp.
300,000 7,500,000
- --------------------------------------------------------------------------------------------------------------------
Texas Utilities
Co.
501,600 20,283,450
- --------------------------------------------------------------------------------------------------------------------
Unicom
Corp.
501,700 19,378,163
- -------------
162,595,720
- --------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--1.0%
Enron
Corp.
830,000 34,756,250
- --------------------------------------------------------------------------------------------------------------------
MCN Energy Group,
Inc.
135,000 2,413,125
- -------------
37,169,375
- -------------
Total Common Stocks (Cost
$1,575,629,908)
2,289,321,611
</TABLE>
19 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
====================================================================================================================
<S>
<C> <C>
PREFERRED STOCKS--2.5%
Adelphia Communications Corp., 5.50% Cv., Series D,
Non-Vtg. 32,500 $ 5,992,187
- --------------------------------------------------------------------------------------------------------------------
Armco, Inc., $7.25 Cum. Cv.,
Vtg. 200,000
10,125,000
- --------------------------------------------------------------------------------------------------------------------
California Federal Preferred Capital Corp., 9.125% Non-Cum.
Exchangeable, Series A,
Non-Vtg. 55,000
1,368,125
- --------------------------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc., $3.75 Cum. Cv., Series B,
Non-Vtg. 180,000 6,795,000
- --------------------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 9% Trust Preferred Nts.,
12/1/06 5,985,000 5,850,338
- --------------------------------------------------------------------------------------------------------------------
Hercules Trust II, Units (each unit consists of $1,000 principal amount of
6.50% sr. exchangeable preferred stock and one warrant to purchase 23.1492
shares of common
stock)(1)(3) 21,500
19,874,170
- --------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc., 6.75% Cum. Cv.,
Non-Vtg.(4) 37,500 1,889,062
- --------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc., 6.75% Cum. Cv.,
Non-Vtg. 62,500 3,148,437
- --------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 7%
Cv.(1) 17,500 382,813
- --------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 7%
Cv.(1)(4) 32,500 710,938
- --------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 7% Cum. Cv.,
Non-Vtg.(1)(4) 40,000 1,445,000
- --------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 7% Cv.,
Non-Vtg.(1) 122,500 3,093,125
- --------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., Depositary Shares Representing
one one-hundredth 7% Cum. Cv. Jr., Series D,
Non-Vtg.(1) 35,000 1,264,375
- --------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., Depositary Shares Representing
one one-hundredth 7% Cum. Cv. Jr., Series E,
Non-Vtg.(1)(4) 2,500 63,125
- --------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 6.75% Cv., Series
A(1) 20,000 6,560,000
- --------------------------------------------------------------------------------------------------------------------
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)(3) 590,000 16,630,625
- --------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 6% Cv. Sub.
Debs. 35,000 1,540,000
- --------------------------------------------------------------------------------------------------------------------
Trans World Airlines, Inc., $4.625 Cum.
Cv.(1)(4) 200,000 5,525,000
- -------------
Total Preferred Stocks (Cost
$97,559,312)
92,257,320
====================================================================================================================
OTHER SECURITIES--5.9%
American General Delaware LLC, 6% Cum. Cv. Monthly Income
Preferred Securities, Series A,
Non-Vtg. 75,000 6,726,562
- --------------------------------------------------------------------------------------------------------------------
American Heritage Life Investment Corp., 8.50% Cum. Cv. Preferred
Redeemable Increased Dividend Equity
Securities 35,000 2,957,500
- --------------------------------------------------------------------------------------------------------------------
Automatic Commission Exchange Security Trust II, 6.50% Cv. (Exchangeable to
Common Stock of Republic Industries, Inc. Trust Automatic Common Exchange
Securities effective
5/1/00)
300,000 4,125,000
- --------------------------------------------------------------------------------------------------------------------
Banco Commercial Portuguese International Bank Ltd., 8% Cv., Series
A 98,300 9,879,150
- --------------------------------------------------------------------------------------------------------------------
Budget Group, Inc., 6.25% Cv.,
Non-Vtg.(1) 75,700 2,545,412
- --------------------------------------------------------------------------------------------------------------------
Carriage Services, Inc., 7% Cv. Term Income Deferrable Equity
Securities(1)(4) 57,500 2,314,375
- --------------------------------------------------------------------------------------------------------------------
Coastal Corp., 6.625%
Cv.(1) 600,000
16,462,500
</TABLE>
20 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
====================================================================================================================
<S>
<C> <C>
OTHER SECURITIES Continued
DECS Trust IV, 7% Cv. Debt Exchangeable for Common Stock of
Maxtor Corp.,
Non-Vtg.
250,000 $ 1,843,750
- --------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.50% Cv. Structured Yield Product Exchangeable for
Stock 451,800 17,140,162
- --------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 7.50% Cv. Premium Equity Participating Security
Units(1) 25,000 1,134,375
- --------------------------------------------------------------------------------------------------------------------
Host Marriott Financial Trust, 6.75%
Cv.(1)(4) 10,000 341,250
- --------------------------------------------------------------------------------------------------------------------
Host Marriott Financial Trust, 6.75% Cv. Quarterly Income
Preferred
Stock(1)
17,500 597,188
- --------------------------------------------------------------------------------------------------------------------
Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable
Increased Dividend Equity
Securities 1,700,000
12,006,250
- --------------------------------------------------------------------------------------------------------------------
Kerr-McGee Corp., 7.50% Cv. Sub. Debs.,
5/15/14 6,648,000 6,672,930
- --------------------------------------------------------------------------------------------------------------------
MCN Energy Group, Inc., 8% Cv. Preferred Redeemable Increased
Dividend Equity Securities,
Non-Vtg. 50,000
1,715,625
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6.25% Structured Yield Product
Exchangeable for Stock of IMC Global,
Inc. 32,500 613,438
- --------------------------------------------------------------------------------------------------------------------
Monsanto Co., 6.50% Cv. Adjustable Conversion-rate Equity Security
Units 75,000 3,131,250
- --------------------------------------------------------------------------------------------------------------------
Newell Financial Trust I, 5.25%
Cv.(1)(4) 244,000 12,047,500
- --------------------------------------------------------------------------------------------------------------------
Nisource, Inc., 7.75% Premium Income Equity
Securities 200,000 9,125,000
- --------------------------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly Income Preferred
Securities,
Non-Vtg.
200,000 8,825,000
- --------------------------------------------------------------------------------------------------------------------
PLC Capital Trust II, 6.50% Cum. Cv. Preferred Redeemable Increased
Dividend Equity Securities,
Non-Vtg. 56,500
2,952,125
- --------------------------------------------------------------------------------------------------------------------
Premier Parks, Inc., 7.50% Cum. Cv. Premium Income Equity Securities,
Non--Vtg 499,000 30,938,000
- --------------------------------------------------------------------------------------------------------------------
Qwest Trends Trust, 5.75% Cv.
(1)(4) 125,000
5,937,500
- --------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 7% Automatic Common Exchange Securities for
Time Warner, Inc. Common
Stock 150,000
15,450,000
- --------------------------------------------------------------------------------------------------------------------
Seagram Co. Ltd., Automatic Common Exchangeable
Securities(1) 100,000 5,231,250
- --------------------------------------------------------------------------------------------------------------------
St. George Bank, ADR 9% Cv. Structured Yield Product Exchangeable for
Common Stock of St. George
Bank(1)(4) 114,000
5,329,500
- --------------------------------------------------------------------------------------------------------------------
Texas Utilities Co., 9.25% Cv. Preferred Redeemable Increased Dividend
Equity Securities,
Non-Vtg.
176,500 9,178,000
- --------------------------------------------------------------------------------------------------------------------
Union Pacific Capital Trust, 6.25% Cum. Term Income Deferrable
Equity Securities,
Non-Vtg.(1)
131,400 6,044,400
- --------------------------------------------------------------------------------------------------------------------
United Rental Trust I, 6.50% Cv. Quarterly Income Preferred
Securities(1)(4) 110,000 4,276,250
- --------------------------------------------------------------------------------------------------------------------
United Rental Trust I, 6.50% Cv. Quarterly Income Preferred
Securities 90,000 3,498,750
- --------------------------------------------------------------------------------------------------------------------
WBK Trust, 10% Cv. Structured Yield Product Exchangeable
Stock 450,000 13,078,125
- -------------
Total Other Securities (Cost
$212,659,348)
222,118,117
<CAPTION>
UNITS
====================================================================================================================
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
<S>
<C> <C>
Golden State Bancorp, Inc. Wts., Exp. 1/01 (Cost
$1,316,782) 390,650 598,183
</TABLE>
21 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(5) SEE NOTE 1
================================================================================================================
<S>
<C> <C>
U.S. GOVERNMENT OBLIGATIONS--11.4%
U.S. Treasury Bonds, STRIPS, 6.17%, 8/15/23(6)
$610,000,000 $136,779,690
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.26%, 8/15/22(6)
550,000,000 128,093,350
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 6.91%, 5/15/21(6)
160,000,000 39,585,440
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 7.20%, 8/15/08(6)
150,000,000 85,333,950
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 7.22%, 8/15/20(6)
150,000,000 38,709,450
- ------------
Total U.S. Government Obligations (Cost
$426,284,099) 428,501,880
================================================================================================================
FOREIGN GOVERNMENT OBLIGATIONS--1.7%
Argentina (Republic of) Bonds, Series L, 5.938%, 3/31/05(7)
6,045,000 5,168,475
- ----------------------------------------------------------------------------------------------------------------
Canada (Government of) Bonds, 7.50%, 9/1/00 [CAD]
19,460,000 13,332,287
- ----------------------------------------------------------------------------------------------------------------
Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(4)
9,000,000 8,077,500
- ----------------------------------------------------------------------------------------------------------------
Hashemite (Kingdom of Jordan) Disc. Bonds, 6.188%, 12/23/23(7)
1,250,000 784,375
- ----------------------------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03 [AUD]
9,900,000 6,871,807
- ----------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Global Exchangeable Gtd. Nts., 8%, 8/14/01 [AUD]
33,650,000 22,365,314
- ----------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR]
27,500,000 3,983,759
- ----------------------------------------------------------------------------------------------------------------
South Australia (Government of) Bonds, 9%, 9/23/02 [AUD]
3,000,000 2,057,516
- ------------
Total Foreign Government Obligations (Cost
$69,934,962) 62,641,033
================================================================================================================
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--6.4%
AK Steel Corp., 9.125% Sr. Nts., 12/15/06
4,000,000 4,060,000
- ----------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09
5,995,000 5,425,475
- ----------------------------------------------------------------------------------------------------------------
Amtran, Inc., 9.625% Nts., 12/15/05
3,000,000 2,898,750
- ----------------------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(7)
5,000,000 7,426,690
- ----------------------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07
2,500,000 2,187,500
- ----------------------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08
5,000,000 4,625,000
- ----------------------------------------------------------------------------------------------------------------
Canadaiqua Brands, Inc., 8.625% Unsec. Sr. Nts., 8/1/06
2,250,000 2,216,250
- ----------------------------------------------------------------------------------------------------------------
Chancellor Media Corp., 9% Sr. Unsec. Sub. Nts., 10/1/08
7,000,000 7,000,000
- ----------------------------------------------------------------------------------------------------------------
Charter Communication Holdings LLC/Charter Communication Holdings
Capital Corp., 8.625% Sr. Nts., 4/1/09(4)
3,000,000 2,827,500
- ----------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06
2,400,000 2,172,000
- ----------------------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01
6,000,000 6,375,000
- ----------------------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05
6,350,000 6,191,250
- ----------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18
3,000,000 2,681,250
- ----------------------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09(4)
8,000,000 7,920,000
- ----------------------------------------------------------------------------------------------------------------
El Paso Electric Co., 9.40% First Mtg. Sec. Nts., Series E, 5/1/11
6,000,000 6,516,558
- ----------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 3/15/09
6,500,000 6,175,000
- ----------------------------------------------------------------------------------------------------------------
Fairchild Corp., 10.75% Sr. Sub. Gtd. Nts., 4/15/09(4)
2,000,000 1,840,000
- ----------------------------------------------------------------------------------------------------------------
Fairchild Semiconductor Corp., 10.375% Sr. Sub. Nts., 10/1/07(4)
2,500,000 2,450,000
</TABLE>
22 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(5) SEE NOTE 1
================================================================================================================
<S>
<C> <C>
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Falcon Holding Group LP, 8.375% Sr. Unsec. Debs., Series B, 4/15/10 $
2,550,000 $ 2,537,250
- ----------------------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06
5,000,000 4,950,000
- ----------------------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 10.625% Sr. Nts., 12/15/01
3,000,000 3,090,000
- ----------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 8.875% Sr. Unsec. Nts., 4/15/06(4)
4,000,000 2,700,000
- ----------------------------------------------------------------------------------------------------------------
Gaylord Container Corp., 9.75% Sr. Nts., 6/15/07
1,000,000 942,500
- ----------------------------------------------------------------------------------------------------------------
Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05
2,500,000 2,487,500
- ----------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08
10,000,000 9,275,000
- ----------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 8.625% Sr. Unsec. Nts., 3/15/05
4,710,000 4,710,000
- ----------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc., 9.25% Sr. Unsec. Sub. Nts., 2/1/06
4,200,000 4,200,000
- ----------------------------------------------------------------------------------------------------------------
ICN Pharmaceuticals, Inc., 8.75% Sr. Nts., 11/15/08(4)
2,000,000 1,865,000
- ----------------------------------------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05
5,000,000 4,725,000
- ----------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B, 6/1/08
5,500,000 4,922,500
- ----------------------------------------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts., 8/15/08
2,000,000 1,950,000
- ----------------------------------------------------------------------------------------------------------------
Jacor Communications Co., 8.75% Sr. Sub. Nts., Series B, 6/15/07(2)
1,745,000 1,814,800
- ----------------------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09
6,000,000 5,655,000
- ----------------------------------------------------------------------------------------------------------------
Lenfest Communications, Inc., 8.375% Sr. Unsec. Nts., 11/1/05
6,000,000 6,270,000
- ----------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09
4,500,000 4,162,500
- ----------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, 8.125% Sr. Nts., 1/1/06
1,000,000 977,500
- ----------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, 8.75% Sr. Unsec. Sub. Nts., 1/1/09
2,000,000 1,980,000
- ----------------------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc., 10.75% Sr. Unsec. Nts., 6/1/09
3,000,000 3,063,750
- ----------------------------------------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07
7,500,000 7,387,500
- ----------------------------------------------------------------------------------------------------------------
NTL, Inc., 11.50% Sr. Unsec. Nts., Series B, 10/1/08
7,650,000 8,166,375
- ----------------------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08
4,000,000 3,925,000
- ----------------------------------------------------------------------------------------------------------------
PSINet, Inc., 10% Sr. Unsec. Nts., Series B, 2/15/05
5,000,000 4,800,000
- ----------------------------------------------------------------------------------------------------------------
RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06
4,000,000 4,220,000
- ----------------------------------------------------------------------------------------------------------------
Regal Cinemas, Inc., 8.875% Sr. Unsec. Sub. Nts., 12/15/10
6,000,000 4,095,000
- ----------------------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03
9,000,000 9,022,500
- ----------------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 8.625% Sr. Unsec. Sub. Nts., 2/1/08
6,000,000 5,002,500
- ----------------------------------------------------------------------------------------------------------------
SFX Entertainment, Inc., 9.125% Sr. Unsec. Sub. Nts., 12/1/08
7,000,000 6,772,500
- ----------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 10.125% Sr. Sub. Nts., 3/15/06
8,000,000 8,200,000
- ----------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 8.125% Sr. Unsec. Sub. Nts., Series B, 12/1/08
5,750,000 5,390,625
- ----------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 8.625% Sr. Sub. Nts., 1/15/07
2,000,000 1,910,000
- ----------------------------------------------------------------------------------------------------------------
Time Warner Telecom LLC, 9.75% Sr. Nts., 7/15/08
6,000,000 6,120,000
- ----------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(2)
1,913,472 951,952
- ----------------------------------------------------------------------------------------------------------------
TV Guide, Inc., 8.125% Sr. Sub. Nts., 3/1/09
5,500,000 5,211,250
- ----------------------------------------------------------------------------------------------------------------
United Rentals, Inc., 9% Sr. Unsec. Sub. Nts., Series B, 4/1/09
3,000,000 2,887,500
- ----------------------------------------------------------------------------------------------------------------
World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09
3,000,000 2,910,000
- ------------
Total Non-Convertible Corporate Bonds and Notes (Cost
$245,656,064) 240,239,225
</TABLE>
23 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(5) SEE NOTE 1
================================================================================================================
<S>
<C> <C>
CONVERTIBLE CORPORATE BONDS AND NOTES--1.6%
Cirrus Logic, Inc., 6% Cv. Sub. Nts., 12/15/03(4)
$11,000,000 $ 8,208,750
- ----------------------------------------------------------------------------------------------------------------
Inco Ltd., 5.75% Cv. Debs., 7/1/04
9,700,000 9,142,250
- ----------------------------------------------------------------------------------------------------------------
Inco Ltd., 7.75% Cv. Debs., 3/15/16
9,800,000 8,881,250
- ----------------------------------------------------------------------------------------------------------------
Integrated Device Technology, Inc., 5.50% Cv. Sub. Nts., 6/1/02
7,905,000 7,420,819
- ----------------------------------------------------------------------------------------------------------------
Lennar Corp., Zero Coupon Cv. Debs., 4.34%, 7/29/18(6)
4,000,000 1,625,000
- ----------------------------------------------------------------------------------------------------------------
Loews Corp., 3.125% Cv. Sub. Nts., 9/15/07
7,000,000 6,203,750
- ----------------------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon Exchangeable
Sub. Debs., 5.25%, 10/30/15(4),(6)
19,500,000 11,626,875
- ----------------------------------------------------------------------------------------------------------------
National Semiconductor Corp., 6.50% Cv. Sub. Debs., 10/1/02
4,500,000 4,381,875
- ----------------------------------------------------------------------------------------------------------------
Network Associates, Inc., Zero Coupon Cv. Unsec. Sub. Debs., 3.09%, 2/13/18(6)
15,000,000 4,631,250
==============
Total Convertible Corporate Bonds and Notes (Cost
$60,506,694) 62,121,819
================================================================================================================
STRUCTURED INSTRUMENTS--0.4%
Shoshone Partners Loan Trust Sr. Nts., 7.063%, 4/28/02
(representing a basket of reference loans and a total return swap
between Chase Manhattan Bank and the Trust) (Cost $17,230,669)(2),(7)
16,800,000 16,128,503
================================================================================================================
SHORT-TERM NOTES--7.9%8
CIT Group Holdings, Inc., 5.08%, 9/2/99
50,000,000 49,992,944
- ----------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.05%, 9/1/99
50,000,000 50,000,000
- ----------------------------------------------------------------------------------------------------------------
Homeside Lending, Inc., 5.16%, 9/15/99
50,000,000 49,899,667
- ----------------------------------------------------------------------------------------------------------------
New Center Asset Trust, 5.14%, 9/9/99
50,000,000 49,942,889
- ----------------------------------------------------------------------------------------------------------------
Prudential Funding Corp., 5.28%, 10/7/99
50,000,000 49,736,000
- ----------------------------------------------------------------------------------------------------------------
Wells Fargo & Co., 5.24%, 9/27/99
50,000,000 49,810,778
==============
Total Short-Term Notes (Cost
$299,382,278) 299,382,278
================================================================================================================
REPURCHASE AGREEMENTS--1.3%
Repurchase agreement with First Chicago Capital Markets, 5.41%,
dated 8/31/99, to be repurchased at $50,307,559 on 9/1/99,
collateralized by U.S. Treasury Nts., 4%-6.375%, 11/30/99-2/28/03,
with a value of $49,855,245, and U.S. Treasury Bills, 9/15/99, with a
value of $1,489,466 (Cost $50,300,000)
50,300,000 50,300,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$3,056,460,116) 99.9% 3,763,609,969
- ----------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF
LIABILITIES 0.1
3,317,990
- --------------------------------
NET
ASSETS
100.0% $3,766,927,959
================================
</TABLE>
24 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 7 of
Notes to Financial Statements.
3. 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.
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 $87,395,125 or 2.32% of the Fund's net
assets as of August 31, 1999.
5. 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
6. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
7. Represents the current interest rate for a variable rate security.
8. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
9. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended August 31, 1999.
There were no affiliate securities held by the Fund as of August 31, 1999.
Transactions during the period in which the issuer was an affiliate are as
follows:
<TABLE>
<CAPTION>
SHARES SHARES
AUGUST 31, GROSS GROSS
AUGUST 31,
1998 ADDITIONS
REDUCTIONS 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C>
FBR Asset Investment Corp.* 500,000 --
- -- 500,000
</TABLE>
* Not an affiliate as of August 31, 1999.
See accompanying Notes to Financial Statements.
25 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 1999
<TABLE>
<S>
<C>
=================================================================================================================
ASSETS
Investments, at value (Cost $3,056,460,116)--see accompanying
statement $ 3,763,609,969
- -----------------------------------------------------------------------------------------------------------------
Cash
54,283
- -----------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and
dividends
14,440,651
Investments
sold
6,382,518
Shares of beneficial interest
sold 1,524,098
Other
133,685
- ---------------
Total
assets
3,786,145,204
=================================================================================================================
LIABILITIES
Options written, at value (premiums received $286,740)--see accompanying
statement--Note 6 150,000
- -----------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments
purchased
10,064,115
Shares of beneficial interest
redeemed 6,615,603
Distribution and service plan
fees 1,427,161
Transfer and shareholder servicing agent
fees 435,886
Shareholder
reports
337,905
Trustees'
compensation
37,177
Custodian
fees
16,911
Other
132,487
- ---------------
Total
liabilities
19,217,245
=================================================================================================================
NET
ASSETS
$ 3,766,927,959
===============
=================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in
capital
$ 2,802,312,798
- -----------------------------------------------------------------------------------------------------------------
Undistributed net investment
income 27,856,168
- -----------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency
transactions 229,480,539
- -----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign
currencies
707,278,454
- ---------------
Net
assets
$ 3,766,927,959
===============
</TABLE>
26 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
<TABLE>
================================================================================================================
<S>
<C>
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$2,926,923,311 and 214,756,742 shares of beneficial interest
outstanding) $13.63
Maximum offering price per share (net asset value plus sales charge of
5.75% of offering
price)
$14.46
- ----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $720,721,071 and
53,361,565 shares of beneficial interest outstanding) $13.51
- ----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $119,283,577 and
8,836,395 shares of beneficial interest outstanding) $13.50
</TABLE>
See accompanying Notes to Financial Statements.
27 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended August 31, 1999
<TABLE>
<S>
<C>
================================================================================================================
INVESTMENT INCOME
Interest
$ 96,837,960
- ----------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of
$8,837) 80,122,443
============
Total
income
176,960,403
================================================================================================================
EXPENSES
Management fees--Note
4
20,872,455
- ----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class
A
6,477,338
Class
B
7,487,764
Class
C
1,195,262
- ----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note
4 4,993,136
- ----------------------------------------------------------------------------------------------------------------
Shareholder
reports
994,511
- ----------------------------------------------------------------------------------------------------------------
Registration and filing
fees
168,444
- ----------------------------------------------------------------------------------------------------------------
Custodian fees and
expenses
134,171
- ----------------------------------------------------------------------------------------------------------------
Legal, auditing and other professional
fees 109,305
- ----------------------------------------------------------------------------------------------------------------
Trustees'
compensation
105,874
- ----------------------------------------------------------------------------------------------------------------
Insurance
expenses
19,627
- ----------------------------------------------------------------------------------------------------------------
Other
308,754
============
Total
expenses
42,866,641
Less expenses paid indirectly--Note
1 (34,482)
- ------------
Net
expenses
42,832,159
================================================================================================================
NET INVESTMENT
INCOME
134,128,244
================================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments
339,194,260
Closing and expiration of option contracts written--Note
6 (173,375)
Foreign currency
transactions
(26,415)
- ------------
Net realized
gain
338,994,470
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments
(72,841,110)
Translation of assets and liabilities denominated in foreign
currencies 3,957,619
- ------------
Net
change
(68,883,491)
============
Net realized and unrealized
gain 270,110,979
================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $404,239,223
============
</TABLE>
See accompanying Notes to Financial Statements.
28 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST
31,
1999 1998
================================================================================================================
<S>
<C> <C>
OPERATIONS
Net investment income $
134,128,244 $ 120,767,267
- ----------------------------------------------------------------------------------------------------------------
Net realized gain
338,994,470 232,056,916
- ----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
(68,883,491) (176,538,903)
- -----------------------------------
Net increase in net assets resulting from operations
404,239,223 176,285,280
================================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A
(106,190,111) (99,500,973)
Class B
(19,189,145) (13,977,579)
Class C
(3,049,848) (1,859,540)
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A
(245,592,889) (154,035,012)
Class B
(57,343,807) (26,561,696)
Class C
(8,928,939) (3,223,836)
================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from beneficial interest transactions--Note
2:
Class A
60,856,819 253,723,804
Class B
96,317,221 234,393,363
Class C
26,567,442 52,477,300
================================================================================================================
NET ASSETS
Total increase
147,685,966 417,721,111
- ----------------------------------------------------------------------------------------------------------------
Beginning of period
3,619,241,993 3,201,520,882
- -----------------------------------
End of period (including undistributed net investment
income of $27,856,168 and $24,389,841, respectively)
$3,766,927,959 $3,619,241,993
===================================
</TABLE>
See accompanying Notes to Financial Statements.
29 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUG. 31, JUNE 30,
CLASS A 1999 1998 1997
1996(1) 1996 1995
=================================================================================================================
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.75 $14.12 $11.36
$11.39 $10.25 $ 9.44
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .51 .50
.47 .09 .50 .50
Net realized and unrealized gain (loss) 1.03 .41 3.17
(.12) 1.36 .92
- -----------------------------------------------------------------
Total income (loss) from
investment operations 1.54 .91 3.64
(.03) 1.86 1.42
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.49) (.49)
(.48) -- (.48) (.48)
Distributions from net realized gain (1.17) (.79)
(.40) -- (.24) (.13)
- -----------------------------------------------------------------
Total dividends and distributions
to shareholders (1.66) (1.28)
(.88) -- (.72) (.61)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.63 $13.75 $14.12
$11.36 $11.39 $10.25
=================================================================
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 11.03% 6.17% 33.39%
(0.26)% 18.61% 15.66%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2,927 $2,889 $2,722
$2,110 $2,141 $1,893
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,156 $3,072 $2,446
$2,109 $2,054 $1,798
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.51% 3.47% 3.97%
3.28% 4.51% 5.15%
Expenses 0.89% 0.87%(4) 0.88%(4)
0.94%(4) 0.89%(4) 0.96%(4)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 40% 18%
24% 14% 43% 46%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999, were $1,439,646,035 and $1,230,476,899, respectively.
See accompanying Notes to Financial Statements.
30 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUG. 31, JUNE 30,
CLASS B 1999 1998
1997 1996(1) 1996 1995
=================================================================================================================
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.63 $14.01 $11.29
$11.33 $10.21 $ 9.40
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .39
.37 .07 .41 .43
Net realized and unrealized gain (loss) 1.03 .40
3.13 (.11) 1.35 .91
- -----------------------------------------------------------------
Total income (loss) from
investment operations 1.42 .79
3.50 (.04) 1.76 1.34
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.37) (.38)
(.38) -- (.40) (.40)
Distributions from net realized gain (1.17) (.79)
(.40) -- (.24) (.13)
- -----------------------------------------------------------------
Total dividends and distributions
to shareholders (1.54) (1.17)
(.78) -- (.64) (.53)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.51 $13.63 $14.01
$11.29 $11.33 $10.21
=================================================================
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 10.22% 5.32% 32.17%
(0.35)% 17.58% 14.87%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $721 $635
$431 $260 $252 $161
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $749 $575
$344 $255 $208 $122
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.71% 2.68%
3.16% 2.48% 3.68% 4.34%
Expenses 1.69% 1.67%(4)
1.69%(4) 1.76%(4) 1.72%(4) 1.79%(4)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 40% 18%
24% 14% 43% 46%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999, were $1,439,646,035 and $1,230,476,899, respectively.
See accompanying Notes to Financial Statements.
31 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS C 1999 1998
1997 1996(1) 1996(6)
=================================================================================================================
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.63 $14.02
$11.30 $11.35 $10.76
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .39 .39
.40 .07 .28
Net realized and unrealized gain (loss) 1.02 .40
3.12 (.12) .88
- --------------------------------------------------------------
Total income (loss) from
investment operations 1.41 .79
3.52 (.05) 1.16
- -----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.38) (.39)
(.40) -- (.33)
Distributions from net realized gain (1.16) (.79)
(.40) -- (.24)
- --------------------------------------------------------------
Total dividends and distributions
to shareholders (1.54) (1.18)
(.80) -- (.57)
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.50 $13.63
$14.02 $11.30 $11.35
==============================================================
=================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 10.15% 5.30%
32.31% (0.44)% 10.50%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $119 $95
$48 $7 $6
- -----------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $120 $77
$25 $7 $3
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 2.70% 2.68%
3.15% 2.55% 3.53%
Expenses 1.69% 1.67%(4)
1.69%(4) 1.79%(4) 1.81%(4)
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 40% 18%
24% 14% 43%
</TABLE>
1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.
2. Assumes a $1,000 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.
3. Annualized for periods of less than one full year.
4. Expense ratio reflects the effect of expenses paid indirectly by the Fund.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1999, were $1,439,646,035 and $1,230,476,899, respectively.
6. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
See accompanying Notes to Financial Statements.
32 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund), operated under the name of
Oppenheimer Equity Income Fund through March 31, 1999, is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to seek as
much current income as is compatible with prudent investment. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers
Class A, Class B and Class C shares. Class A shares are sold with a front-end
sales charge on investments up to $1 million. Class B and Class C shares may be
subject to a contingent deferred sales charge (CDSC). All classes of shares have
identical rights to earnings, assets and voting privileges, except that each
class has its own expenses directly attributable to that class and exclusive
voting rights with respect to matters affecting that class. Classes A, B and C
have separate distribution and/or service plans. 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.
- --------------------------------------------------------------------------------
SECURITIES 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. Foreign currency exchange contracts are valued based on the
closing prices of the foreign currency contract rates in the London foreign
exchange markets on a daily basis as provided by a reliable bank or dealer.
Options are valued based upon the last sale price on the principal exchange on
which the option is traded or, in the absence of any transactions that day, the
value is based upon the last sale price on the prior trading date if it is
within the spread between the closing bid and asked prices. If the last sale
price is outside the spread, the closing bid is used.
33 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
The effect of changes in foreign currency exchange rates on investments
is separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
34 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of 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, 1999, amounts have been reclassified to reflect a decrease
in paid-in capital of $86,208, a decrease in undistributed net investment income
of $2,232,813, and an increase in accumulated net realized gain on investments
of $2,319,021.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date and dividend
income is recorded on the ex-dividend date. Foreign dividend income is often
recorded on the payable date. Realized gains and losses on investments and
unrealized appreciation and depreciation are determined on an identified cost
basis, which is the same basis used for federal income tax purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and lia-bilities 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.
35 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
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, 1999 YEAR
ENDED AUGUST 31, 1998
SHARES AMOUNT
SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
CLASS A
Sold 21,887,567 $ 314,043,113
28,301,749 $ 425,894,349
Dividends and/or
distributions reinvested 23,478,035 330,924,974
16,366,250 238,084,133
Redeemed (40,770,834) (584,111,268)
(27,270,231) (410,254,678)
- ---------------------------------------------------------------------------
Net increase 4,594,768 $ 60,856,819
17,397,768 $ 253,723,804
===========================================================================
- ------------------------------------------------------------------------------------------------------------
CLASS B
Sold 13,221,669 $ 188,310,904
17,875,704 $ 267,182,429
Dividends and/or
distributions reinvested 5,207,911 72,839,456
2,649,899 38,263,417
Redeemed (11,626,909) (164,833,139)
(4,755,561) (71,052,483)
- ---------------------------------------------------------------------------
Net increase 6,802,671 $ 96,317,221
15,770,042 $ 234,393,363
===========================================================================
- ------------------------------------------------------------------------------------------------------------
CLASS C
Sold 4,107,119 $ 58,508,668
4,117,941 $ 61,626,191
Dividends and/or
distributions reinvested 831,248 11,618,577
342,326 4,949,150
Redeemed (3,071,848) (43,559,803)
(941,057) (14,098,041)
- ---------------------------------------------------------------------------
Net increase 1,866,519 $ 26,567,442
3,519,210 $ 52,477,300
===========================================================================
</TABLE>
================================================================================
3. UNREALIZED GAINS AND LOSSES ON SECURITIES
As of August 31, 1999, net unrealized appreciation on securities and options
written of $707,286,593 was composed of gross appreciation of $848,802,019, and
gross depreciation of $141,515,426.
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. 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 of the Fund, 0.70% of the
next $100 million, 0.65% of the next $100 million, 0.60% of the next $100
million, 0.55% of the next $100 million and 0.50% of average annual net assets
in excess of $500 million. The Fund's management fee for the year ended August
31, 1999 was 0.52% of average annual net assets for each class of shares.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. 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.
36 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
================================================================================
DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
AGGREGATE CLASS A COMMISSIONS
COMMISSIONS COMMISSIONS
FRONT-END FRONT-END ON CLASS
A ON CLASS B ON CLASS C
SALES CHARGES SALES CHARGES
SHARES SHARES SHARES
ON CLASS A RETAINED BY ADVANCED BY
ADVANCED BY ADVANCED BY
YEAR ENDED SHARES DISTRIBUTOR DISTRIBUTOR(1)
DISTRIBUTOR(1) DISTRIBUTOR(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C>
August 31, 1999 $5,280,270 $1,692,621 $533,123
$5,659,987 $484,484
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
CLASS A CLASS
B CLASS C
CONTINGENT DEFERRED CONTINGENT
DEFERRED CONTINGENT DEFERRED
SALES CHARGES SALES
CHARGES SALES CHARGES
YEAR ENDED RETAINED BY DISTRIBUTOR RETAINED BY
DISTRIBUTOR RETAINED BY DISTRIBUTOR
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C>
August 31, 1999 $3,248
$1,405,862 $38,726
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
================================================================================
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. 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 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 of the Fund. For the fiscal year ended August 31, 1999, payments under
the Class A Plan totaled $6,477,338, all of which was paid by the Distributor to
recipients. That included $483,135 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.
================================================================================
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
37 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Continued
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. 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 Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and from the Fund under the plans. If
either the Class B or the Class C plan is terminated by the Fund, the Board of
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. The
plans allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended August 31, 1999
were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR'S DISTRIBUTOR'S
AGGREGATE UNREIMBURSED
UNREIMBURSED EXPENSES AS %
TOTAL PAYMENTS AMOUNT RETAINED
EXPENSES OF NET ASSETS
UNDER PLAN BY DISTRIBUTOR UNDER
PLAN OF CLASS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C>
Class B Plan $7,487,764 $6,131,624
$15,983,560 2.22%
Class C Plan 1,195,262 718,537
1,535,378 1.29
</TABLE>
================================================================================
5. FOREIGN CURRENCY CONTRACTS
A foreign currency exchange contract is a commitment to purchase or sell a
foreign currency at a future date, at a negotiated rate. The Fund may enter into
foreign currency exchange contracts for operational purposes and to seek to
protect against adverse exchange rate fluctuation. Risks to the Fund include the
potential inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all
contractual commitments held by the Fund and the resulting unrealized
appreciation or depreciation are determined using foreign currency exchange
rates as provided by a reliable bank, dealer or pricing service. Unrealized
appreciation and depreciation on foreign currency contracts are reported in the
Statement of Assets and Liabilities.
The Fund may realize a gain or loss upon the closing or settlement of
the forward transaction. Realized gains and losses are reported with all other
foreign currency gains and losses in the Statement of Operations.
Securities denominated in foreign currency to cover net exposure on
outstanding foreign currency contracts are noted in the Statement of Investments
where applicable.
38 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
================================================================================
6. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in
the Statement of Investments where applicable. Shares subject to call,
expiration date, exercise price, premium received and market value are detailed
in a note to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the year ended August 31, 1999, was as follows:
<TABLE>
<CAPTION>
PUT OPTIONS
------------------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
- --------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding as of August 31, 1998 -- $ --
Options written 500 370,365
Options closed or expired (250) (83,625)
------------------------------
Options outstanding as of August 31, 1999 250 $ 286,740
==============================
</TABLE>
39 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
7. ILLIQUID OR RESTRICTED SECURITIES
As of August 31, 1999, 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 also 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 limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of August 31, 1999, was $26,821,405,
which represents 0.71% of the Fund's net assets, of which $1,176,150 is
considered restricted. Information concerning restricted securities is as
follows:
<TABLE>
<CAPTION>
VALUATION
PER
UNIT AS OF
SECURITY ACQUISITION DATE COST PER UNIT
AUGUST 31, 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS
Greenpoint Financial Corp. 3/12/99
$30.00 $23.52
</TABLE>
================================================================================
8. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended August 31,
1999.
40 OPPENHEIMER CAPITAL INCOME FUND
<PAGE>
<PAGE>
A-6
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>
B-1
Appendix B
- --------------------------------------------------------------------------------
Industry Classifications
- --------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & 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
<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.2 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.
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 plans3 (4)
Group Retirement Plans4 (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. In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered
closed-end fund, references to contingent deferred sales charges mean the
Fund's Early Withdrawal Charges and references to "redemptions" mean
"repurchases" of shares.
3. 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.
4. 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: o
Purchases of Class A shares aggregating $1 million or more. o Purchases by a
Retirement Plan (other than an IRA or 403(b)(7) custodial
plan) that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or
total plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
o Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the purchases
are made:
(1) through a broker, dealer, bank or registered investment adviser that
has made special arrangements with the Distributor for those
purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement
Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases.
o Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner &
Smith, Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the record-keeping
service agreement with Merrill Lynch, the Plan must have $3 million or
more of its assets invested in (a) mutual funds, other than those
advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM"),
that are made available under a Service Agreement between Merrill
Lynch and the mutual fund's principal underwriter or distributor, and
(b) funds advised or managed by MLAM (the funds described in (a) and
(b) are referred to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a record keeper whose services are provided under a
contract or arrangement between the Retirement Plan and Merrill Lynch.
On the date the plan sponsor signs the record keeping service
agreement with Merrill Lynch, the Plan must have $3 million or more of
its assets (excluding assets invested in money market funds) invested
in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a
service agreement with Merrill Lynch and on the date the plan sponsor
signs that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
o Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May 1,
1999.
<PAGE>
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no commissions are paid by the Distributor on such
purchases):
o The Manager or its affiliates.
o Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse,
a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are
included.
o Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
o Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
o Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
o Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a
transaction fee by their dealer, broker, bank or advisor for the
purchase or sale of Fund shares.
o Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
o "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
o Clients of investment advisors or financial planners (that have
entered into an agreement for this purpose with the Distributor) who
buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner on the books and
records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
o Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons.
o Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the company
or trust which is the beneficial owner of such accounts.
o A unit investment trust that has entered into an appropriate agreement
with the Distributor.
o Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
o
<PAGE>
Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code),
in each case if those purchases are made through a broker, agent or
other financial intermediary that has made special arrangements with
the Distributor for those purchases.
o A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
o A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by December
31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no commissions are paid by the Distributor on such
purchases):
o Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
o Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts for
which reinvestment arrangements have been made with the Distributor.
o Shares purchased through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's customers
to purchase and pay for shares of Oppenheimer funds using the proceeds
of shares redeemed in the prior 30 days from a mutual fund (other than
a fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner. This waiver must be requested when the purchase order
is placed for shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
o Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
o Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate
acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases: o To make Automatic Withdrawal Plan payments that are limited
annually to no
more than 12% of the account value adjusted annually.
o Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
o For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact. (4) Hardship
withdrawals, as defined in the plan.2 (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.
o For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
o For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: o Shares redeemed involuntarily,
as described in "Shareholder Account Rules and
Policies," in the applicable Prospectus.
o Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must
provide evidence of a determination of disability by the Social
Security Administration.
o Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
o Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
o Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
o Redemptions requested in writing by a Retirement Plan sponsor of Class
C shares of an Oppenheimer fund in amounts of $1 million or more held
by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Oppenheimer
funds.
o Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account. (3) To
return contributions made due to a mistake of fact. (4) To make hardship
withdrawals, as defined in the plan.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, adjusted annually.
Redemptions of Class B shares under an Automatic Withdrawal Plan for
an account other than a Retirement Plan, if the aggregate value
of the redeemed shares does not exceed 10% of the account's
value, adjusted annually.
|_|Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
o Shares sold to the Manager or its affiliates.
o Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
o Shares issued in plans of reorganization to which the Fund is a party.
o Shares sold to present or former officers, directors, trustees or
employees (and their "immediate families" as defined above in Section
I.A.) of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
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:
<PAGE>
Oppenheimer Quest Value Fund, Inc. Oppenheimer Quest Small Cap
Value Fund
Oppenheimer Quest Balanced Value Fund Oppenheimer Quest Global Value
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 Quest for Value New York Tax-Exempt
Income Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt
Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: o acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
o purchased by such shareholder by exchange of shares of another Oppenheimer
fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24,
1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest for
Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales
Number of Eligible Charge as a % of Charge as a % of Commission as %
Employees or Members Offering Price Net Amount Invested of Offering Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
<PAGE>
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders who acquired shares of any Former Quest for Value Fund
by merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with: o withdrawals under an
automatic withdrawal plan holding only either Class B or
Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account value, adjusted annually, and
o liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value
of such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: o redemptions following the
death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
o withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account value; adjusted annually, 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.
|_| 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.
<PAGE>
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares:
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) 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.
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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
PX300.001.1299
