Prospectus dated December 18, 2000
Oppenheimer Capital Income Fund is a
mutual fund that seeks current income
compatible with prudent investment. As
a secondary objective it attempts 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,
strategies and risks. It also contains
important information about how to buy
and sell shares of the Fund and other
As with all mutual funds, the account features. Please read this
Securities and Exchange Commission Prospectus carefully before you invest
has not approved or disapproved the and keep it for future reference about
Fund's securities nor has it your account.
determined that this Prospectus is
accurate or complete. It is a
criminal offense to represent
otherwise.
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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
Class N 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>
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 MAINLY INVEST IN? Under normal market conditions, the Fund
invests 65% of its total assets in equity and debt securities that are
expected to generate income. The Fund focuses its investments 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.
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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.
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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.
However, 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 overall risk profile of the Fund and
can affect the value of the Fund's investments, its investment performance,
and the prices of its shares. Particular investments and investment
strategies also have risks. 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. A downgrade in an issuer's credit rating or
other adverse news about an issuer can reduce the value of that issuer's
securities.
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 January 1, 2000 through September 30, 2000, the
cumulative return (not annualized) for Class A shares was 11.44%. 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 -9.58% (3rd Q `99).
5 Years 10 Years
Average Annual Total Returns (or life of (or life of
for the periods ending December 1 Year class, class,
31, 1999 if less) if less)
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Class A Shares (inception 12/1/70) -11.64% 14.19% 10.35%
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S&P 500 Index 19.53% 26.18% 15.31%1
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Class B Shares (inception 8/17/93) -11.22% 14.38% 11.00%
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Class C Shares (inception 11/1/95) -7.86% 12.32% N/A
1. From 12/31/89.
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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-years), and
for Class C, the 1% contingent deferred sales charge for the 1-year period.
Because Class B shares convert to Class A shares 72 months after purchase,
Class B "life-of-class" performance does not include any contingent sales
charge and uses Class A performance for the period after conversion.
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. Because Class N shares
were not offered for sale during the Fund's fiscal year ended August 31,
2000, no performance information is included in the table above for Class N
shares.
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, 2000, except that the numbers for Class N shares, which is a new
class, are based on the Fund's anticipated expenses for Class N shares during
the upcoming year.
Shareholder Fees (charges paid directly from your investment):
Class A Class B Class C Class N
---------- Shares Shares Shares
Shares
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Maximum Sales Charge (Load) on 5.75% None None None
purchases
(as % of offering price)
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Maximum Deferred Sales Charge 1%4
(Load)
(as % of the lower of the None1 5%2 1%3
original offering
price or redemption proceeds)
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1. A contingent deferred sales charge may apply to redemptions of investments
of $1 million or more ($500,000 for retirement plan accounts) of Class A
shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3. Applies to shares redeemed within 12 months of purchase.
4. Applies to shares redeemed within 18 months of retirement plan's first
purchase of Class N shares.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
Class A Class B Class C Class N
Shares Shares Shares Shares
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Management Fees 0.52% 0.52% 0.52% 0.52%
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Distribution and/or Service (12b-1) 0.23% 1.00% 1.00% 0.50%
Fees
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Other Expenses 0.18% 0.18% 0.18% 0.18%
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Total Annual Operating Expenses 0.93% 1.70% 1.70% 1.20%
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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.
Class N shares were not offered for sale during the Fund's last fiscal year.
The expenses above for Class N shares are based on the expected expenses for
that class of shares for the current fiscal year.
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 $664 $854 $1,060 $1,652
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Class B Shares $673 $836 $1,123 $1,616
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Class C Shares $273 $536 $923 $2,009
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Class N Shares $222 $381 $660 $1,455
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If shares are not redeemed: 1 Year 3 Years 5 Years 10 Years1
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Class A Shares $664 $854 $1,060 $1,652
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Class B Shares $173 $536 $923 $1,616
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Class C Shares $173 $536 $923 $2,009
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Class N Shares $122 $381 $660 $1,455
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In the first example, expenses include the initial sales charge for Class A
and the applicable Class B, Class C or Class N contingent deferred sales
charges. In the second example, the Class A expenses include the sales
charge, but Class B, Class C and Class N 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 types of investments will vary over time based on
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.
Equity Securities. 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.
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.
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. 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 been an investment adviser since January 1960. The
Manager (including subsidiaries and an affiliate) managed more than $125
billion in assets as of October 31, 2000, 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 June 1998. 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, 2000
was 0.52% of average annual net assets for each class of shares.
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.
Buying Shares 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.
Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
Colorado 80217. If you don't list a dealer on the application, the
Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment with a financial advisor
before you make a purchase to be sure that the Fund is appropriate for
you.
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 and 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 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.
Buying Through 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.
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WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
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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.
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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.
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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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Class N Shares. Class N shares are offered only through retirement plans
(including IRAs and 403(b) plans) that purchase $500,000 or more of
Class N shares of one or more Oppenheimer funds or through retirement
plans (not including IRAs and 403(b) plans) that have assets of
$500,000 or more or 100 or more eligible plan participants.
Non-retirement plan investors cannot buy Class N shares directly. If
you buy Class N 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 18 months of the retirement plan's first
purchase of Class N shares, you may pay a contingent deferred sales
charge of 1%, as described in "Who Can Buy Class N 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. The discussion below assumes that you will purchase only one class
of shares and not a combination of shares of different classes. Of course,
these examples are based on approximations of the effects 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.
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, Class C or Class N shares. For
retirement plans that qualify to purchase Class N shares, Class N
shares generally will be more advantageous than Class C shares. Class B
shares are not available for purchase by such retirement plans.
o Investing for the Shorter Term. While the Fund is meant to be 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 non-retirement plan 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.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B, Class C or Class N
shareholders. Other features may not be advisable (because of the
effect of the contingent deferred sales charge) for Class B, Class C or
Class N 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, Class C and Class N
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,
Class C and Class N asset-based sales charge described below and in the
Statement of Additional Information. Share certificates are not
available for Class B, Class C and Class N shares, and if you are
considering using your shares as collateral for a loan, that may be a
factor to consider.
How Do Share Classes Affect Payments to My Broker? A financial advisor may
receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B, Class
C and Class N 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 concessions 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 concession. The Distributor reserves the right to reallow
the entire concession to dealers. The current sales charge rates and
concessions paid to dealers and brokers are as follows:
Amount of Purchase Front-End Sales Front-End Sales
Charge As a Charge As a Concession As
Percentage of Percentage of Net Percentage of
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
concessions 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 concession 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 concession will be paid
only on purchases that were not previously subject to a front-end sales
charge and dealer concession.1 That concession 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.
If you redeem any of those shares within an 18 month "holding period"
measured from 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 concessions 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.
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 the end of the calendar month 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.
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 for the Class B contingent deferred sales
charge holding period:
Years Since Beginning of Month in Contingent Deferred Sales Charge
on
Redemptions in That Year
Which 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. For further information on the conversion feature and its tax
implications see "Class B Conversion" in the Statement of Additional
Information.
HOW CAN YOU 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 a holding period of 12 months from the end of the calendar
month 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.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
1. shares acquired by reinvestment of dividends and capital gains
distributions,
2. shares held for over 12 months, and
3. shares held the longest during the 12-month period.
WHO CAN BUY CLASS N SHARES? Class N shares are offered only through
retirement plans (including IRAs and 403(b) plans) that purchase $500,000 or
more of Class N shares of one or more Oppenheimer funds or through retirement
plans (not including IRAs and 403(b) plans) that have assets of $500,000 or
more or 100 or more eligible participants. Non-retirement plan investors
cannot buy Class N shares directly.
A contingent deferred sales charge of 1.00% will be imposed if:
The retirement plan (not including IRAs and 403(b) plans) is terminated
or Class N shares of all Oppenheimer funds are terminated as an
investment option of the plan and Class N shares are redeemed within
18 months after the plan's first purchase of Class N shares of any
Oppenheimer fund, or
o With respect to an individual retirement plan or 403(b) plan, Class N
shares are redeemed within 18 months of the plan's first purchase of
Class N shares of any Oppenheimer fund.
Retirement plans that offer Class N shares may impose charges on plan
participant accounts. The procedures for buying, selling, exchanging and
transferring the Fund's other classes of shares (other than the time those
orders must be received by the Distributor or Transfer Agent in Colorado)
and the special account features applicable to purchasers of those other
classes of shares described elsewhere in this prospectus do not apply to
Class N shares offered through a group retirement plan. Instructions for
purchasing redeeming, exchanging or transferring Class N shares offered
through a group retirement plan must be submitted by the plan, not by plan
participants for whose benefit the shares are held.
DISTRIBUTION AND SERVICE (12B-1) PLANS. 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.
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, Class C and Class N shares. The
Fund has adopted Distribution and Service Plans for Class B, Class C
and Class N shares to pay the Distributor for its services and costs in
distributing Class B, Class C and Class N 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 and the Fund pays the Distributor an annual asset-based
sales charge of 0.25% per year on Class N 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 up to 1.00% and increase Class N expenses by up to
0.50% of the net assets per year of the respective class. Because these
fees are paid out of the Fund's assets on an ongoing 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, Class C or
Class N shares. The Distributor pays the 0.25% service fees to dealers
in advance for the first year after the shares were sold by the dealer.
After the shares have been held for a year, the Distributor pays the
service fees to dealers on a quarterly basis.
The Distributor currently pays a sales concession of 3.75% of the
purchase price of Class B shares to dealers from its own resources at
the time of sale. Including the advance of the service fee, the total
amount paid by the Distributor to the dealer at the time of sale of
Class B shares is therefore 4.00% of the purchase price. The
Distributor retains the Class B asset-based sales charge.
The Distributor currently pays a sales concession 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 concession
to the dealer on Class C shares that have been outstanding for a year
or more.
The Distributor currently pays a sales concession of 0.75% of the
purchase price of Class N 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 N shares is therefore 1.00% of the purchase price. The
Distributor retains the asset-based sales charge on Class N shares.
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. At times, the web site may be
inaccessible or it s transaction features may be unavailable.
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 and Class N 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
individuals and employers can use:
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 more than $100,000 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.
HOW DO 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.
--------------------------------------------------------------------------------
Use the following address Send courier or express
for request by mail: mail requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217-5270 Denver, Colorado 80231
--------------------------------------------------------------------------------
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?
o 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.
o Telephone Redemptions Through AccountLink or by Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH transfer to
your bank is initiated on the business day after the redemption. You do
not receive dividends on the proceeds of the shares you redeemed while
they are waiting to be transferred.
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 CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase
shares subject to a Class A, Class B, Class C or Class N contingent deferred
sales charge and redeem any of those shares during the applicable holding
period for the class of shares you own, the contingent deferred sales charge
will be deducted from the redemption proceeds, unless you are eligible for a
waiver of that sales charge based on the categories listed in Appendix B to
the Statement of Additional Information and you advise the Transfer Agent of
your eligibility for the waiver when you place your redemption request. With
respect to Class N shares, a 1% contingent deferred sales charge will be
imposed if:
o The retirement plan (not including IRAs and 403(b) plans) is terminated
or Class N shares of all Oppenheimer funds are terminated as an
investment option of the plan and Class N shares are redeemed within
18 months after the plan's first purchase of Class N shares of any
Oppenheimer fund, or,
o With respect to an individual retirement plan or 403(b) plan, Class N
shares are redeemed within 18 months of the plan's first purchase of
Class N shares of any Oppenheimer fund.
A 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. A 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 B to
the Statement of Additional Information.
To determine whether a 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 the holding period that applies to that class, and
(3) shares held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange
shares of the Fund for shares of other Oppenheimer funds. However, if you
exchange them within the applicable contingent deferred sales change holding
period, the holding period will carry over to the fund whose shares you
acquire. Similarly, if you acquire shares of this Fund by exchanging shares
of another Oppenheimer fund that are still subject to a contingent deferred
sales charge holding period, that holding period will carry over to this Fund.
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 prospectus 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 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.
Shares may be "redeemed in kind" under unusual circumstances (such as a lack
of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with liquid securities from
the Fund's portfolio.
"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 prospectus, annual and semi-annual report to
shareholders having the same last name and address on the Fund's
records. The consolidation of these mailings, called householding,
benefits the Fund through reduced mailing expense.
If you want to receive multiple copies of these materials, you may call
the Transfer Agent at 1.800.525.7048. You may also notify the Transfer
Agent in writing. Individual copies of prospectuses and reports will be
sent to you within 30 days after the Transfer Agent receives your
request to stop householding.
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, Class C and Class N 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, Class C and Class N 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.
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. Class N shares were not publicly offered
during any of the periods shown. Therefore, information about Class N shares
is not included in the following tables or in the Fund's other financial
statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS A 2000 1999 1998 1997 1996(1) 1996
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.63 $13.75 $14.12 $11.36 $11.39 $10.25
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .49 .51 .50 .47 .09 .50
Net realized and unrealized gain (loss) .32 1.03 .41 3.17 (.12) 1.36
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .81 1.54 .91 3.64 (.03) 1.86
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.49) (.49) (.49) (.48) -- (.48)
Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.56) (1.66) (1.28) (.88) -- (.72)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.88 $13.63 $13.75 $14.12 $11.36 $11.39
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 7.24% 11.03% 6.17% 33.39% (0.26)% 18.61%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2,395 $2,927 $2,889 $2,722 $2,110 $2,141
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $2,503 $3,156 $3,072 $2,446 $2,109 $2,054
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.78% 3.51% 3.47% 3.97% 3.28% 4.51%
Expenses 0.93% 0.89% 0.87%(4) 0.88%(4) 0.94%(4) 0.89%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 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 has not been grossed up to reflect the effect of expenses
paid indirectly.
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS B 2000 1999 1998 1997 1996(1) 1996
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.51 $13.63 $14.01 $11.29 $11.33 $10.21
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 .39 .39 .37 .07 .41
Net realized and unrealized gain (loss) .32 1.03 .40 3.13 (.11) 1.35
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .70 1.42 .79 3.50 (.04) 1.76
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.38) (.37) (.38) (.38) -- (.40)
Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.45) (1.54) (1.17) (.78) -- (.64)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.76 $13.51 $13.63 $14.01 $11.29 $11.33
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 6.34% 10.22% 5.32% 32.17% (0.35)% 17.58%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $472 $721 $635 $431 $260 $252
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $546 $749 $575 $344 $255 $208
Ratios to average net assets:(3)
Net investment income 3.01% 2.71% 2.68% 3.16% 2.48% 3.68%
Expenses 1.70% 1.69% 1.67%(4) 1.69%(4) 1.76%(4) 1.72%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 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 has not been grossed up to reflect the effect of expenses
paid indirectly.
<PAGE>
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS C 2000 1999 1998 1997 1996(1) 1996(2)
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.50 $13.63 $14.02 $11.30 $11.35 $10.76
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 .39 .39 .40 .07 .28
Net realized and unrealized gain (loss) .32 1.02 .40 3.12 (.12) .88
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .70 1.41 .79 3.52 (.05) 1.16
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.37) (.38) (.39) (.40) -- (.33)
Distributions from net realized gain (1.07) (1.16) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.44) (1.54) (1.18) (.80) -- (.57)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.76 $13.50 $13.63 $14.02 $11.30 $11.35
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 6.40% 10.15% 5.30% 32.31% (0.44)% 10.50%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $73 $119 $95 $48 $7 $6
Average net assets (in millions) $85 $120 $77 $25 $7 $3
Ratios to average net assets:(4)
Net investment income 3.01% 2.70% 2.68% 3.15% 2.55% 3.53%
Expenses 1.70% 1.69% 1.67%(5) 1.69%(5) 1.79%(5) 1.81%(5)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 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. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
3. 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.
4. Annualized for periods of less than one full year.
5. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
<PAGE>
<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
-----------------------------------------------------
-----------------------------------------------------
12/31/90 -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%
-----------------------------------------------------
-----------------------------------------------------
12/31/99 -6.25
-----------------------------------------------------
<PAGE>
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:
The Fund's SEC File No. 811-1512 (logo)OppenheimerFunds(R)
PR0300.001.1200 Distributor, Inc.
Printed on recycled paper
<PAGE>
Oppenheimer Capital Income Fund
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated December 18, 2000
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 18, 2000. 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>
ABOUT THE FUND
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.
|X| 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.
|_| 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 non-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
may be invested in warrants and rights that are not listed on The New York
Stock Exchange or The American Stock Exchange. That limitation does not apply
to warrants and rights the Fund acquires attached to other securities or as
part of investments in units of securities that are issued with other
securities. Rights and warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
|_| 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.
|_| 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.
|X| 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 Fitch,
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 Fitch, Inc., 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 Fitch, Inc. 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 Fitch, Inc. are included in Appendix A to this Statement of
Additional Information.
|_| 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.
|X| 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.
|X| 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.
|X| 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.
|X| 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.
|X| "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.
|X| 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.
|X| 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.
|X| 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.
|X| 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.
|X| 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.
|_| 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").
|_| 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.
|_| 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.
|_| 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.
|_| 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.
|_| 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.
|_| 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.
|_| 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.
|_| 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.
|_| 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.
|_| 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."
|_| 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.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign
currency exchange contracts in which the Fund may invest are treated as
"Section 1256 contracts" under the Internal Revenue Code. In general, gains
or losses relating to Section 1256 contracts are characterized as 60%
long-term and 40% short-term capital gains or losses under the Code. However,
foreign currency gains or losses arising from Section 1256 contracts that are
forward contracts generally are treated as ordinary income or loss. In
addition, Section 1256 contracts held by the Fund at the end of each taxable
year are "marked-to-market," and unrealized gains or losses are treated as
though they were realized. These contracts also may be marked-to-market for
purposes of determining the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to the
Internal Revenue Code. An election can be made by the Fund to exempt those
transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in
"straddles" for federal income tax purposes. The straddle rules may affect
the character and timing of gains (or losses) recognized by the Fund on
straddle positions. Generally, a loss sustained on the disposition of a
position making up a straddle is allowed only to the extent that the loss
exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or the
offsetting position is disposed of.
Under the Internal Revenue Code, the following gains or losses are
treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that
occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security
denominated in a foreign currency or foreign currency forward
contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the
amount of the Fund's investment income available for distribution to its
shareholders.
|X| Temporary Defensive Investments. The Fund's temporary defensive
investments can include 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
|X| 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.
|X| 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. That restriction 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 or securities of other investment companies.
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 in excess of 33-1/3% of the value of
its total assets. The Fund may borrow only from banks and/or affiliated
investment companies. With respect to this fundamental policy, the Fund can
borrow only if it maintains a 300% ratio of assets to borrowing at all times
in the manner set forth in the Investment Company Act of 1940.
o The Fund cannot make loans except (a) through lending of securities,
(b) through the purchase of debt instruments or similar evidence of
indebtedness, (c) through an interfund lending program with other affiliated
funds, and (d) through repurchase agreements.
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 underwrite securities of other companies. A
permitted exception is in case it is deemed to be an underwriter under the
Securities Act of 1933 when reselling any securities held in its own
portfolio.
o The Fund cannot issue "senior securities," 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 with the exception of the
borrowing policy. The Fund need not sell securities to meet the percentage
limits if the value of the investment increases in proportion to the size of
the Fund.
For purposes of the Fund's policy not to concentrate its investments as
described above, the Fund has adopted the industry classifications set forth
in Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company 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.
|_| 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 four classes of
shares: Class A, Class B, Class C and Class N. 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 funds2:
<PAGE>
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.
Centennial California Tax Exempt
Oppenheimer Limited-Term Government Fund Trust
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Opportunity Fund Centennial Money Market Trust
Oppenheimer Main Street Small Cap Fund. Centennial New York Tax Exempt Trust
Oppenheimer Municipal Fund Centennial Tax Exempt Trust
Oppenheimer Real Asset Fund
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and
Zack, who are officers of the Fund, respectively hold the same offices with
the other Denver-based Oppenheimer funds. As of December 1, 2000, 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.
James C. Swain*, Chairman, Chief Executive Officer and Trustee, Age: 67.
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, a wholly-owned
subsidiary of the Manager and Chairman of the Board of Shareholder Services,
Inc., a transfer agent subsidiary of the Manager.
Bridget A. Macaskill*, President and Trustee; Age: 52.
Two World Trade Center, New York, New York 10048-0203
Chairman (since August 2000), Chief Executive Officer (since September 1995)
and a director (since December 1994) of the Manager; President (since
September 1995) and a director (since October 1990) of Oppenheimer
Acquisition Corp., the Manager's parent holding company; President, Chief
Executive Officer and a director (since March 2000) of OFI Private
Investments, Inc., an investment adviser 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 November 1989) of Oppenheimer Partnership Holdings, Inc., a holding
company subsidiary of the Manager; 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; a director
of HarbourView Asset Management Corporation (since July 1991) and of
Oppenheimer Real Asset Management, Inc. (since July 1996), investment adviser
subsidiaries of the Manager; a director (since April 2000) of
OppenheimerFunds Legacy Program, a charitable trust program established by
the Manager; a director of Prudential Corporation plc (a U.K. financial
service company); President and a trustee of other Oppenheimer funds;
formerly President of the Manager (June 1991 - August 2000).
William L. Armstrong, Trustee, Age: 63.
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); Chairman of the following private companies:
Frontier Real Estate, Inc. (residential real estate brokerage) (since 1994),
Frontier Title (title insurance agency) (since 1995), Great Frontier
Insurance (insurance agency) (since 1995) and Ambassador Media Corporation
(since 1984); 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 International Family
Entertainment (television channel) (1992 - 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: 69.
10369 Clayton Road, St. Louis, Missouri 63131
Director and President of A.G. Edwards Capital, Inc. (General Partner of
private equity funds), formerly, until March 2000, Chairman, President and
Chief Executive Officer of A.G. Edwards Capital, Inc.; formerly, until March
1999, Vice Chairman and Director of A.G. Edwards, Inc. and Vice Chairman of
A.G. Edwards & Sons, Inc. (its brokerage company subsidiary); until March
1999, Chairman of A.G. Edwards Trust Company and A.G.E. Asset Management
(investment advisor); until March 2000, a Director of A.G. Edwards & Sons and
A.G. Edwards Trust Company.
George C. Bowen, Trustee, Age: 64.
9224 Bauer Ct., Lone Tree, Colorado 80124
Formerly (until April 1999) Mr. Bowen held the following positions: Senior
Vice President (from September 1987) and Treasurer (from March 1985) of the
Manager; Vice President (from June 1983) and Treasurer (since March 1985) of
OppenheimerFunds, Distributor, Inc., a subsidiary of the Manager and the
Fund's Distributor; Senior Vice President (since February 1992), Treasurer
(since July 1991) Assistant Secretary and a director (since December 1991) of
Centennial Asset Management Corporation; Vice President (since October 1989)
and Treasurer (since April 1986) of HarbourView 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); Treasurer of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997).
Edward L. Cameron, Trustee, Age: 62.
Spring Valley Road, Morristown, New Jersey 07960
Formerly (from 1974-1999) a partner with PricewaterhouseCoopers LLC (an
accounting firm) and Chairman, Price Waterhouse LLP Global Investment
Management Industry Services Group (from 1994-1998).
Jon S. Fossel, Trustee, Age: 58.
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly (until October 1995) Chairman and a director of the Manager;
President and a director of Oppenheimer Acquisition Corp., Shareholder
Services, Inc. and Shareholder Financial Services, Inc.
Sam Freedman, Trustee, Age: 60.
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly (until October 1994) 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: 71.
44 Portland Drive, St. Louis, Missouri 63131
Formerly a 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: 79.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
F. William Marshall, Jr., Trustee, Age: 58.
87 Ely Road, Longmeadow, MA 01106
Formerly (until 1999) Chairman of SIS & Family Bank, F.S.B. (formerly SIS
Bank); President, Chief Executive Officer and Director of SIS Bankcorp., Inc.
and SIS Bank (formerly Springfield Institution for Savings) (1993-1999);
Executive Vice President (until 1999) of Peoples Heritage Financial Group,
Inc.; Chairman and Chief Executive Office of Bank of Ireland First Holdings,
Inc. and First New Hampshire Banks (1990-1993); Trustee (since 1996) of
MassMutual Institutional Funds and of MML Series Investment Fund (open-end
investment companies).
John P. Doney, Vice President and Portfolio Manager, Age: 70.
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager (since June 1992); an officer and portfolio
manager of other Oppenheimer funds; 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 adviser) and Vice
President of the National Affiliated Investment Companies.
Michael S. Levine, Vice President and Portfolio Manager, Age: 35
Two World Trade Center, New York, New York 10048-0203
Vice President (since June 1998) of the Manager; an officer and portfolio
manager of other Oppenheimer funds; formerly Assistant Vice President and
Portfolio Manager of the Manager (April 1996 - June 1998); prior to joining
the Manager in June 1994, he was a portfolio manager and research associate
for Amas Securities, Inc. (February 1990 - February 1994).
Andrew J. Donohue, Vice President and Secretary; Age: 50.
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 OppenheimerFunds Distributor, Inc.; Executive Vice
President, General Counsel and a director (since September 1995) of
HarbourView Asset Management Corporation, Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings,
Inc., of OFI Private Investments, Inc. (since March 2000), and of PIMCO Trust
Company (since May 2000); President and a director of Centennial Asset
Management Corporation (since September 1995) and of Oppenheimer Real Asset
Management, Inc. (since July 1996); Vice President and a director (since
September 1997) of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc; a director (since April 2000) of OppenheimerFunds
Legacy Program; General Counsel (since May 1996) and Secretary (since April
1997) of Oppenheimer Acquisition Corp.; an officer of other Oppenheimer funds.
Brian W. Wixted, Treasurer and Principal Financial and Accounting Officer,
Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since March 1999) of the Manager;
Treasurer (since March 1999) of HarbourView Asset Management Corporation,
Shareholder Services, Inc., Oppenheimer Real Asset Management Corporation,
Shareholder Financial Services, Inc. and Oppenheimer Partnership Holdings,
Inc., of OFI Private Investments, Inc. (since March 2000) and of
OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc
(since May 2000); Treasurer and Chief Financial Officer (since May 2000) of
PIMCO Trust Company; Assistant Treasurer (since March 1999) of Oppenheimer
Acquisition Corp. and of Centennial Asset Management Corporation; an officer
of other Oppenheimer funds; 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).
Robert G. Zack, Assistant Secretary, Age: 52.
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), Shareholder Financial Services, Inc. (since November 1989);
OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 42.
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 of the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 35.
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 of the Manager.
|X| Remuneration of Trustees. The officers of the Fund and two Trustees
of the Fund (Ms. Macaskill and Mr. 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, 2000. 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 1999.
-------------------------------------------------------------------------------
Aggregate Total Compensation
Compensation from all Denver-Based
Trustee's Name and Position2 from Fund Oppenheimer Funds1
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
William H. Armstrong
Review Committee Member $2,918 $14,542
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Robert G. Avis $6,032 $67,998
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
George Bowen $3,727 $23,879
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Edward Cameron
Audit Committee Meeting $1,326 $2,430
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Jon. S. Fossel3
Review Committee Member $6,294 $66,586
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Sam Freedman
Chairman, Review Committee $6,564 $73,998
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Raymond J. Kalinowski $6,370 $73,248
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
C. Howard Kast
Chairman, Audit Committee and
Review Committee Member $7,145 $78,873
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Robert M. Kirchner3
Audit Committee Member $6,242 $69,248
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
F. William Marshall, Jr.4 None None
-------------------------------------------------------------------------------
1. For the 1999 calendar year.
2. Effective July 1, 2000, William A. Baker and Ned M. Messrs. Messrs.
Messrs. Baker and SteelBaker and SteelBaker and SteelSteel resigned as
Trustees of the Fund and subsequently became Trustee Emeritus of the Fund.
For the fiscal year ended August 31, 2000, Messrs. Baker and Steel each
received $6,032 aggregate compensation from the Fund and for the calendar
year ended December 31, 1999, they each received $67,998 total compensation
from all Denver-based Oppenheimer funds.
3.Committee position held during a portion of the period shown.
4. Mr. Marshall was not a Trustee or Director of the Denver-based Oppenheimer
funds during 1999.
|X| 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.
|X| Major Shareholders. As of December 11, 2000 there were 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.
|X| Code of Ethics. The Fund, the Manager and the Distributor 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. Covered persons include
persons with knowledge of the investments and investment intentions of the
Fund and other funds advised by the Manager. The Code of Ethics does permit
personnel subject to the Code to invest in securities, including securities
that may be purchased or held by the Fund, subject to a number of
restrictions and controls. Compliance with the Code of Ethics is carefully
monitored and enforced by the Manager.
The Code of Ethics is an exhibit to the Fund's registration statement
filed with the Securities and Exchange Commission and can be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. You can obtain
information about the hours of operation of the Public Reference Room by
calling the SEC at 1-202-942-8090. The Code of Ethics can also be viewed as
part of the Fund's registration statement on the SEC's EDGAR database at the
SEC's Internet web site at http://www.sec.gov. Copies may be obtained, after
paying a duplicating fee, by electronic request at the following E-mail
address: [email protected]., or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities
for the Fund's portfolio and handles its day-to-day business. The portfolio
managers of the Fund are employed by the Manager and 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 Management Fees Paid to
Ended 8/31: OppenheimerFunds, Inc.
----------------------------------------------------------------
----------------------------------------------------------------
1998 $19,364,160
----------------------------------------------------------------
----------------------------------------------------------------
1999 $20,872,455
----------------------------------------------------------------
----------------------------------------------------------------
2000 $16,447,234
----------------------------------------------------------------
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 Total Brokerage Commissions
Ended 8/31: Paid by the Fund1
------------------------------------------------------------------------
------------------------------------------------------------------------
1998 $829,875
------------------------------------------------------------------------
------------------------------------------------------------------------
1999 $1,803,930
------------------------------------------------------------------------
------------------------------------------------------------------------
2000 $2,894,4612
------------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal
transactions on a net trade basis.
2. In the fiscal year ended 8/31/00, the amount of transactions
directed to brokers for research services was $279,025,39 and the
amount of the commissions paid to broker-dealers for those services
was $418,575.
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>
-------------------------------------------------------------------------------
Fiscal Aggregate Class A Concessions Concessions Concessions
Front-End Front-
Sales End Sales on Class A on Class B on Class C
Year Charges Charges Shares Shares Shares
Ended on Class A Retained by Advanced by Advanced by Advanced by
8/31: Shares Distributor Distributor1 Distributor1 Distributor1
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2000 $2,190,051 $631,452 $300,262 $1,621,384 $96,086
-------------------------------------------------------------------------------
1. Includes amounts paid to a dealer affiliated with the Distributor's
parent.
<PAGE>
-------------------------------------------------------------------------------
Fiscal Class A Class B Class C
Contingent Deferred Contingent Deferred Contingent Deferred
Year Sales Charges Sales Charges Sales
Ended Retained Retained Charges Retained by
8/31 by Distributor by Distributor Distributor
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
2000 $58,792 $1,429,980 $20,807
-------------------------------------------------------------------------------
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, Class C and Class N
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,3 cast in person at a
meeting called for the purpose of voting on that plan.
Under the plans, the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time, may use their
own resources (at no direct cost to the Fund) to make payments to brokers,
dealers or other financial institutions for distribution and administrative
services they perform. The Manager may use its profits from the advisory fee
it receives from the Fund. In their sole discretion, the Distributor and the
Manager may increase or decrease the amount of payments they make from their
own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of 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.
|_| 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, 2000 payments under the Class A
Plan totaled $5,799,373, all of which was paid by the Distributor to
recipients. That included $394,479 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.
|_| Class B, Class C and Class N 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,
Class C and Class N 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. The types of services that recipients provide are similar to
the services provided under the Class A service plan, described above.
The Class B, Class C and Class N 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, Class C or Class N 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 and
Class N 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 concession to the recipient on Class C
shares outstanding for a year ormore. The more.The If a dealer has a special
agreement with the Distributor, the Distributor will pay the Class B, Class C
or Class N service fee and the Class B or Class C asset-based sales charge to
the dealer quarterly in lieu of paying the sales concessions and service fee
in advance at the time of purchase.
The asset-based sales charges on Class B, Class C and Class N 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, Class C and Class N shares. The payments are made to the
Distributor in recognition that the Distributor:
o.....pays sales concessions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales concessions 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, Class C and Class
N 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, Class C and Class
N 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 the Class B, Class C or Class N 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, Class C and Class N plans are subject
to the limitations imposed by the Conduct Rules of the National Association
of Securities Dealers, Inc. on payments of asset-based sales charges and
service fees.
--------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 8/31/00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class: Total Amount Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as
Payments Retained by Expenses % of Net Assets
Under Plan Distributor Under Plan of Class
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class B Plan $5,476,726 $4,309,078 $12,531,453 2.65%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Plan $851,214 $250,604 $1,555,535 2.12%
--------------------------------------------------------------------------------
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. For Class N
shares, the 1% contingent deferred sales charge is deducted for returns for
the 18 month period. There is no sales charge for Class Y shares.
|_| Average Annual Total Return. The "average annual total return"
of each class is an average annual compounded rate of return for each year in
a specified number of years. It is the rate of return based on the change in
value of a hypothetical initial investment of $1,000 ("P" in the formula
below) held for a number of years ("n" in the formula) to achieve an Ending
Redeemable Value ("ERV" in the formula) of that investment, according to the
following formula:
------------------------------------------------------------------------------
[OBJECT OMITTED]
------------------------------------------------------------------------------
|_| 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:
------------------------------------------------------------------------------
[OBJECT OMITTED]
------------------------------------------------------------------------------
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset
value" (without deducting sales charges) for Class A, Class B or Class N
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 8/31/00
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class Cumulative Total Average Annual Total Returns
Returns (10
of years or
Shares Life of Class)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1-Year 5-Year 10-Year
(or (or
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 202.70%1 221.16%1 1.07% 7.24% 12.42% 13.76% 11.71%1 12.38%1
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class B 116.26%2 116.26%2 1.61% 6.34% 12.59% 12.83% 11.58%2 11.58%2
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Class C 79.64%3 79.64%3 5.46% 6.40% 12.88%3 12.88%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 in categories based on investment styles. 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.
ABOUT YOUR ACCOUNT
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.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Bond Fund Oppenheimer Main Street Growth & Income
Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Main Street Opportunity Fund
Oppenheimer Capital Income Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer Capital Preservation Fund Oppenheimer MidCap Fund
Oppenheimer California Municipal Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Champion Income Fund Oppenheimer Municipal Bond Fund
Oppenheimer Convertible Securities Fund Oppenheimer New York Municipal Fund
Oppenheimer Developing Markets Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Discovery Fund Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Emerging Growth Fund Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Opportunity Value Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Small Cap Value Fund
Oppenheimer Europe Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Real Asset Fund
Oppenheimer Global Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Global Growth & Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Gold & Special Minerals
Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer Growth Fund Oppenheimer Trinity Core Fund
Oppenheimer High Yield Fund Oppenheimer Trinity Growth Fund
Oppenheimer Intermediate Municipal Fund Oppenheimer Trinity Value Fund
Oppenheimer International Bond Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer World Bond Fund
Oppenheimer International Small
Company Fund Limited-Term New York Municipal Fund
Oppenheimer Large Cap Growth Fund Rochester Fund Municipals
Oppenheimer Limited-Term Government
Fund
And the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information,
redemption proceeds of certain money market fund shares may be subject to a
contingent deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares
or Class A and Class B shares of the Fund and other Oppenheimer funds during
a 13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate
for the Class A shares purchased during that period. You can include
purchases made up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class
B shares of the Fund (and other Oppenheimer funds) during a 13-month period
(the "Letter of Intent period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter
states the investor's intention to make the aggregate amount of purchases of
shares which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made by
reinvestment of dividends or distributions of capital gains and purchases
made at net asset value without sales charge do not count toward satisfying
the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on
purchases of Class A shares of the Fund (and other Oppenheimer funds) that
applies under the Right of Accumulation to current purchases of Class A
shares. Each purchase of Class A shares under the Letter will be made at the
public offering price (including the sales charge) that applies to a single
lump-sum purchase of shares in the amount intended to be purchased under the
Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms
of Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time
to time by the Fund, the investor agrees to be bound by the amended terms and
that those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended purchase amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total purchases. If total eligible purchases during the
Letter of Intent period exceed the intended purchase amount and exceed the
amount needed to qualify for the next sales charge rate reduction set forth
in the Prospectus, the sales charges paid will be adjusted to the lower rate.
That adjustment will be made only if and when the dealer returns to the
Distributor the excess of the amount of concessions allowed or paid to the
dealer over the amount of concessions that apply to the actual amount of
purchases. The excess concessions 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 concessions 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 available only 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 debit
will be made two business days prior to the investment dates you selected on
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) from 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 automatic investments 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, Class C or Class N shares and the dividends payable on Class B,
Class C or Class N shares will be reduced by incremental expenses borne
solely by that class. Those expenses include the asset-based sales charges to
which Class B, Class C and Class N shares 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, Class C and Class N
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. Under current interpretation of applicable
federal tax law by the Internal Revenue Service, the conversion of Class B
shares to Class A shares after six years is not treated as a taxable event
for the shareholder. For the shareholder, if those laws, or the IRS
interpretation of those laws, should change, the automatic conversion feature
may be suspended. In that event, no further conversion of Class B shares
would occur while that 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.
|X| 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,
Class C or Class N 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 shares of Oppenheimer Money Market Fund or Class A
shares of Oppenheimer Cash Reserves. If any Class A shares of
another Oppenheimer fund that are exchanged for Class A shares of
Oppenheimer Senior Floating Rate Fund are subject to the Class A
contingent deferred sales charge of the other Oppenheimer Fund at
the time of exchange, the holding period for that Class A contingent
deferred sales charge will carry over the Class A shares of
Oppenheimer Senior Floating Rate Fund acquired in the exchange. The
Class A shares of Senior Floating Rate Fund acquired in that
exchange will be subject to the Class A Early Withdrawal Charge of
Oppenheimer Senior Floating Fund if they are repurchased before the
expiration of the holding period.
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.
|_| 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. With respect to Class N
shares, if you redeem your shares within 18 months of the retirement plan's
first purchase or the retirement plan eliminates the Fund as a plan
investment option within 18 months of selecting the Fund, a 1% contingent
deferred sales charge will be imposed on the plan. With respect to Class N
shares, a 1% contingent deferred sales charge will be imposed if the
retirement plan (not including IRAs and 403(b) plans) is terminated or Class
N shares of all Oppenheimer funds are terminated as an investment option of
the plan and Class N shares are redeemed within 18 months after the plan's
first purchase of Class N shares of any Oppenheimer fund or with respect to
an individual retirement plan or 403(b) plan, Class N shares are redeemed
within 18 months of the plan's first purchase of Class N shares of any
Oppenheimer fund.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B or the Class C contingent deferred sales charge
will be followed in determining the order in which the shares are exchanged.
Before exchanging shares, shareholders should take into account how the
exchange may affect any contingent deferred sales charge that might be
imposed in the subsequent redemption of remaining shares. Shareholders owning
shares of more than one class must specify which class of shares they intend
to exchange.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges
of up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange
is to be made. Otherwise, the investor must obtain a Prospectus of that fund
before the exchange request may be submitted. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed
on the regular business day the Transfer Agent receives an exchange request
in proper form (the "Redemption Date"). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases may be
delayed by either fund up to five business days if it determines that it
would be disadvantaged by an immediate transfer of the redemption proceeds.
The Fund reserves the right, in its discretion, to refuse any exchange
request that may disadvantage it. For example, if the receipt of multiple
exchange requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the Fund,
the Fund may refuse the request. 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,
Class C and Class N 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, Class C and Class N 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
================================================================================
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER CAPITAL INCOME FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Income Fund, including the statement of investments, as of
August 31, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, the two-month period ended August 31, 1996, and the one
year ended June 30, 1996. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2000, 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Capital Income Fund as of August 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the four years in the period then ended, the two-month period ended August
31, 1996, and the one year ended June 30, 1996, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
September 22, 2000
<PAGE>
STATEMENT OF INVESTMENTS August 31, 2000
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--67.1%
------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--2.1%
------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.5%
Dexter Corp. 91,500 $ 5,409,937
------------------------------------------------------------------------------------------------------------------------
Engelhard Corp. 485,000 9,093,750
------------
14,503,687
------------------------------------------------------------------------------------------------------------------------
PAPER--1.6%
International Paper Co. 380,560 12,130,350
------------------------------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.(1) 657,142 8,624,989
------------------------------------------------------------------------------------------------------------------------
Sonoco Products Co. 637,580 12,313,264
------------------------------------------------------------------------------------------------------------------------
Westvaco Corp. 287,450 7,868,944
------------------------------------------------------------------------------------------------------------------------
Weyerhaeuser Co. 122,600 5,677,912
------------
46,615,459
------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.8%
------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
CommScope, Inc.(1) 175,000 4,364,062
------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.6%
Coflexip SA, Sponsored ADR 57,500 3,415,859
------------------------------------------------------------------------------------------------------------------------
Republic Services, Inc.(1) 900,000 13,162,500
------------
16,578,359
------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.0%
Cooper Industries, Inc. 137,500 4,855,469
------------------------------------------------------------------------------------------------------------------------
Honeywell International, Inc. 324,200 12,501,962
------------------------------------------------------------------------------------------------------------------------
Mettler-Toledo International, Inc.(1) 125,000 5,914,062
------------------------------------------------------------------------------------------------------------------------
Packaging Corp. of America(1) 425,000 4,967,187
------------------------------------------------------------------------------------------------------------------------
Pall Corp. 692,700 14,806,462
------------------------------------------------------------------------------------------------------------------------
Photronics, Inc.(1) 100,000 2,931,250
------------------------------------------------------------------------------------------------------------------------
Tyco International Ltd. 575,000 32,775,000
------------------------------------------------------------------------------------------------------------------------
Veeco Instruments, Inc.(1) 92,500 8,290,312
------------
87,041,704
------------------------------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES--1.6%
------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: LONG DISTANCE--1.3%
AT&T Corp. 150,000 4,725,000
------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., Cl. A(1) 3,279 51,849
------------------------------------------------------------------------------------------------------------------------
Qwest Communications International, Inc.(1) 80,000 4,130,000
------------------------------------------------------------------------------------------------------------------------
Sprint Corp. (Fon Group) 375,000 12,562,500
------------------------------------------------------------------------------------------------------------------------
Verizon Communications 347,000 15,137,875
------------------------------------------------------------------------------------------------------------------------
WorldCom, Inc.(1) 67,500 2,463,750
------------
39,070,974
------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--0.3%
SBC Communications, Inc. 245,000 10,228,750
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER CYCLICALS--3.1%
------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--0.7%
Dana Corp. 100,000 $ 2,468,750
------------------------------------------------------------------------------------------------------------------------
Ford Motor Co. 437,043 10,570,978
------------------------------------------------------------------------------------------------------------------------
Snap-On, Inc. 261,750 8,065,172
------------
21,104,900
------------------------------------------------------------------------------------------------------------------------
CONSUMER SERVICES--0.6%
Dun & Bradstreet Corp. 188,200 6,210,600
------------------------------------------------------------------------------------------------------------------------
H&R Block, Inc. 312,500 11,210,937
------------
17,421,537
------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.3%
Harrah's Entertainment, Inc.(1) 200,000 5,675,000
------------------------------------------------------------------------------------------------------------------------
Host Marriott Corp. 160,000 1,710,000
------------
7,385,000
------------------------------------------------------------------------------------------------------------------------
MEDIA--0.5%
Deluxe Corp. 300,000 6,600,000
------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc. 110,000 9,405,000
------------
16,005,000
------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.3%
Family Dollar Stores, Inc. 475,000 8,550,000
------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--0.7%
Abercrombie & Fitch Co., Cl. A(1) 150,000 3,478,125
------------------------------------------------------------------------------------------------------------------------
AutoNation, Inc.(1) 425,000 2,762,500
------------------------------------------------------------------------------------------------------------------------
Circuit City Stores-Circuit City Group 85,000 2,204,687
------------------------------------------------------------------------------------------------------------------------
CSK Auto Corp.(1,2) 1,500,000 8,156,250
------------------------------------------------------------------------------------------------------------------------
Sherwin-Williams Co. 175,000 4,025,000
------------
20,626,562
------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--8.7%
------------------------------------------------------------------------------------------------------------------------
BROADCASTING--3.1%
Charter Communications, Inc., Cl. A (1) 450,000 6,890,625
------------------------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.(1) 888,900 64,334,137
------------------------------------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc., A Shares(1) 125,000 3,617,187
------------------------------------------------------------------------------------------------------------------------
Infinity Broadcasting Corp., Cl. A(1) 280,000 10,605,000
------------------------------------------------------------------------------------------------------------------------
RCN Corp.(1) 275,000 6,668,750
------------
92,115,699
------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--0.2%
Viacom, Inc., Cl. B(1) 105,000 7,067,812
------------------------------------------------------------------------------------------------------------------------
FOOD--1.8%
Heinz (H.J.) Co. 175,000 6,671,875
------------------------------------------------------------------------------------------------------------------------
Nabisco Group Holdings Corp. 1,675,000 47,004,687
------------
53,676,562
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD & DRUG RETAILERS--0.7%
Albertson's, Inc. 75,000 $ 1,612,500
------------------------------------------------------------------------------------------------------------------------
Kroger Co.(1) 235,000 5,331,562
------------------------------------------------------------------------------------------------------------------------
SUPERVALU, Inc. 912,500 13,630,469
------------
20,574,531
------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.9%
Fort James Corp. 600,000 18,975,000
------------------------------------------------------------------------------------------------------------------------
Newell Rubbermaid, Inc. 300,000 7,781,250
------------
26,756,250
------------------------------------------------------------------------------------------------------------------------
TOBACCO--2.0%
Philip Morris Cos., Inc. 1,580,000 46,807,500
------------------------------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc. 250,000 8,968,750
------------------------------------------------------------------------------------------------------------------------
UST, Inc. 200,000 4,325,000
------------
60,101,250
------------------------------------------------------------------------------------------------------------------------
ENERGY--7.0%
------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES--1.8%
Coastal Corp. 100,000 6,887,500
------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc. 487,500 18,646,875
------------------------------------------------------------------------------------------------------------------------
ENSCO International, Inc. 60,000 2,392,500
------------------------------------------------------------------------------------------------------------------------
Global Marine, Inc.(1) 187,500 6,058,594
------------------------------------------------------------------------------------------------------------------------
Marine Drilling Cos., Inc.(1) 65,000 1,767,187
------------------------------------------------------------------------------------------------------------------------
Santa Fe International Corp. 290,000 11,400,625
------------------------------------------------------------------------------------------------------------------------
Tidewater, Inc. 125,000 5,046,875
-------------
52,200,156
------------------------------------------------------------------------------------------------------------------------
OIL: DOMESTIC--4.8%
Chevron Corp. 100,000 8,450,000
------------------------------------------------------------------------------------------------------------------------
Conoco, Inc., Cl. A 350,000 8,815,625
------------------------------------------------------------------------------------------------------------------------
Conoco, Inc., Cl. B 575,000 15,021,875
------------------------------------------------------------------------------------------------------------------------
EOG Resources, Inc. 200,000 7,650,000
------------------------------------------------------------------------------------------------------------------------
Kerr-McGee Corp. 75,000 4,739,062
------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 905,500 19,581,438
------------------------------------------------------------------------------------------------------------------------
Tosco Corp. 245,000 7,472,500
------------------------------------------------------------------------------------------------------------------------
Ultramar Diamond Shamrock Corp. 281,000 6,585,938
------------------------------------------------------------------------------------------------------------------------
Unocal Corp. 500,000 16,687,500
------------------------------------------------------------------------------------------------------------------------
USX-Marathon Group 1,079,800 29,627,013
------------------------------------------------------------------------------------------------------------------------
Valero Energy Corp. 521,400 15,707,175
-------------
140,338,126
------------------------------------------------------------------------------------------------------------------------
OIL: INTERNATIONAL--0.4%
Royal Dutch Petroleum Co., NY Shares 200,000 12,237,500
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL--28.6%
------------------------------------------------------------------------------------------------------------------------
BANKS--14.8%
AmSouth Bancorp 195,000 $ 3,558,750
------------------------------------------------------------------------------------------------------------------------
Bank of America Corp. 1,296,537 69,445,763
------------------------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. (The)(3) 655,000 34,346,563
------------------------------------------------------------------------------------------------------------------------
Bank One Corp.(3) 895,000 31,548,750
------------------------------------------------------------------------------------------------------------------------
Bank United Corp., Cl. A 25,000 1,125,000
------------------------------------------------------------------------------------------------------------------------
Charter One Financial, Inc. 1,000,000 23,750,000
------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. 1,027,500 57,411,563
------------------------------------------------------------------------------------------------------------------------
Commercial Federal Corp. 357,500 6,457,344
------------------------------------------------------------------------------------------------------------------------
Compass Bancshares, Inc. 150,000 2,737,500
------------------------------------------------------------------------------------------------------------------------
First Union Corp. 1,720,000 49,772,500
------------------------------------------------------------------------------------------------------------------------
FleetBoston Financial Corp. 1,220,000 52,078,750
------------------------------------------------------------------------------------------------------------------------
KeyCorp 260,000 5,248,750
------------------------------------------------------------------------------------------------------------------------
Mellon Financial Corp. 725,000 32,806,250
------------------------------------------------------------------------------------------------------------------------
National City Corp. 271,000 5,674,063
------------------------------------------------------------------------------------------------------------------------
PNC Financial Services Group 287,500 16,944,531
------------------------------------------------------------------------------------------------------------------------
Summit Bancorp 685,500 18,979,781
------------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc. 225,000 11,109,375
------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp 200,000 4,350,000
------------------------------------------------------------------------------------------------------------------------
Union Planters Corp. 329,324 9,982,634
------------
437,327,867
------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--5.7%
Anthracite Capital, Inc. 470,600 3,529,500
------------------------------------------------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A 210,000 5,906,250
------------------------------------------------------------------------------------------------------------------------
C.I.T. Group, Inc., Cl. A 317,500 5,556,250
------------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp.(3) 82,500 4,975,781
------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc.(3) 2,000,000 116,750,000
------------------------------------------------------------------------------------------------------------------------
Household International, Inc. 644,732 30,947,136
------------
167,664,917
------------------------------------------------------------------------------------------------------------------------
INSURANCE--3.9%
ACE Ltd. 65,000 2,283,125
------------------------------------------------------------------------------------------------------------------------
Aetna, Inc. 293,700 16,428,844
------------------------------------------------------------------------------------------------------------------------
Allstate Corp. 225,000 6,539,063
------------------------------------------------------------------------------------------------------------------------
American General Corp. 535,000 38,954,688
------------------------------------------------------------------------------------------------------------------------
Enhance Financial Services Group, Inc. 703,425 11,078,944
------------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 375,000 15,093,750
------------------------------------------------------------------------------------------------------------------------
St. Paul Cos., Inc. 375,000 17,859,375
------------------------------------------------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 92,500 6,376,719
-------------
114,614,508
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS--2.8%
Archstone Communities Trust 400,000 $ 9,850,000
------------------------------------------------------------------------------------------------------------------------
Avalonbay Communities, Inc. 300,000 13,406,250
------------------------------------------------------------------------------------------------------------------------
Developers Diversified Realty Corp. 100,000 1,450,000
------------------------------------------------------------------------------------------------------------------------
Equity Office Properties Trust 962,945 27,805,037
------------------------------------------------------------------------------------------------------------------------
Equity Residential Properties Trust 375,000 18,000,000
------------------------------------------------------------------------------------------------------------------------
Reckson Associates Realty Corp. 425,000 10,332,813
-------------
80,844,100
------------------------------------------------------------------------------------------------------------------------
SAVINGS & LOANS--1.4%
Dime Bancorp, Inc. 100,000 1,837,500
------------------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp. 460,000 12,017,500
------------------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp.(4) 50,000 1,240,938
------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc. 785,000 27,475,000
-------------
42,570,938
------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--1.3%
------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--1.3%
Abbott Laboratories 50,000 2,187,500
------------------------------------------------------------------------------------------------------------------------
American Home Products Corp. 450,000 24,384,375
------------------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 137,500 7,287,500
------------------------------------------------------------------------------------------------------------------------
Pharmacia Corp. 90,000 5,270,625
-------------
39,130,000
------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--4.1%
------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--0.1%
Compaq Computer Corp. 70,000 2,384,375
------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES--0.2%
First Data Corp. 100,000 4,768,750
------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--0.9%
Computer Associates International, Inc. 100,000 3,175,000
------------------------------------------------------------------------------------------------------------------------
Microsoft Corp.(1,3) 270,900 18,912,206
------------------------------------------------------------------------------------------------------------------------
Unigraphics Solutions, Inc.(1) 215,000 4,420,938
-------------
26,508,144
------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.1%
Antec Corp.(1) 100,000 3,606,250
------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--2.1%
Amkor Technology, Inc.(1) 200,000 6,825,000
------------------------------------------------------------------------------------------------------------------------
Applied Materials, Inc.(1) 64,900 5,601,681
------------------------------------------------------------------------------------------------------------------------
DuPont Photomasks, Inc.(1) 50,000 3,793,750
------------------------------------------------------------------------------------------------------------------------
Motorola, Inc.(3) 490,800 17,699,475
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS Continued
National Semiconductor Corp.(1) 62,500 $ 2,781,250
--------------------------------------------------------------------------------------------------------------------------------
Waters Corp.(1,3) 300,000 23,868,750
----------------
60,569,906
--------------------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY--0.7%
Eastman Kodak Co. 350,000 21,787,500
--------------------------------------------------------------------------------------------------------------------------------
UTILITIES--6.8%
--------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--2.3%
Florida Progress Corp. 425,100 22,052,063
--------------------------------------------------------------------------------------------------------------------------------
PPL Corp. 150,000 5,025,000
--------------------------------------------------------------------------------------------------------------------------------
TXU Corp. 530,000 18,516,875
--------------------------------------------------------------------------------------------------------------------------------
Unicom Corp. 475,000 21,701,563
----------------
67,295,501
--------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--4.5%
Dynegy, Inc. 1,250,000 56,250,000
--------------------------------------------------------------------------------------------------------------------------------
Enron Corp. 625,000 53,046,875
--------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc. 387,500 14,264,844
--------------------------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. (The) 170,000 7,830,625
--------------------------------------------------------------------------------------------------------------------------------
131,392,344
----------------
Total Common Stocks (Cost $1,386,027,383) 1,975,028,980
--------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--10.9%
ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend
Equity Securities, Non-Vtg. 165,000 12,251,250
--------------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 5.50% Cv., Series D, Non-Vtg. 100,000 11,462,500
--------------------------------------------------------------------------------------------------------------------------------
Alliant Energy Resources, Inc., 7.25% Cv.(5) 200,000 11,400,000
--------------------------------------------------------------------------------------------------------------------------------
Budget Group, Inc.:
6.25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg.(5) 30,000 626,250
6.25% Cv. Term Income Deferrable Equity Securities, Non-Vtg. 95,000 1,983,125
--------------------------------------------------------------------------------------------------------------------------------
California Federal Preferred Capital Corp., 9.125% Non-Cum.
Exchangeable, Series A, Non-Vtg. 55,000 1,251,250
--------------------------------------------------------------------------------------------------------------------------------
Carriage Services, Inc., 7% Cv. Term Income Deferrable Equity Securities(4) 25,000 531,250
--------------------------------------------------------------------------------------------------------------------------------
CMS Energy Trust III, $26.25 Cv. Premium Equity Participating Security Units(1) 200,000 5,012,500
--------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 6.625% Cv. Preferred Redeemable Increased Dividend
Equity Securities 710,300 27,213,369
--------------------------------------------------------------------------------------------------------------------------------
DECS Trust IV, 7% Cv. Debt Exchangeable for Common Stock of
Maxtor Corp., Non-Vtg. 250,000 2,000,000
--------------------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.50% Cv. Structured Yield Product
Exchangeable for Stock 425,640 15,163,425
--------------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., A Shares, Non-Vtg. 150,000 7,500,000
--------------------------------------------------------------------------------------------------------------------------------
Enron Corp., 7% Cv. Exchangeable 125,000 4,296,875
--------------------------------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 9% Trust Preferred Nts., 12/1/06(4) 5,985,000 5,970,038
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS Continued
--------------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 7.50% Cv. Premium Equity Participating
Security Units (each unit consists of a sr. deferrable nt., 8/16/04
and a purchase contract)(6) 110,000 $ 3,568,125
--------------------------------------------------------------------------------------------------------------------------------
Global Crossing Ltd., 6.75% Cv. 22,500 5,501,250
--------------------------------------------------------------------------------------------------------------------------------
Hanover Compressor Co., 7.25% Cv. Term Income Deferrable Equity Securities(5) 40,000 3,820,000
--------------------------------------------------------------------------------------------------------------------------------
Hercules Trust II, Units (each unit consists of $1,000 principal
amount of 6.50% cv. sr. preferred stock and one warrant to purchase
23.1492 shares of common stock)(6) 2,500 1,379,700
--------------------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc.:
6.75% Cum. Cv., Non-Vtg.(5) 37,500 698,437
6.75% Cum. Cv., Non-Vtg. 62,500 1,164,062
--------------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc.:
7% Cum. Cv., Non-Vtg.(5) 40,000 1,135,000
7% Cv.(5) 32,500 520,000
7% Cv. Jr., Series F, Non-Vtg. 45,000 720,000
7% Cv., Series E, Non-Vtg. 127,500 2,534,063
Depositary Shares Representing one one-hundredth 7% Cum. Cv. Jr.,
Series D, Non-Vtg. 35,000 993,125
--------------------------------------------------------------------------------------------------------------------------------
Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable
Increased Dividend Equity Securities 1,700,000 13,175,000
--------------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 6.75% Cv., Series A 7,500 3,485,625
--------------------------------------------------------------------------------------------------------------------------------
MediaOne Group, Inc., 7% Cv. Premium Income Exchangeable
Securities for Vodafone Airtouch plc common stock 137,500 5,568,750
--------------------------------------------------------------------------------------------------------------------------------
MetLife Capital Trust I, 8% Cv. 175,000 13,912,500
--------------------------------------------------------------------------------------------------------------------------------
Monsanto Co., 6.50% Cv. Adjustable Conversion-rate Equity Security 200,000 10,037,500
--------------------------------------------------------------------------------------------------------------------------------
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)(6) 500,000 13,312,500
--------------------------------------------------------------------------------------------------------------------------------
Newell Financial Trust I, 5.25% Cv. Quarterly Income Preferred
Securities, Non-Vtg. 250,000 9,625,000
--------------------------------------------------------------------------------------------------------------------------------
Nisource, Inc., 7.75% Premium Income Equity Securities, Non-Vtg. 200,000 9,325,000
--------------------------------------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly Income Preferred
Securities, Non-Vtg.(5) 175,000 2,625,000
--------------------------------------------------------------------------------------------------------------------------------
PLC Capital Trust II, 6.50% Cum. Cv. Preferred Redeemable
Increased Dividend Equity Securities, Non-Vtg. 56,500 2,768,500
--------------------------------------------------------------------------------------------------------------------------------
Qwest Trends Trust, 5.75% Cv.(5) 125,000 10,578,125
--------------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 2% Zero-Premium Exchangeable Sub. Nts. 98,000 8,219,750
--------------------------------------------------------------------------------------------------------------------------------
Seagram Co. Ltd. (The), 7.50% Automatic Common
Exchangeable Securities 125,000 6,875,000
--------------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 6% Cv., Series D 50,000 1,687,500
--------------------------------------------------------------------------------------------------------------------------------
Six Flags, Inc., Cum. Cv. Premium Income Equity Securities 499,000 16,155,125
--------------------------------------------------------------------------------------------------------------------------------
Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity
Redeemable Stock, Units (each unit consists of one preferred plus one
warrant to purchase 5.3355 shares of Sovereign Bancorp common stock)(6) 350,000 18,615,625
--------------------------------------------------------------------------------------------------------------------------------
St. George Bank, ADR 9% Cv. Structured Yield Product
Exchangeable for Common Stock of St. George Bank (5) 114,000 5,372,250
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
SHARES MARKET VALUE
SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS Continued
TXU Corp., 9.25% Cv. Preferred Redeemable Increased Dividend
Equity Securities, Non-Vtg. 150,000 $ 6,384,375
---------------------------------------------------------------------------------------------------------------------------------
Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income
Deferrable Equity Securities, Non-Vtg. 131,400 5,338,125
---------------------------------------------------------------------------------------------------------------------------------
United Rental Trust I, 6.50% Cv. Quarterly Income Preferred Securities 225,000 7,031,250
---------------------------------------------------------------------------------------------------------------------------------
Valero Energy Corp., 7.75% Cv. Premium Equity Participating Security 285,800 7,466,525
---------------------------------------------------------------------------------------------------------------------------------
WBK Trust, 10% Cv. Structured Yield Product Exchangeable Stock 450,000 14,934,375
----------------
Total Preferred Stocks (Cost $336,350,314) 321,188,994
UNITS
---------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
Golden State Bancorp, Inc. Wts., Exp. 1/1/01 (Cost $1,316,782) 390,650 512,728
PRINCIPAL
AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--9.0%
U.S. Treasury Bonds, STRIPS:
4.06%, 8/15/22(7) $170,000,000 47,633,320
6.58%, 2/15/15(7) 270,000,000 115,695,000
7.20%, 8/15/08(7) 133,000,000 83,300,960
---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 6.625%, 5/31/02 17,000,000 17,116,875
----------------
Total U.S. Government Obligations (Cost $240,914,511) 263,746,155
---------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--1.1%
Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(5) 8,550,000 8,699,625
---------------------------------------------------------------------------------------------------------------------------------
New South Wales State Bank Bonds, 9.25%, 2/18/03 [AUD] 1,900,000 1,151,448
---------------------------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Global Exchangeable Gtd. Nts., 8%,
8/14/01 [AUD] 33,650,000 19,698,685
---------------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR] 14,800,000 2,060,809
----------------
Total Foreign Government Obligations (Cost $37,851,248) 31,610,567
---------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS--0.5%
Shoshone Partners Loan Trust Sr. Nts., 8.461%, 4/28/02 (representing
a basket of reference loans and a total return swap between Chase
Manhattan Bank and the Trust)(4,8) (Cost $17,251,201) 16,800,000 13,235,793
---------------------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--6.2%
AK Steel Corp., 9.125% Sr. Nts., 12/15/06 4,000,000 4,030,000
---------------------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09 4,995,000 4,526,719
---------------------------------------------------------------------------------------------------------------------------------
Amtran, Inc., 9.625% Nts., 12/15/05 3,000,000 2,745,000
---------------------------------------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(8) 5,000,000 7,196,210
---------------------------------------------------------------------------------------------------------------------------------
Bank Plus Corp., 12% Sr. Nts., 7/18/07 2,500,000 2,087,500
---------------------------------------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08 5,000,000 3,725,000
---------------------------------------------------------------------------------------------------------------------------------
Canandaigua Brands, Inc., 8.625% Sr. Unsec. Nts., 8/1/06 2,250,000 2,272,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Charter Communications Holdings LLC/Charter Communications
Holdings Capital Corp., 8.625% Sr. Unsec. Nts., 4/1/09 $ 3,000,000 $ 2,752,500
---------------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06 2,400,000 2,358,000
---------------------------------------------------------------------------------------------------------------------------------
Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01 6,000,000 6,152,316
---------------------------------------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05 6,350,000 6,207,125
---------------------------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18 3,000,000 2,742,786
---------------------------------------------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09 7,000,000 6,973,750
---------------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts.,
Series B, 3/15/09 8,000,000 7,580,000
---------------------------------------------------------------------------------------------------------------------------------
Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09 1,750,000 1,321,250
---------------------------------------------------------------------------------------------------------------------------------
Fairchild Semiconductor International, Inc., 10.375% Sr. Unsec.
Nts., 10/1/07 2,500,000 2,587,500
---------------------------------------------------------------------------------------------------------------------------------
Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06(4) 5,000,000 4,925,000
---------------------------------------------------------------------------------------------------------------------------------
Fleming Cos., Inc., 10.625% Sr. Nts., 12/15/01 3,000,000 3,015,000
---------------------------------------------------------------------------------------------------------------------------------
Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05 2,500,000 2,525,000
---------------------------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08 10,000,000 9,737,500
---------------------------------------------------------------------------------------------------------------------------------
Hollinger International Publishing, Inc.:
8.625% Sr. Unsec. Nts., 3/15/05 4,710,000 4,757,100
9.25% Sr. Unsec. Sub. Nts., 2/1/06 4,200,000 4,242,000
---------------------------------------------------------------------------------------------------------------------------------
ICN Pharmaceutical, Inc., 9.75% Sr. Nts., 11/15/08(5) 2,000,000 1,977,500
---------------------------------------------------------------------------------------------------------------------------------
Imax Corp., 7.875% Sr. Nts., 12/1/05 5,000,000 4,812,500
---------------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B,
6/1/08 3,000,000 2,490,000
---------------------------------------------------------------------------------------------------------------------------------
Intrawest Corp., 9.75% Sr. Nts., 8/15/08 2,000,000 2,015,000
---------------------------------------------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09 6,000,000 5,550,000
---------------------------------------------------------------------------------------------------------------------------------
Level 3 Communications, Inc., 9.125% Sr. Unsec. Nts., 5/1/08 2,500,000 2,253,125
---------------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09 4,500,000 4,106,250
---------------------------------------------------------------------------------------------------------------------------------
Metromedia Fiber Network, Inc.:
10% Sr. Nts., 12/15/09 [EUR] 2,000,000 1,710,361
10% Sr. Nts., 12/15/09 4,000,000 3,970,000
---------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 9.375% Sr. Unsec. Nts., 11/15/09 6,000,000 5,910,000
---------------------------------------------------------------------------------------------------------------------------------
NEXTLINK Communications, Inc., 10.75% Sr. Unsec. Nts., 6/1/09 1,000,000 972,500
---------------------------------------------------------------------------------------------------------------------------------
Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07 7,500,000 7,162,500
---------------------------------------------------------------------------------------------------------------------------------
NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08 7,650,000 7,841,250
---------------------------------------------------------------------------------------------------------------------------------
P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08 4,000,000 3,880,000
---------------------------------------------------------------------------------------------------------------------------------
PSINet, Inc., 10% Sr. Unsec. Nts., Series B, 2/15/05 1,700,000 1,479,000
---------------------------------------------------------------------------------------------------------------------------------
RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06 4,000,000 4,620,000
---------------------------------------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.625% Sr. Unsec. Nts., 8/1/07 1,000,000 1,022,500
10.875% Sr. Sub. Nts., 4/1/08 1,000,000 950,000
---------------------------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 10.125% Sr. Sub. Nts., 3/15/06 8,000,000 8,040,000
---------------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.:
7.625% Sr. Unsec. Nts., Series B, 6/1/08 2,150,000 2,042,500
8.625% Sr. Sub. Nts., 1/15/07 2,000,000 1,980,000
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS Continued
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Tenneco, Inc., 11.625% Sr. Unsec. Sub. Nts., Series B, 10/15/09 $ 3,000,000 $ 2,595,000
---------------------------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust I, Asset-Backed Securities,
Series 1993-A, 10.50%, 12/1/11(4) 1,833,979 1,104,973
---------------------------------------------------------------------------------------------------------------------------------
VoiceStream Wireless Corp., 10.375% Sr. Unsec. Nts., 11/15/09 8,596,720 9,327,441
---------------------------------------------------------------------------------------------------------------------------------
World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09 1,000,000 934,271
----------------
Total Non-Convertible Corporate Bonds and Notes (Cost $186,852,531) 183,206,427
---------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--3.9%
American Tower Corp.:
5% Cv. Nts., 2/15/10(5) 6,000,000 5,677,500
5% Cv. Nts., 2/15/10 1,500,000 1,419,375
---------------------------------------------------------------------------------------------------------------------------------
Amkor Technology, Inc., 5% Cv. Nts., 3/15/07(5) 22,500,000 19,940,625
---------------------------------------------------------------------------------------------------------------------------------
Cypress Semiconductor Corp., 4% Cv. Unsec. Nts., 2/1/05 4,000,000 5,110,000
---------------------------------------------------------------------------------------------------------------------------------
Inco Ltd.:
5.75% Cv. Debs., 7/1/04 9,700,000 8,730,000
7.75% Cv. Debs., 3/15/16 6,500,000 5,695,625
---------------------------------------------------------------------------------------------------------------------------------
Loews Corp., 3.125% Cv. Sub. Nts., 9/15/07 10,000,000 9,100,000
---------------------------------------------------------------------------------------------------------------------------------
LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 2/15/05 12,500,000 10,875,000
---------------------------------------------------------------------------------------------------------------------------------
Mutual Risk Management Ltd., Zero Coupon Exchangeable Sub.
Debs., 5.25%, 10/30/15(5,7) 19,500,000 9,871,875
---------------------------------------------------------------------------------------------------------------------------------
Network Associates, Inc., Zero Coupon Cv. Unsec. Sub. Debs.,
3.94%, 2/13/18(7) 25,000,000 9,843,750
---------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10(5) 7,500,000 7,509,375
---------------------------------------------------------------------------------------------------------------------------------
Photronics, Inc., 6% Cv. Sub. Nts., 6/1/04 10,000,000 11,575,000
---------------------------------------------------------------------------------------------------------------------------------
Rite Aid Corp., 5.25% Cv. Sub. Nts., 9/15/02 12,500,000 5,656,250
---------------------------------------------------------------------------------------------------------------------------------
Valhi, Inc., Zero Coupon Cv. Sr. Sec. Liquid Yield Option Nts.,
7.14%, 10/20/07(7) 3,500,000 2,778,125
----------------
Total Convertible Corporate Bonds and Notes (Cost $112,809,971) 113,782,500
---------------------------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS--0.6%
Bank of America NA, Lucent Technologies, Inc.
Market Indexed Linked Nts., 6%, 2/9/02 5,000,000 3,991,000
---------------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp. (New York Branch), Carnival Corp.
Equity Linked Nts., 7%, 7/17/02(4) 8,526,994 8,228,549
---------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. Medium-Term Stock-Linked Nts., Series B, 7%, 7/8/02
(Linked to the performance of the common stock of The Gap, Inc.) 7,500,000 5,475,000
----------------
Total Structured Instruments (Cost $20,999,794) 17,694,549
---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,340,373,735) 99.3% 2,920,006,693
---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.7 21,005,323
---------------------------------------
NET ASSETS 100.0% $ 2,941,012,016
=======================================
</TABLE>
<PAGE>
FOOTNOTES TO STATEMENT OF INVESTMENTS
Principal amount is reported in U.S. Dollars, except for those denoted in the
following currencies:
AUD Australian Dollar
EUR Euro
ZAR South African Rand
1. Non-income-producing security.
2. 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, 2000.
The aggregate fair value of securities of affiliated companies held by the
Fund as of August 31, 2000, amounts to $8,156,250. Transactions during the
period in which the issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
SHARES SHARES
AUGUST 31, GROSS GROSS AUGUST 31,
1999 ADDITIONS REDUCTIONS 2000
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CSK Auto Corp. 750,000 750,000 -- 1,500,000
</TABLE>
3. A sufficient amount of liquid assets has been designated to cover
outstanding written call and put options, as follows:
<TABLE>
<CAPTION>
CONTRACTS EXPIRATION EXERCISE PREMIUM MARKET VALUE
SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank One Corp. 100 10/23/00 $38 $ 6,675 $ 8,750
Bank One Corp. 500 11/20/00 35 103,184 121,875
Bank One Corp. 1,750 11/20/00 38 233,709 218,750
Bank One Corp. 1,150 11/20/00 40 101,909 64,688
Bank of New York Co., Inc. (The) 775 10/23/00 55 141,110 145,313
Bank of New York Co., Inc. (The) 150 1/22/01 50 90,797 105,000
Bank of New York Co., Inc. (The) 150 1/22/01 55 61,423 61,875
Bank of New York Co., Inc. (The) 1,225 1/22/01 60 238,351 222,031
Capital One Financial Corp. 250 9/18/00 60 97,997 75,000
Capital One Financial Corp. 350 10/23/00 65 97,074 102,813
Citigroup, Inc. 150 10/23/00 64 22,050 17,456
Motorola, Inc. 450 10/23/00 45 80,524 19,687
Waters Corp. 700 9/18/00 65 633,304 1,303,750
Waters Corp. 1,050 11/20/00 63 1,172,800 2,008,125
Waters Corp. 850 11/20/00 60 968,634 1,944,375
Waters Corp. 400 11/20/00 65 390,643 690,000
-------------------------------
4,440,184 7,109,488
-------------------------------
CONTRACTS
SUBJECT TO PUT
---------------------------------------------------------------------------------------------------------------------
Microsoft Corp. 291 10/23/00 85 475,623 436,500
--------------------------------
$4,915,807 $7,545,988
================================
</TABLE>
4. Identifies issues considered to be illiquid or restricted--See Note 7 of
Notes to Financial Statements.
5. 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 $90,451,562 or 3.08% of the Fund's net
assets as of August 31, 2000.
6. Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, principal amount disclosed represents total
underlying principal.
7. For zero coupon bonds, the interest rate shown is the effective yield on
the date of purchase.
8. Represents the current interest rate for a variable or increasing rate
security.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2000
<TABLE>
<S> <C>
=================================================================================================================================
ASSETS
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $2,307,685,551) $ 2,911,850,443
Affiliated companies (cost $32,688,184) 8,156,250
----------------
2,920,006,693
---------------------------------------------------------------------------------------------------------------------------------
Cash 5,120,154
---------------------------------------------------------------------------------------------------------------------------------
Cash used for collateral on Microsoft Corp. written puts 17,262,770
---------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends 12,850,906
Shares of beneficial interest sold 638,012
Investments sold 559,568
Other 444,847
----------------
Total assets 2,956,882,950
=================================================================================================================================
LIABILITIES
Options written, at value (premiums received $4,915,807)--see accompanying statement 7,545,988
---------------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 4,455,117
Distribution and service plan fees 1,153,372
Investments purchased 1,101,525
Transfer and shareholder servicing agent fees 714,567
Trustees' compensation 42,489
Other 857,876
----------------
Total liabilities 15,870,934
----------------
NET ASSETS $ 2,941,012,016
================
=================================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $ 2,239,086,938
Undistributed net investment income 23,286,164
---------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 101,639,755
---------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies 576,999,159
----------------
NET ASSETS $ 2,941,012,016
================
=================================================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of $2,395,444,343
and 186,044,479 shares of beneficial interest outstanding) $12.88
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $13.67
---------------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $472,221,589
and 37,002,203 shares of beneficial interest outstanding) $12.76
---------------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $73,346,084
and 5,749,222 shares of beneficial interest outstanding) $12.76
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended August 31, 2000
<TABLE>
<S> <C>
=================================================================================================================================
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $38,064) $ 82,829,752
---------------------------------------------------------------------------------------------------------------------------------
Interest 64,767,791
----------------
Total income 147,597,543
=================================================================================================================================
EXPENSES
Management fees 16,447,234
---------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 5,799,373
Class B 5,476,726
Class C 851,214
---------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 3,647,076
---------------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 197,040
---------------------------------------------------------------------------------------------------------------------------------
Trustees' compensation 58,682
---------------------------------------------------------------------------------------------------------------------------------
Other 1,613,018
----------------
Total expenses 34,090,363
Less expenses paid indirectly (21,672)
----------------
Net expenses 34,068,691
=================================================================================================================================
NET INVESTMENT INCOME 113,528,852
---------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (including premiums on options exercised) 171,656,212
Closing and expiration of option contracts written 3,196,541
Foreign currency transactions (1,226,472)
----------------
Net realized gain 173,626,281
---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on:
Investments (129,441,814)
Translation of assets and liabilities denominated in foreign currencies (837,481)
----------------
Net change (130,279,295)
----------------
Net realized and unrealized gain 43,346,986
=================================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 156,875,838
================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 2000 1999
=================================================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 113,528,852 $ 134,128,244
---------------------------------------------------------------------------------------------------------------------------------
Net realized gain 173,626,281 338,994,470
---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation (130,279,295) (68,883,491)
---------------------------------------------
Net increase in net assets resulting from operations 156,875,838 404,239,223
=================================================================================================================================
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Class A (98,446,434) (106,190,111)
Class B (17,009,478) (19,189,145)
Class C (2,657,808) (3,049,848)
---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (220,897,327) (245,592,889)
Class B (51,201,679) (57,343,807)
Class C (8,187,175) (8,928,939)
=================================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A (348,332,169) 60,856,819
Class B (198,760,762) 96,317,221
Class C (37,298,949) 26,567,442
=================================================================================================================================
NET ASSETS
Total increase (decrease) (825,915,943) 147,685,966
---------------------------------------------------------------------------------------------------------------------------------
Beginning of period 3,766,927,959 3,619,241,993
----------------------------------------------
End of period (including undistributed net investment
income of $23,286,164 and $27,856,168, respectively) $2,941,012,016 $ 3,766,927,959
==============================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS A 2000 1999 1998 1997 1996(1) 1996
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.63 $13.75 $14.12 $11.36 $11.39 $10.25
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .49 .51 .50 .47 .09 .50
Net realized and unrealized gain (loss) .32 1.03 .41 3.17 (.12) 1.36
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .81 1.54 .91 3.64 (.03) 1.86
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.49) (.49) (.49) (.48) -- (.48)
Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.56) (1.66) (1.28) (.88) -- (.72)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.88 $13.63 $13.75 $14.12 $11.36 $11.39
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 7.24% 11.03% 6.17% 33.39% (0.26)% 18.61%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $2,395 $2,927 $2,889 $2,722 $2,110 $2,141
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $2,503 $3,156 $3,072 $2,446 $2,109 $2,054
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 3.78% 3.51% 3.47% 3.97% 3.28% 4.51%
Expenses 0.93% 0.89% 0.87%(4) 0.88%(4) 0.94%(4) 0.89%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 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 has not been grossed up to reflect the effect of expenses
paid indirectly.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS B 2000 1999 1998 1997 1996(1) 1996
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.51 $13.63 $14.01 $11.29 $11.33 $10.21
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 .39 .39 .37 .07 .41
Net realized and unrealized gain (loss) .32 1.03 .40 3.13 (.11) 1.35
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .70 1.42 .79 3.50 (.04) 1.76
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.38) (.37) (.38) (.38) -- (.40)
Distributions from net realized gain (1.07) (1.17) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.45) (1.54) (1.17) (.78) -- (.64)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.76 $13.51 $13.63 $14.01 $11.29 $11.33
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 6.34% 10.22% 5.32% 32.17% (0.35)% 17.58%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $472 $721 $635 $431 $260 $252
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $546 $749 $575 $344 $255 $208
Ratios to average net assets:(3)
Net investment income 3.01% 2.71% 2.68% 3.16% 2.48% 3.68%
Expenses 1.70% 1.69% 1.67%(4) 1.69%(4) 1.76%(4) 1.72%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 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 has not been grossed up to reflect the effect of expenses
paid indirectly.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
AUGUST 31, JUNE 30,
CLASS C 2000 1999 1998 1997 1996(1) 1996(2)
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $13.50 $13.63 $14.02 $11.30 $11.35 $10.76
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .38 .39 .39 .40 .07 .28
Net realized and unrealized gain (loss) .32 1.02 .40 3.12 (.12) .88
-------------------------------------------------------------------------------
Total income (loss) from
investment operations .70 1.41 .79 3.52 (.05) 1.16
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.37) (.38) (.39) (.40) -- (.33)
Distributions from net realized gain (1.07) (1.16) (.79) (.40) -- (.24)
-------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.44) (1.54) (1.18) (.80) -- (.57)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.76 $13.50 $13.63 $14.02 $11.30 $11.35
===============================================================================
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 6.40% 10.15% 5.30% 32.31% (0.44)% 10.50%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $73 $119 $95 $48 $7 $6
Average net assets (in millions) $85 $120 $77 $25 $7 $3
Ratios to average net assets:(4)
Net investment income 3.01% 2.70% 2.68% 3.15% 2.55% 3.53%
Expenses 1.70% 1.69% 1.67%(5) 1.69%(5) 1.79%(5) 1.81%(5)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 37% 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. For the period from November 1, 1995 (inception of offering) to June 30,
1996.
3. 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.
4. Annualized for periods of less than one full year.
5. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an 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 at their offering price, which is normally net asset value plus a
front-end sales charge. Class B and Class C shares are sold without a
front-end sales charge but 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. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Fund's
assets are valued. In the absence of a sale, the security is valued at the last
sale price on the prior trading day, if it is within the spread of the closing
bid and asked prices, and if not, at the closing bid price. Securities
(including restricted securities) for which quotations are not readily
available are valued primarily using dealer-supplied valuations, a portfolio
pricing service authorized by the Board of Trustees, or at their fair value.
Fair value is determined in good faith under consistently applied procedures
under the supervision of the Board of Trustees. Short-term "money market type"
debt securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
-------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes are leveraged, which increases the notes'
volatility relative to the principal of the security. Fluctuations in value of
these securities are recorded as unrealized gains and losses in the
accompanying financial statements. As of August 31, 2000, the market value of
these securities comprised 0.6% of the Fund's net assets and resulted in
unrealized losses at August 31, 2000, of $3,305,245. The Fund also hedges a
portion of the foreign currency exposure generated by these securities, as
discussed in Note 5.
-------------------------------------------------------------------------------
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.
<PAGE>
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.
-------------------------------------------------------------------------------
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 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal 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 dividends and 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, 2000, amounts have been reclassified to reflect an
increase in paid-in capital of $21,166,020, an increase in undistributed net
investment income of $14,864, and a decrease in accumulated net realized gain
on investments of $21,180,884. This reclassification includes $21,183,778
distributed in connection with Fund share redemptions which increased paid-in
capital and reduced accumulated net realized gain. Net assets of the Fund were
unaffected by the reclassifications.
<PAGE>
NOTE TO FINANCIALS STATEMENTS Continued
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES Continued
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. Certain dividends from foreign
securities will be recorded as soon as the Fund is informed of the dividend if
such information is obtained subsequent to the ex-dividend date. Realized
gains and losses on investments and unrealized appreciation and depreciation
are determined on an identified cost basis, which is the same basis used for
federal income tax purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 2000 YEAR ENDED AUGUST 31, 1999
SHARES AMOUNT SHARES AMOUNT
--------------------------------------- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Sold 19,575,634 $241,088,319 21,887,567 $314,043,113
Dividends and/or
distributions reinvested 25,370,714 299,536,203 23,478,035 330,924,974
Redeemed (73,658,611) (888,956,691) (40,770,834) (584,111,268)
---------------------------------------------------------
Net increase (decrease) (28,712,263) $(348,332,169) 4,594,768 $ 60,856,819
=========================================================
---------------------------------------------------------------------------------------------------------------------------------
CLASS B
Sold 5,302,692 $64,844,082 13,221,669 $188,310,904
Dividends and/or
distributions reinvested 5,572,573 65,132,048 5,207,911 72,839,456
Redeemed (27,234,627) (328,736,892) (11,626,909) (164,833,139)
---------------------------------------------------------
Net increase (decrease) (16,359,362) $(198,760,762) 6,802,671 $96,317,221
=========================================================
--------------------------------------------------------------------------------------------------------------------------------
CLASS C
Sold 1,053,764 $ 13,049,521 4,107,119 $ 58,508,668
Dividends and/or
distributions reinvested 882,449 10,315,715 831,248 11,618,577
Redeemed (5,023,386) (60,664,185) (3,071,848) (43,559,803)
---------------------------------------------------------
Net increase (decrease) (3,087,173) $(37,298,949) 1,866,519 $26,567,442
=========================================================
</TABLE>
<PAGE>
================================================================================
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended August 31, 2000, were
$1,100,751,266 and $1,617,683,897, respectively.
As of August 31, 2000, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $2,343,658,869 was:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 776,073,339
Gross unrealized depreciation (202,366,691)
--------------
Net unrealized appreciation $ 573,706,648
==============
</TABLE>
================================================================================
4. 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, 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, 2000,
was an annualized rate of 0.52%, before any waiver by the Manager if
applicable.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
Manager, acts as the transfer and shareholder servicing agent for the Fund on
an "at-cost" basis. OFS also acts as the transfer and shareholder servicing
agent for the other Oppenheimer funds.
--------------------------------------------------------------------------------
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, 2000 $2,190,051 $631,452 $300,262 $1,621,384 $96,086
</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, 2000 $58,792 $1,429,980 $20,807
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
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 purchased. 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 year ended August 31,
2000, payments under the Class A plan totaled $5,799,373 prior to Manager
waivers if applicable, all of which were paid by the Distributor to recipients,
and included $394,479 paid to an affiliate of the Manager. 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.
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 asset-based sales charges from the
Fund under the plans. If any 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, 2000,
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 $5,476,726 $4,309,078 $12,531,453 2.65%
Class C Plan 851,214 250,604 1,555,535 2.12
</TABLE>
<PAGE>
================================================================================
5. FOREIGN CURRENCY CONTRACTS
A foreign currency 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 contracts for operational purposes and to seek to protect
against adverse exchange rate fluctuations. 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
foreign currency transactions. 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.
================================================================================
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. Realized gains and losses are reported
in the Statement of Operations.
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
6. OPTION ACTIVITY Continued
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, 2000, was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
--------------------------- ---------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding as of
August 31, 1999 -- $ -- 250 $ 286,740
Options written 33,500 21,786,707 22,799 12,146,748
Options closed or expired (22,800) (17,106,126) (20,049) (7,199,158)
Options exercised (700) (240,397) (2,709) (4,758,707)
---------------------------------------------------
Options outstanding as of
August 31, 2000 10,000 $ 4,440,184 291 $ 475,623
===================================================
</TABLE>
--------------------------------------------------------------------------------
7. ILLIQUID OR RESTRICTED SECURITIES
As of August 31, 2000, 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, 2000, was
$35,236,541, which represents 1.20% of the Fund's net assets, of which
$1,240,938 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, 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STOCKS & WARRANTS
Greenpoint Financial Corp. 3/12/99 $30.00 $24.82
</TABLE>
<PAGE>
================================================================================
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 0.45%. 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
0.08% per annum.
The Fund had no borrowings outstanding during the year ended August 31,
2000.
<PAGE>
<PAGE>
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 risk appear somewhat larger than
that 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 some time 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 thereby 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 the 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. Such issues 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. Such issues 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.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals that begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. The parenthetical rating denotes probable credit stature
upon completion of construction or elimination of the basis of the condition.
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 generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a
ranking in the lower end of that generic rating category. Advanced refunded
issues that are secured by certain assets are identified with a # symbol.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to honor 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 ratios, while sound, may be more
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 the 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.
BB, B, CCC, CC, and C
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 ongoing 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: Bonds rated "B" are more vulnerable to nonpayment than obligations rated
"BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are
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: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated "C" is currently
highly vulnerable to nonpayment. The "C" rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action has
been taken, but payments on this obligation are being continued. A "C" also
will be assigned to a preferred stock issue in arrears on dividends or
sinking fund payments, but that is currently paying.
D: Bonds rated "D" are in default. Payments on the obligation are not being
made on the date due even if the applicable grace period has not expired,
unless Standard and Poor's believes that such payments will be made during
such grace period. The "D" rating will also be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
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: Obligation is 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 obligor's capacity to
meet its financial obligation is extremely 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: Obligation 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: Obligation is 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: Obligation 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.
D: Obligation is in payment default. Payments on the obligation have not been
made on the due date even if the applicable grace period has not expired,
unless Standard and Poor's believes that such payments will be made during
such grace period. The "D" rating will also be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
Fitch, 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. Securities rated in this category are not
investment grade.
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. The ratings of obligations in this category are
based on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected recovery values
are highly speculative and cannot be estimated with any precision, the
following serve as general guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of outstanding amounts and accrued
interest. "DD" indicates potential recoveries in the range of 50%-90%, and
"D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy
a higher portion of their outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are
not added to the "AAA" category or to categories below "CCC," nor to
short-term ratings other than "F1" (see below).
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment of
financial commitments. May have an added "+" to denote any exceptionally
strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of higher ratings.
F3: Fair credit quality. Capacity for timely payment of financial
commitments is adequate. However, near-term adverse changes could result in a
reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
<PAGE>
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-11
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."4 This waiver
provision applies to:
|_| Purchases of Class A shares aggregating $1 million or more.
|_| 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.
|_| 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.
|_| 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).
|_| Purchases by a Retirement Plan whose record keeper had a
cost-allocation agreement with the Transfer Agent on or before May
1, 1999.
II. Waivers of Class A Sales Charges of Oppenheimer Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any
Class A sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews;
relatives by virtue of a remarriage (step-children, step-parents,
etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans
for their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and
which are identified as such to the Distributor) or with the
Distributor. The purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular
investment products made available to their clients. Those clients
may be charged a transaction fee by their dealer, broker, bank or
advisor for the purchase or sale of Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares
for their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those
purchases.
|_| Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of
their investment advisor or financial planner on the books and
records of the broker, agent or financial intermediary with which
the Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for
those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the
company or trust which is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created
under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker,
agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for
Value Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for
Value Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by
December 31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not
subject to sales charges (and no commissions are paid by the Distributor on
such purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts for
which reinvestment arrangements have been made with the Distributor.
|_| Shares purchased through a broker-dealer that has entered into a
special agreement with the Distributor to allow the broker's
customers to purchase and pay for shares of Oppenheimer funds using
the proceeds of shares redeemed in the prior 30 days from a mutual
fund (other than a fund managed by the Manager or any of its
subsidiaries) on which an initial sales charge or contingent
deferred sales charge was paid. This waiver also applies to shares
purchased by exchange of shares of Oppenheimer Money Market Fund,
Inc. that were purchased and paid for in this manner. This waiver
must be requested when the purchase order is placed for shares of
the Fund, and the Distributor may require evidence of qualification
for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an
affiliate acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that
would otherwise be subject to the contingent deferred sales charge are
redeemed in the following cases:
|_| To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.5
(5) Under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.6
(10) Participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or a subsidiary
of the Manager) if the plan has made special arrangements with
the Distributor.
(11) Plan termination or "in-service distributions," if the
redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
III. Waivers of Class B, Class C and Class N Sales Charges of
Oppenheimer Funds
The Class B, Class C and Class N contingent deferred sales charges will
not be applied to shares purchased in certain types of transactions or
redeemed in certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
|_| Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must
have occurred after the account was established, and for disability
you must provide evidence of a determination of disability by the
Social Security Administration.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into
a special arrangement with the Distributor for this purpose.
|_| 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.
The Class B, Class C, and Class N contingent deferred sales charges will be
waived for redemptions of shares in the following cases:
|_| Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.7
(5) To make distributions required under a Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation
agreement described in Section 71(b) of the Internal Revenue
Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.8
(9) On account of the participant's separation from service.9
(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 1/1/2, as
long as the aggregate value of the distributions does not
exceed 10% of the account's value, adjusted annually.
(14) 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, Class C and
Class N 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.
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 Income Quest for Value New York Tax-Exempt
Fund Fund
Quest for Value Investment Quality Quest for Value National Tax-Exempt
Income Fund Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent
deferred sales charges described in this Appendix apply to shares of an
Oppenheimer fund that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds,
or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of
the Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain
Former Quest for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the
initial sales charge rates for Class A shares purchased by members of
"Associations" formed for any purpose other than the purchase of securities.
The rates in the table apply if that Association purchased shares of any of
the Former Quest for Value Funds or received a proposal to purchase such
shares from OCC Distributors prior to November 24, 1995.
--------------------------------------------------------------------------------
Number of Initial Sales Initial Sales
-------------------- Charge Charge Commission
Eligible Employees as a % of as a % of Net as % of
or Members Offering Price Amount Invested Offering Price
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
At least 10 but 2.00% 2.04% 1.60%
not more than 49
--------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either
the sales charge rate in the table based on the number of members of an
Association, or the sales charge rate that applies under the Right of
Accumulation described in the applicable fund's Prospectus and Statement of
Additional Information. Individuals who qualify under this arrangement for
reduced sales charge rates as members of Associations also may purchase
shares for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class
A shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former
Quest for Value Funds by merger of a portfolio of the AMA Family
of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6,
1995. In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, Class B or Class C shares of an
Oppenheimer fund. The shares must have been acquired by the merger of a
Former Quest for Value Fund into the fund or by exchange from an Oppenheimer
fund that was a Former Quest for Value Fund or into which such fund merged.
Those shares must have been purchased prior to March 6, 1995 in connection
with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not
exceed 10% of the initial value of the account 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
value of such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995. In the following cases, the contingent
deferred sales charge will be waived for redemptions of Class A, Class B or
Class C shares of an Oppenheimer fund. The shares must have been acquired by
the merger of a Former Quest for Value Fund into the fund or by exchange from
an Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on
or after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S.
Social Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of
the initial value of the account 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.
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:
(1) any purchaser, 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:
|_| the Manager and its affiliates,
|_| 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,
|_| 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,
|_| dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans
for their employees,
|_| employees and registered representatives (and their spouses) of dealers
or brokers described 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,
|_| 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
dealers, brokers or registered investment advisors that had entered into an
agreement with the Distributor or prior distributor of the Fund's shares to
sell shares to defined contribution employee retirement plans for which the
dealer, broker, or investment advisor provides administrative services.
<PAGE>
C-41
Oppenheimer Capital Income Fund
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
1234
PX300.001.1200
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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.
2 Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer
Integrity Funds or Panorama Series Fund, Inc. 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 Main Street Funds, Inc., 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 Integrity Fund, Oppenheimer Limited-Term Government Fund,
Oppenheimer Municipal 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.
3 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.
4However, 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.
5This provision does not apply to IRAs.
6This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
7This provision does not apply to IRAs.
8This provision does not apply to loans from 403(b)(7) custodial plans.
9This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
