OPPENHEIMER ASSET ALLOCATION FUND
Supplement dated May 1, 1994
to the Prospectus dated April 29, 1994
On or about May 13, 1994, a proxy statement will be mailed to
shareholders of record of the Fund as of April 22, 1994. The proxy
statement includes two Proposals that, if approved by shareholders
at their meeting to be held June 20, 1994, will:
(1) Amend the Fund's Service Plan for Class A Shares. The
Fund currently has a Service Plan for Class A shares under Rule
12b-1 of the Investment Company Act of 1940, described in "Service
Plan for Class A Shares" on page 18 of the Prospectus. Under that
Plan, the Fund reimburses the Fund's Distributor for a portion of
its costs in connection with personal service and maintenance of
accounts that hold Class A Shares of the Fund sold on or after
April 1, 1988.
Under a Proposal to be submitted to shareholders for approval,
the plan would be amended to apply to all Class A shares of the
Fund, regardless of the date on which the shares were purchased.
If this Proposal is approved, the Fund would make quarterly
payments to the Distributor for those services at an annual rate
not to exceed 0.25% of the average annual net assets of Class A
shares of the Fund. If approved, this change could have the effect
of increasing the expenses borne by Class A shares under the Fund's
Service Plan for Class A shares, but that increase would not exceed
0.25% of the average annual net asset value of Class A shares
acquired before April 1, 1988.
(2) Amend the Fund's Investment Advisory Agreement. The
Manager has voluntarily agreed to reduce the effective management
fee paid by the Fund to the rate described on page 12 of the
Prospectus. Under a Proposal to be submitted at the shareholders
meeting, a new investment advisory agreement would be adopted that
would contain that reduced rate.
Additional information on both of these Proposals is in the
proxy statement, a copy of which may be obtained by contacting the
Distributor.
May 1, 1994 2PSP241
OPPENHEIMER ASSET ALLOCATION FUND
Supplement to the Prospectus
dated April 29, 1994
For Use in the State of Vermont
The cover page of the Prospectus is amended by inserting the following
after the first paragraph:
The Fund may invest in lower-rated corporate bonds,
commonly known as "junk bonds." Investments of this
type are subject to a greater risk of loss of
principal and interest. Purchasers should carefully
assess the risks associated with an investment in
this Fund. There is no restriction on the amount of
assets the Fund may invest in "junk bonds."
April 29, 1994 PS240
<PAGE>
OPPENHEIMER ASSET ALLOCATION FUND
Prospectus dated April 29, 1994.
Oppenheimer Asset Allocation Fund is a mutual fund that seeks as its
investment objective high total investment return, which includes current
income and capital appreciation in the value of its shares. The Fund may
invest in common stocks and other equity securities, bonds and other debt
securities, including lower-rated, high yield debt securities of U.S.
companies commonly known as "junk bonds", and money market securities.
The Fund also uses "hedging" instruments, to seek to reduce the risks of
market fluctuations that affect the value of the securities the Fund
holds. Consistent with its investment objective, the Fund may invest some
or all of its assets in any one or more of these types of investments
depending upon, among other things, general economic and market
conditions. Some investment techniques the Fund uses may be considered
to be speculative investment methods that may increase the risks of
investing in the Fund and may also increase the Fund's operating costs.
You should carefully review the risks associated with an investment in the
Fund discussed in "Investment Policies and Strategies" on page 6,
including "Special Risks - High Yield Securities".
The Fund offers two classes of shares: (1) Class A shares, which are
sold at a public offering price that includes a front-end sales charge,
and (2) Class C shares, which are sold without a front-end sales charge,
although you may pay a sales charge when you redeem your shares, depending
on how long you hold them. A contingent deferred sales charge is imposed
on most Class C shares redeemed within 12 months of purchase. Class C
shares are also subject to an annual "asset-based sales charge." Each
class of shares bears different expenses. In deciding which class of
shares to buy, you should consider how much you plan to purchase, how long
you plan to keep your shares, and other factors discussed in "How to Buy
Shares" starting on page ____.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the April 29, 1994 Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
Page
ABOUT THE FUND
Expenses
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services and those
expenses are reflected in the Fund's net asset value per share. As a
shareholder, you pay those expenses indirectly. Shareholders pay other
expenses directly, such as sales charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's operating expenses that you might expect
to bear indirectly. The calculations are based on the Fund's expenses
during its fiscal year ended December 31, 1993.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to pages 16 through 22 for an
explanation of how and when these charges apply.
Class A Shares Class C Shares
Maximum Sales Charge on Purchases
(as a % of offering price) 5.75% None
Sales Charge on Reinvested Dividends None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds) None(1) 1.0%(2)
Exchange Fee $5.00 $5.00
(1) If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares," below.
(2) If you redeem Class C shares within 12 months of buying them, you may
have to pay a 1.0% contingent deferred sales charge. See "How to Buy
Shares" below.
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (the Manager), and other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds the Fund's portfolio securities, audit fees and legal and other
expenses. The following numbers are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The "12b-1 Distribution Plan Fees"
for Class A shares reflect the Service Plan fees (which are a maximum of
0.25% of average annual net assets of that class), and for Class C shares,
include the Service Plan Fee (maximum of 0.25%) and the asset-based sales
charge of 0.75%. The actual expense numbers for each class of shares in
future years may be more or less, depending on a number of factors,
including the actual amount of the assets represented by each class of
shares. Class C shares were not publicly sold prior to December 1, 1993.
Therefore, the Annual Fund Operating Expenses shown for Class C shares are
based on expenses for the period from December 1, 1993 through December
31, 1993.
Class A Shares Class C Shares
Management Fees 0.78% 0.78%
12b-1 Distribution Plan Fees 0.12%* 1.00%**
Other Expenses 0.24% 0.72%
Total Fund Operating Expenses 1.14% 2.50%
* Service Plan fees only
** Includes Service Plan fee and asset-based sales charge
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the chart above.
If you were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each
period shown:
1 year 3 years 5 years 10 years(1)
Class A Shares $68 $92 $117 $188
Class C Shares $35 $78 $133 $284
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $68 $92 $117 $188
Class C Shares $25 $78 $133 $284
(1) Because of the asset-based sales charge imposed on Class C shares of
the Fund, long-term shareholders of Class C shares could bear
expenses that would be the economic equivalent of an amount greater
than the maximum front-end sales charges permitted under applicable
regulatory requirements.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
KPMG Peat Marwick, the Fund's independent auditors, whose report on the
Fund's financial statements for the fiscal year ended December 31, 1993
is included in the Statement of Additional Information. Class C shares
were publicly offered only during a portion of that period, commencing
December 1, 1993.
<TABLE>
<CAPTION>
CLASS A CLASS C
----------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDING
DECEMBER 31, DECEMBER 31,
1993 1992 1991(3) 1990 1989 1988 1987(2) 1993(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.63 $11.22 $10.19 $10.67 $9.78 $8.89 $10.00 $12.86
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) .44 .39 .40 .53 .49 .39 .27 (.97)
Net realized and unrealized gain (loss)
on investments, options written and
foreign currency transactions 1.43 .44 1.06 (.43) 1.17 1.09 (1.11) 1.29
-------- -------- -------- ------- ------- ------- ------- ------
Total income (loss) from investment
operations 1.87 .83 1.46 .10 1.66 1.48 (.84) .32
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.44) (.42) (.43) (.52) (.48) (.40) (.26) (.12)
Distributions from net realized gain
on investments, options written, and
foreign currency transactions (.01) -- -- (.06) (.29) (.19) (.01) (.01)
-------- -------- -------- ------- ------- ------- ------- ------
Total dividends and distributions
to shareholders (.45) (.42) (.43) (.58) (.77) (.59) (.27) (.13)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.05 $11.63 $11.22 $10.19 $10.67 $9.78 $ 8.89 $13.05
-------- -------- -------- ------- ------- ------- ------- ------
-------- -------- -------- ------- ------- ------- ------- ------
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 16.30% 7.54% 14.67% .93% 18.21% 15.88% (8.60)% 2.51%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $277,914 $266,713 $276,800 $83,292 $81,194 $51,602 $32,718 $396
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $272,303 $269,096 $192,870 $82,490 $68,134 $40,662 $31,407 $194
- -------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end
of period (in thousands) 21,302 22,938 24,666 8,171 7,611 5,275 3,679 30
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.58% 3.41% 3.78% 5.14% 4.71% 4.30% 3.84%(5) 2.19%(5)
Expenses 1.14% 1.17% 1.27% 1.36% 1.47% 1.50% 1.60%(5) 2.50%(5)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 32.7% 60.3% 102.0% 71.3% 60.2% 185.5% 83.7% 32.7%
<FN>
(1) For the period from December 1, 1993 (inception of offering) to
December 31, 1993.
(2) For the period from April 24, 1987 (commencement of operations) to
December 31, 1987.
(3) Per share amounts calculated based on the weighted average number of shares
outstanding during the year.
(4) Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(5) Annualized.
(6) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-
term securities) for the year ended December 31, 1993 were $87,719,113 and
$122,411,907, respectively.
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks a high total investment return, which includes
current income as well as capital appreciation in the value of its shares.
Investment Policies and Strategies. The Fund seeks its investment
objective by investing in:
- Equity securities, including common stocks, preferred stocks,
convertible securities and warrants;
- Debt securities, including corporate bonds and notes, and
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (U.S. Government Securities);
- Money market instruments, including U.S. Treasury Bills (which
have maturities of one year or less) and short-term debt obligations,
payable in U.S. dollars, issued by certain banks, savings and loan
associations and corporations, as described below; and
- Hedging instruments, including the put and call options, Futures
and options on Futures described below.
There is no minimum or maximum percentage of the Fund's total assets
that must, at any given time, be invested in any one or more of the types
of investments identified above. Consistent with the Fund's investment
objective of a high total investment return, the Manager will allocate the
Fund's portfolio from time to time among these types of investments based
upon many factors, including the Manager's evaluation of general economic
and market conditions in the U.S. and abroad and the potential total
return of such investments. For example, if the investment climate is
viewed as favorable, equity securities may be more heavily emphasized.
When market conditions are unstable, the Fund may invest substantial
amounts of its assets in debt securities, with an emphasis on money market
instruments, or cash and cash equivalents. The Fund may try to hedge
against losses in the value of its portfolio of securities by using
hedging strategies described below.
The Fund's investment strategies are described in greater detail
below and also in the Statement of Additional Information under the same
headings. The amount of dividends and distributions the Fund may pay will
fluctuate depending on the types of securities the Fund holds. The Fund
is not intended for investors whose principal objective is assured income
and conservation of capital. Since market risks are inherent in all
securities to varying degrees, assurance cannot be given that the Fund's
investment objective will be met and when you redeem your shares, they may
be worth more or less than what you paid for them.
- Interest Rate and Credit Risks. Debt securities are subject
to changes in value due to changes in prevailing interest rates. The
value of debt securities will tend to rise when interest rates fall and
to fall when interest rates rise. Debt securities are also subject to
credit risks. Credit risk relates to the ability of the issuer of a debt
security to make interest or principal payments on the security as they
become due. The Manager does not rely solely on the ratings of rated
securities in making investment decisions but evaluates other economic and
business factors affecting the issuer as well.
- Special Risks - High Yield Securities. The Fund is permitted
to invest without restriction in high-yield, lower rated securities and,
accordingly, an investment in the Fund could be considered speculative.
The Fund may invest in bonds and debentures rated as low as "C" or "D" by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation
(S&P). Bonds and debentures rated "D" are in default. The primary
advantage of these high yield, lower-rated securities is their attractive
investment return. However, high yield securities, whether rated or
unrated, have speculative characteristics and may be subject to greater
market fluctuations and risk of loss of income and principal than lower
yielding, higher rated fixed-income securities. See the Statement of
Additional Information for a discussion of the special considerations
associated with investing in high yield securities and for a description
of the ratings thereof.
- Other Investment Risks. In addition to current income, the
Fund seeks capital appreciation in the value of its shares. An investment
in the Fund would be designed for those who are investing for the long-
term and who are willing to accept greater risks of loss of their capital
in the hope of achieving capital appreciation. Investing for capital
appreciation entails the risk of loss of all or part of your principal.
- Can the Fund's Investment Objective and Policies Change? The
Fund has an investment objective, which is described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those policies. The Fund's investment policies and
practices are not "fundamental" unless the Prospectus or Statement of
Additional Information says that a particular policy is "fundamental."
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act of 1940, as amended,
to be a particular level of vote by outstanding voting shares (and this
term is explained in the Statement of Additional Information). The Fund's
investment objective is a fundamental policy. The Fund's Board of
Trustees may change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this
Prospectus.
- Portfolio Turnover. A change in the securities held by the
Fund is known as "portfolio turnover." Generally, the Fund will not trade
in securities for short-term profits. However, when circumstances
warrant, to take advantage of differences in securities prices and yields
or of fluctuations in interest rates consistent with its investment
objective, the Fund may sell securities without regard to the length of
time held. High portfolio turnover and short-term trading involve greater
transaction costs from brokerage commissions and dealer mark-ups.
Additionally, high portfolio turnover may result in increased short-term
capital gains and affect the ability of the Fund to qualify for tax
deductions for payments made to shareholders as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended. The Fund
qualified in its last fiscal year and intends to do so in the coming year,
although it reserves the right not to qualify.
Domestic Equity Securities. The Fund may invest in equity securities
issued by domestic corporations in any industry (i.e., industrial,
financial or utility). These investments may include common stocks,
preferred stocks, convertible securities and warrants. The Fund's
investment in common and preferred stocks will emphasize issues that are
listed on a U.S. securities exchange or quoted on the automated quotation
system of the National Association of Securities Dealers, Inc. (NASDAQ).
Although the Fund may invest in securities of small, unseasoned companies,
it does not currently intend that its investments in the current year in
securities of companies (including predecessors) that have operated less
than three years will exceed 5% of its total assets.
Domestic Debt Securities. The Fund has no limitations on the maturity,
capitalization of the issuer or credit rating of the domestic debt
securities in which it invests. The Fund may invest in any debt
securities, including bonds, debentures, notes, participation interests,
asset-backed securities and zero coupon securities, issued by domestic
corporations in any industry.
The Fund may also invest in U.S. Government Securities. Certain
of these obligations, including U.S. Treasury notes and bonds, and
mortgage-backed securities guaranteed by the Government National Mortgage
Association (Ginnie Maes) are supported by the full faith and credit of
the U.S. government. Other mortgage-related U.S. Government Securities the
Fund invests in that are issued or guaranteed by federal agencies or
government-sponsored entities are not supported by the full faith and
credit of the U.S. government. Those securities include obligations
supported by the right of the issuer to borrow from the U.S. Treasury,
such as obligations of Federal Home Loan Mortgage Corporation (Freddie
Macs) and obligations supported only by the credit of the instrumentality,
such as Federal National Mortgage Association (Fannie Maes). Other U.S.
Government Securities the Fund may invest in include zero coupon U.S.
Treasury securities and money market instruments.
- Participation Interests. Participation interests are interests
in fully-secured loans made to U.S. (or foreign) companies by banks that
sell or assign the interests to investors. The Fund's investment in
participation interests are subject to its restrictions on investing in
"Illiquid and Restricted Securities," described below. There are other
limits on the Fund's investments in these interests and certain risks of
investing in them if the borrowers under the loans fail to pay interest
or principal on the loans on time, as described in the Statement of
Additional Information.
- Asset-Backed Securities. Asset-backed securities are
fractional interests in pools of consumer loans and other trade
receivables, similar to mortgage-backed securities described below. They
are issued by trusts and special purpose corporations. They are backed
by a pool of assets, such as credit card or auto loan receivables, which
are the obligations of a number of different parties. The income from the
underlying pool is passed through to holders, such as the Fund. These
securities are frequently supported by a credit enhancement, such as a
letter of credit, a guarantee or a preference right. However, the extent
of the credit enhancement may be different for different securities and
generally applies to only a fraction of the security's value. These
securities present special risks. For example, in the case of credit card
receivables, the issuer of the security may have no security interest in
the related collateral.
- Mortgage-Backed Securities and CMOs. The Fund's investments
may include securities which represent participation interests in pools
of residential mortgage loans, including collateralized mortgage-backed
obligations (CMOs), which may be issued or guaranteed by (i) agencies or
instrumentalities of the U.S. Government (e.g., Ginnie Maes, Freddie Macs
and Fannie Maes), or (ii) private issuers (i.e., commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers). Certain mortgage-backed
securities "pass-through" to investors the interest and principal payments
generated by a pool of mortgages assembled for sale by government agencies
and private issuers. Pass-through mortgage-backed securities entail the
risk that principal may be repaid at any time because of prepayments on
the underlying mortgages. That may result in greater price and yield
volatility than traditional fixed-income securities that have a fixed
maturity and interest rate. Mortgage-backed securities created by private
issuers may be supported by various forms of insurance or guarantees,
although there can be no assurance that private issuers will be able to
meet their obligations.
The Fund may also invest in CMOs, which generally are obligations
fully collateralized by a portfolio of mortgages or mortgage-related
securities. Payment of the interest and principal generated by the pool
of mortgages is passed through to the holders as the payments are
received. CMOs are issued with a variety of classes or series which have
different maturities. Certain CMOs may be more volatile and less liquid
than other types of mortgage-related securities, because of the
possibility of the prepayment of principal due to prepayments on the
underlying mortgage loans.
The Fund may also enter into "forward roll" transactions with
banks with respect to the mortgage-related securities in which it can
invest. These require the Fund to secure its obligation in the transaction
by segregating assets with its custodian bank equal in amount to its
obligation under the roll. As new types of mortgage-related securities
are developed and offered to investors, the Manager will, subject to the
direction of the Fund's Board of Trustees and consistent with the Fund's
investment objective and policies, consider making investment in such new
types of mortgage-related securities.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or by private issuers. Zero coupon
U.S. Treasury securities generally are U.S. Treasury notes or bonds that
have been "stripped" of their interest coupons, U.S. Treasury bills issued
without interest coupons, or certificates representing an interest in the
stripped securities. A zero coupon Treasury security pays no current
interest and trades at a deep discount from its face value and will be
subject to greater market fluctuations from changes in interest rates than
interest-paying securities. The Fund accrues interest on its holdings
without receiving the actual cash. As a result, the Fund may be forced to
sell portfolio securities to pay cash dividends or meet redemptions. Zero
coupon corporate securities are similar to U.S. Government zero coupon
securities but are issued by companies. They have an additional risk that
the issuing company may fail to pay interest or repay the principal on the
obligation.
- Derivative Investments. The Fund can invest in a number of
different kinds of "derivative securities." In general, a "derivative
security" is a specially designed investment whose performance is linked
to the performance of another security or investment, such as an option,
future or index. The risks of investing in derivative securities include
not only the ability of the company issuing the security to pay the amount
due on the maturity of the security, but also the risk that the underlying
security or investment might not perform the way the Manager expected it
to perform. That can mean that the Fund will realize less income than
expected, or none. Examples of derivative securities the Fund may invest
in include, among others, "index-linked" notes. These are debt securities
of companies that call for payment on the maturity of the note in
different terms than the typical note where the borrower agrees to pay a
fixed sum on the maturity of the note. The payment on maturity of an
index-linked note depends on the performance of one or more market
indices, such as the S & P 500 Index. Other examples of derivative
securities the Fund may invest in include "debt exchangeable for common
stock" of an issuer or "equity-linked debt securities" of an issuer. At
maturity, the principal amount of the debt security is exchanged for
common stock of an issuer or is payable in an amount based on the issuer's
common stock price at the time of maturity. In either case there is a
risk that the amount payable at maturity will be less than the principal
amount of the debt.
Foreign Equity and Debt Securities. The Fund may invest without limit in
equity and debt securities issued by foreign companies and debt securities
issued by foreign governments, which foreign securities are listed on a
foreign securities exchange or are traded in the foreign over-the-counter
markets. Securities of foreign issuers (i) represented by American
Depositary Receipts, (ii) traded in the U.S. over-the-counter markets, or
(iii) listed on a U.S. securities exchange are not considered to be
foreign securities because they are not subject to many of the special
considerations and risks (discussed below) that apply to investments in
foreign securities traded and held abroad. The Fund may purchase foreign
securities issued by companies engaged in mining gold and other precious
metals, as well as securities issued by issuers in any country, developed
or underdeveloped. With respect to the Fund's portfolio investments held
abroad, the countries in which such investments may be held and the sub-
custodians holding them must be, in most cases, approved by the Fund's
Board of Trustees under applicable rules of the Securities and Exchange
Commission.
- Risks of Foreign Securities. Investing in foreign securities,
especially those issued in underdeveloped countries, generally involves
special risks. For example, foreign issuers are not subject to the same
accounting and disclosure requirements that U.S. companies are subject to.
The value of foreign investments may be affected by changes in foreign
currency rates, exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement
of transactions, changes in governmental economic or monetary policy in
the U.S. or abroad, or other political and economic factors. If the Fund
distributes more income during a period than it earns because of
unfavorable currency exchange rates, those dividends may later have to be
considered a return of capital. Some of the foreign debt securities the
Fund may invest in, such as "Brady Bonds," have speculative
characteristics. More information about the risks and potential rewards
of foreign securities is contained in the Statement of Additional
Information.
Money Market Instruments. The Fund may invest in short-term money market
instruments, including short-term certificates of deposit, bankers'
acceptances, commercial paper (including variable amount master demand
notes) and other debt instruments (including bonds) issued by
corporations, including variable and floating rate instruments.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below, which involve
certain risks. The Statement of Additional Information contains more
information about these practices, including limitations designed to
reduce some of the risks.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of the Fund's investments. Investments may be
illiquid because of the absence of an active trading market, making it
difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction
on its resale or which cannot be sold publicly until it is registered
under the Securities Act of 1933, as amended. The Fund will not invest
more than 10% of its net assets in illiquid or restricted securities (that
limit may increase to 15% if certain state laws are changed or the Fund's
shares are no longer sold in those states). Certain restricted
securities, eligible for resale to qualified institutional purchasers, are
not subject to that limit.
- Loans of Portfolio Securities. The Fund may lend its
portfolio securities amounting to not more than 25% of its total assets
to brokers, dealers and other financial institutions, subject to certain
conditions described in the Statement of Additional Information. The Fund
presently does not intend to lend its portfolio securities, but if it
does, the value of securities loaned is not expected to exceed 5% of the
value of its total assets.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. There is no limit on the amount of the Fund's net assets that
may be subject to repurchase agreements of seven days or less. Repurchase
agreements must be fully collateralized. However, if the vendor fails to
pay the re-sale price on the delivery date, the Fund may experience costs
in disposing of the collateral and losses if there is any delay in doing
so.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date.
- Writing Covered Calls. As part of the Fund's investment
objective, the Fund may write (that is, sell) covered call options (calls)
to earn additional income. The Fund may write calls only if certain
conditions are met: (1) after writing any call, no more than 25% of the
Fund's total assets may be subject to calls; (2) the calls must be listed
on a domestic securities exchange or quoted on NASDAQ (in addition, calls
on debt securities may be written in the over-the-counter market); and (3)
each call must be "covered" while it is outstanding; that is, the Fund
must own the securities on which the call is written or it must own other
securities that are acceptable for the escrow arrangements required for
calls. In writing calls there are risks that the Fund may forgo profits
on an increase in the price of the underlying security if the call is
exercised.
- Hedging With Options and Futures Contracts. The Fund may buy
and sell options and futures contracts to try to manage its exposure to
changing interest rates, securities prices and currency exchange rates and
establish a position in the securities market as a temporary substitute
for purchasing particular securities. Some of these strategies, such as
selling futures, buying puts and writing calls, hedge the Fund's portfolio
against price fluctuations. Other hedging strategies, such as buying
futures, writing puts and buying calls, tend to increase the Fund's
exposure to the market. The Fund may invest in interest rate futures,
stock index futures, forward contracts (which may involve "cross-hedging,"
a technique in which the Fund hedges changes in currencies other than the
currency in which the security it holds is denominated) and interest rate
swap transactions. The Fund may purchase call options on equity or debt
securities, broadly-based stock indices, and futures or to effect a
"closing purchase transaction" to terminate its obligation on a call it
previously wrote. Put options purchased by the Fund must relate to
securities held by it or futures or broadly-based stock indices. The Fund
may also purchase and write puts and calls on foreign currencies. All of
these are referred to as "hedging instruments."
A call or put may not be purchased if the value of all of the
Fund's call and put options would exceed 5% of the value of the Fund's
total assets. Writing puts requires the segregation of liquid assets to
cover the put. The Fund will not write a put if it will require more than
50% of the Fund's net assets to be segregated to cover the put obligation.
The Fund does not use covered calls and hedging instruments for
speculative purposes.
Hedging instruments can be volatile investments and may involve
special risks. If the Manager uses a hedging instrument at the wrong time
or judges market conditions incorrectly, hedging strategies may reduce the
Fund's return. The Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other
investments or if it could not close out a position because of an illiquid
market for the future or option.
Options trading involves the payment of premiums and has special
tax effects on the Fund. There are also special risks in particular
hedging strategies. For example, in writing puts, there is a risk that
the Fund may be required to buy the underlying security at a
disadvantageous price. The use of forward contracts may reduce the gain
that would otherwise result from a change in the relationship between the
U.S. dollar and a foreign currency. To limit its exposure in foreign
currency exchange contracts, the Fund limits its exposure to the amount
of its assets denominated in the foreign currency. Interest rate swaps
are subject to credit risks (if the other party fails to meet its
obligations) and also to interest rate risks, because the Fund could be
obligated to pay more under its swap agreements than it receives under
them, as a result of interest rate changes. Cross-hedging entails a risk
of loss on both the value of the security that is the basis of the hedge
and the currency contract that was used in the hedge. These risks and the
hedging strategies the Fund may use are described in greater detail in the
Statement of Additional Information.
- Short Sales Against-the-Box. The Fund may not sell securities
short (that is, sell securities it does not own) except in transactions
referred to as "short sales against-the-box." In such transactions, while
the short position is open, the Fund must own an equal amount of such
securities, or by virtue of ownership of securities have the right,
without additional payment, to obtain an equal amount of the securities
sold short. No more than 15% of the Fund's net assets will be held as
collateral for such short sales at any one time.
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies.
Under these fundamental policies, the Fund cannot do any of the
following: (i) invest in securities (except U.S. Government Securities)
of any issuer if immediately thereafter, either (a) more than 5% of the
Fund's total assets would be invested in securities of that issuer, or (b)
the Fund would then own more than 10% of that issuer's voting securities;
(ii) lend money except in connection with the acquisition of debt
securities which the Fund's investment policies and restrictions permit
it to purchase; the Fund may also make loans of portfolio securities
subject to the restrictions stated under "Loans of Portfolio Securities";
(iii) borrow money in excess of 5% of the value of its total assets; it
may borrow only as a temporary measure for extraordinary or emergency
purposes; or mortgage, pledge or hypothecate any of its assets to secure
a debt (the escrow or other collateral arrangements in connection with
hedging instruments are not considered to involve such a mortgage,
hypothecation or pledge); (iv) invest more than 5% of the value of its
total assets in warrants nor more than 2% of such value in warrants which
are not listed on the New York or American Stock Exchanges; warrants
attached to other securities are not subject to this restriction; or (v)
invest in commodities or commodity contracts; however, the Fund may buy
and sell hedging instruments permitted by any of its other fundamental
policies. In addition, the Fund may not concentrate investments in any
particular industry. Therefore, the Fund will not purchase the securities
of companies in any one industry if thereafter more than 25% of the value
of the Fund's total assets would consist of companies in that industry.
However, that limitation does not apply to U.S. Government Securities.
All of the percentage restrictions described above and elsewhere
in this Prospectus (other than the percentage limits that apply to
borrowing, described in the Statement of Additional Information) above,
apply only at the time the Fund purchases a security, and the Fund need
not dispose of a security merely because the Fund's assets have changed
or the security has increased in value relative to the size of the Fund.
There are other fundamental policies discussed in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized as a Massachusetts
business trust on April 24, 1987 as the result of the combination of three
series of Oppenheimer Retirement Fund into a single fund, and its name was
changed to "Oppenheimer Asset Allocation Fund." The Fund is an open-end,
diversified management investment company, with an unlimited number of
authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible
for protecting the interests of shareholders under Massachusetts law. The
Trustees periodically meet throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and provides more information about them
and the officers of the Fund. Although the Fund is not required by law
to hold annual meetings, it may hold shareholder meetings from time to
time on important matters, and shareholders have the right to call a
meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into two or more classes,
each having its own dividends, distributions and expenses. Each class may
have a different net asset value. The Board has done so, and the Fund
currently has two classes of shares, Class A and Class C. Each share has
one vote at shareholder meetings, with fractional shares voting
proportionally. Only shares of a class vote together on matters that
affect that class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager, which
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
Board of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities and its fees, and describes the expenses that
the Fund pays to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $27 billion as
of December 31, 1993, and with more than 1.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company.
- Portfolio Managers. The Portfolio Managers of the Fund (who
are also Vice Presidents of the Fund) are David Negri and Richard
Rubinstein. Each is a Vice President of the Manager. Messrs. Negri and
Rubinstein have been responsible for the day-to-day management of the
Fund's portfolio since July 1989 and April 1991, respectively. They each
serve as officers and portfolio managers of other OppenheimerFunds.
Before joining the Manager, Mr. Rubinstein had served as a Vice President
and Portfolio Manager/Security Analyst for Oppenheimer Capital Corp., an
investment adviser.
- Fees and Expenses. Under the Investment Advisory Agreement,
the Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 1.00% of the first $50 million of
aggregate net assets, 0.75% of the next $150 million of aggregate net
assets, 0.70% of the next $200 million of aggregate net assets, 0.65% of
the next $200 million of aggregate net assets, and 0.60% of aggregate net
assets in excess of $600 million. The Manager has voluntarily agreed to
reduce its effective management fee rate so that it will not exceed the
following: 0.75% of the first $200 million of average annual net assets;
0.72% of the next $200 million; 0.69% of the next $200 million; 0.66% of
the next $200 million; and 0.60% of average annual net assets in excess
of $800 million. The Fund's management fee for Class A shares for its
last fiscal year was 0.78% of average annual net assets for Class A shares
and its management fee for Class C shares for the fiscal period ended
December 31, 1993 was 0.78% of average annual net assets for Class C
shares, which rates may be higher than the rates paid by some other mutual
funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses affect the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the Investment Advisory
Agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers
are selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the Investment Advisory
Agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers
and brokers that have a sales agreement with Oppenheimer Funds
Distributor, Inc., a subsidiary of the Manager that acts as the
Distributor. The Distributor also distributes the shares of other mutual
funds managed by the Manager (the OppenheimerFunds) and is sub-distributor
for funds managed by a subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries about their
accounts to the Transfer Agent at the address and toll-free numbers shown
below in this Prospectus or on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses certain terms to
illustrate its "total return" and "average annual total return." These
terms are used to show the performance of each class of shares separately,
because the performance of each class of shares will usually be
different,
as a result of the different kinds of expenses each class bears. This
performance information may be useful to help you see how well your
investment has done and to compare it to other funds or market indices,
as we have done below.
It is important to understand that the Fund's total returns
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns are
calculated is contained in the Statement of Additional Information, which
also contains information about other ways to measure and compare the
Fund's performance. The Fund's investment performance will vary, depending
on market conditions, the composition of the portfolio, expenses and which
class of shares you purchase.
- Total Returns. There are different types of "total returns"
used to measure the Fund's performance. Total return is the change in
value of a hypothetical investment in the Fund over a given period,
assuming that all dividends and capital gains distributions are reinvested
in additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they reflect
the payment of the maximum initial sales charge. Total returns may also
be quoted "at net asset value," without considering the effect of the
sales charge, and those returns would be reduced if sales charges were
deducted. When total returns are shown for a one-year period for Class C
shares, they reflect the effect of the contingent deferred sales charge.
They may also be shown based on the change in net asset value, without
considering the effect of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended December 31, 1993,
followed by a graphical comparison of the Fund's performance to two
appropriate broad-based market indices.
- Management's Discussion of Performance. During the Fund's
past fiscal year, prevailing interest rates in the U.S. continued to
decline and the U.S. economy continued to grow at a slow rate. Because
interest rates available on fixed-income securities were relatively low,
the Manager emphasized investment in higher-yielding, lower-rated
corporate bonds and foreign fixed-income securities to seek high current
income for the Fund. The Fund expanded its investment in foreign markets,
including the Pacific Rim. That market diversification represented an
attempt to reduce the risk of investing in only one or a few national
markets, and to take advantage of what the Manager perceived to be strong
economic growth possibilities abroad. With respect to the Fund's domestic
equity investments, the Manager sold certain of the Fund's healthcare
holdings and purchased other issues within the sector, and increased the
Fund's holdings of technology stocks, each in an effort to seek capital
appreciation from issues with high growth potential.
- Comparing the Fund's Performance to the Market. The chart
below shows the performance of a hypothetical $10,000 investment in each
class of shares of the Fund held until December 31, 1993; in the case of
Class A shares, from the inception of the Class on April 23, 1987, and in
the case of Class C shares, from the inception of the Class on December
1, 1993, with all dividends and capital gains distributions reinvested in
additional shares. The graph reflects the deduction of the 5.75% maximum
initial sales charge on Class A shares and the 1.0% contingent deferred
sales charge on Class C shares.
Because the Fund invests in a variety of equity and fixed-income
securities, the Fund's performance is compared to the performance of two
market indices: (i) the S&P 500 Index, a broad-based index of equity
securities widely regarded as a general measurement of the performance of
the U.S. equity securities market; and (ii) the Lehman Brothers Aggregate
Bond Index, a broad-based index of U.S. corporate bond issues, U.S.
government securities and mortgage-backed securities, widely regarded as
a measure of the performance of the domestic debt securities market.
Index performance reflects the reinvestment of dividends but does not
consider the effect of capital gains or transaction costs, and none of the
data below shows the effect of taxes. Also, the Fund's performance data
reflects the effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not limited
to the securities in any one index and the index data does not reflect any
assessment of the risk of the investments included in the index.
Oppenheimer Asset Allocation Fund
Comparison of Change in Value
of $10,000 Hypothetical Investment to
the S&P 500 Index and the
Lehman Brothers Aggregate Bond Index
(Graph)
Past performance is not predictive of future performance.
Oppenheimer Asset Allocation Fund
Average Annual Total Return of Class A shares at 12/31/93
Cumulative Total Return of Class C shares at 12/31/93
1 Year 5 Years Life of Class
Class A: 9.61% 10.03% 8.33% (from 4/24/87)
Class C*: N/A N/A 1.51% (from 12/01/93)
- -------------------------
*Reflects Cumulative Total Return for period from inception of the class
(12/1/93) and is not annualized.
ABOUT YOUR ACCOUNT
How to Buy Shares
Class of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, and you sell any of those shares within 18
months after your purchase, you will pay a contingent deferred sales
charge, which will vary depending on the amount you invested.
- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred sales
charge of 1.0%.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisers.
- How Much Do You Plan to Invest? If you plan to invest a
substantial amount, the reduced sales charges available for larger
purchases of Class A shares may be more beneficial to you, and for
purchases over $1 million, the contingent deferred sales charge on Class
A shares may be more beneficial. The Distributor will not accept any
order for $1 million or more for Class C shares on behalf of a single
investor for that reason.
- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, investors who prefer
not to pay an initial sales charge and who plan to hold their shares for
more than one year might consider Class C shares. Investors who plan to
redeem shares within a year might consider whether the front-end sales
charge on Class A shares would result in high net expenses after
redemption.
- Are There Differences in Account Features That Matter to You?
Because some account features may not be available for Class C
shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares is better for
you. Additionally, the dividends payable to Class C shareholders will be
reduced by the additional expenses borne solely by that class, such as the
asset-based sales charge to which Class C shares are subject, as described
below and in the Statement of Additional Information.
- How Does it Affect Payments to My Broker? A salesperson or
any other person who is entitled to receive compensation for selling Fund
shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the contingent deferred sales charge and asset-based sales
charge for Class C shares is the same as the purpose of the front-end
sales charge on sales of Class A shares.
- How Much Must You Invest? You can open a Fund account with
a minimum initial investment of $1,000 and make additional investments at
any time with as little as $25. There are reduced minimum investments
under special investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments for as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other OppenheimerFunds
(a list of them appears in the Statement of Additional Information, or you
can ask your dealer or call the Transfer Agent), or by reinvesting
distributions from unit investment trusts that have made arrangements with
the Distributor.
- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure to
specify Class A or Class C shares. If you do not choose, your investment
will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the Application,
the Distributor will act as your agent in buying the shares.
- Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S. bank
or other financial institution that is an Automated Clearing House (ACH)
member, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions. Shares
are purchased for your account on the regular business day the Distributor
is instructed by you to initiate the ACH transfer to buy shares. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You must request AccountLink privileges
on the application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink" below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and
up to four other OppenheimerFunds) automatically each month from your
account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are on the Application and in the Statement
of Additional Information.
- At What Price are Shares Sold? Shares are sold at the public
offering price based on the net asset value that is next determined after
the Distributor receives the purchase order in Denver. In most cases, to
receive that day's offering price, the Distributor must receive your order
by 4:00 P.M., New York time (all references to time in this Prospectus
mean "New York time"). The net asset value of each class of shares is
determined as of that time on each day The New York Stock Exchange is open
(which is a "regular business day"). If you buy shares through a dealer,
the dealer must receive your order by 4:00 P.M. on a regular business day
and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
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, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. When you
invest, the Fund receives the net asset value for your account. The sales
charge varies depending on the amount of your purchase and a portion may
be retained by the Distributor and allocated to your dealer. The current
sales charge rates and commissions paid to dealers and brokers are as
follows:
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
Front-End Sales Charge Commission as
As a Percentage of: Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Less than $25,000 5.75% 6.10% 4.75%
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
_______________________________________________________________________
</TABLE>
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. However, that
commission will be paid only on the amount of those purchases in excess
of $1 million that were not previously subject to a front-end sales charge
and dealer commission.
If you redeem any of those shares within 18 months of the end of
the calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge. In determining whether a contingent
deferred sales charge is payable, the Fund will first redeem shares that
are not subject to the sales charge, including shares purchased by
reinvestment of dividends and capital gains, and then will redeem other
shares in the order that you purchased them. The Class A contingent
deferred sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's Exchange Privilege (described below).
However, if the shares acquired by exchange are redeemed within 18 months
of the end of the calendar month of the purchase of the exchanged shares,
the sales charge will apply.
- Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have established
special arrangements with the Distributor for Asset Builder Plans for
their clients. From time to time, the Distributor may make special
arrangements with dealers and make additional payments if the dealer meets
specified sales criteria and other requirements. Dealers whose sales of
Class A shares of OppenheimerFunds (other than money market funds) under
OppenheimerFunds-sponsored 403(b)(7) custodial plans exceed $5 million per
year (calculated per quarter), will receive monthly one-half of the
Distributor's retained commissions on those sales, and if those sales
exceed $10 million per year, those dealers will receive the Distributor's
entire retained commission on those sales. The Distributor sponsors an
annual sales conference to which a dealer firm is eligible to send, with
a guest, a registered representative who sells more than $2.5 million of
Class A shares of OppenheimerFunds (other than money market funds) in a
calendar year, or the dealer may, at its option, receive the equivalent
cash value of that award as additional commission.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. You and your spouse can cumulate Class
A shares you purchase for your own accounts, or jointly, or on behalf of
your children who are minors, under trust or custodial accounts. A
fiduciary can cumulate shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can cumulate current purchases of Class A
shares of the Fund and other OppenheimerFunds with Class A shares of
OppenheimerFunds you previously purchased subject to a sales charge,
provided that you still hold your investment in one of the
OppenheimerFunds; the value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the aggregate
amount of the intended purchases, including purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
- Waivers of Class A Sales Charges. No sales charge is imposed
on sales of Class A shares to the following investors: (1) the Manager
or its affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) 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; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products
made available to their clients.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than the Cash Reserves Funds) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge is also waived if
shares are redeemed in the following cases: (1) retirement distributions
or loans to participants or beneficiaries from qualified retirement plans,
deferred compensation plans or other employee benefit plans ("Retirement
Plans"), (2) returns of excess contributions made to Retirement Plans, (3)
Automatic Withdrawal Plan payments that are limited to no more than 12%
of the original account value annually, and (4) involuntary redemptions
of shares by operation of law or under the procedures set forth in the
Fund's Declaration of Trust or adopted by the Board of Trustees.
- Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a portion
of its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares that were purchased on
or after April 1, 1988. Reimbursement is made quarterly at an annual rate
that may not exceed 0.25% of the average annual net assets of Class A
shares of the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly for
providing personal service and maintenance of accounts of their customers
that hold such Class A shares and to reimburse itself (if the Fund's Board
of Trustees authorizes such reimbursements, which it has not yet done) for
its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares purchased
on or after April 1, 1988 held in accounts of the dealer or its customers.
The payments under the Plan increase the annual expenses of Class A
shares. For more details, please refer to "Distribution and Service Plans"
in the Statement of Additional Information.
Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of
1.0% will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser of
the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies
to a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 12 months, and (3) shares held the
longest during the 12-month period.
- Waivers of Class C Sales Charge. The Class C contingent
deferred sales charge will be waived if the shareholder requests it for
any of the following redemptions: (1) distributions to participants or
beneficiaries from Retirement Plans, if the distributions are made (a)
under an Automatic Withdrawal Plan after the participant reaches age 59-
1/2, as long as the payments are no more than 10% of the account value
annually (measured from the date the Transfer Agent receives the request),
or (b) following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary; (2) redemptions from
accounts other than Retirement Plans following the death or disability of
the shareholder (you must provide evidence of a determination of
disability by the Social Security Administration), and (3) returns of
excess contributions to Retirement Plans.
The contingent deferred sales charge is also waived on Class C
shares in the following cases: (i) shares sold to the Manager or its
affiliates; (ii) 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; (iii) shares issued in plans
of reorganization to which the Fund is a party; and (iv) shares redeemed
in involuntary redemptions as described above. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
- Distribution and Service Plan for Class C Shares. The Fund
has adopted a Distribution and Service Plan for Class C shares to
compensate the Distributor for its services and costs in distributing
Class C shares and servicing accounts. Under the Plan, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% per year on
Class C shares. The Distributor also receives a service fee of 0.25% per
year. Both fees are computed on the average annual net assets of Class
C shares, determined as of the close of each regular business day. The
asset-based sales charge allows investors to buy Class C shares without
a front-end sales charge while allowing the Distributor to compensate
dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class C expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance
for the first year after Class C shares have been sold by the dealer.
After the shares have been held for a year, the Distributor pays the fee
on a quarterly basis. The Distributor pays sales commissions of 0.75% of
the purchase price to dealers from its own resources at the time of sale.
The Distributor retains the asset-based sales charge during the first year
shares are outstanding to recoup the sales commissions it pays, the
advances of service fee payments it makes, and its financing costs. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
Because the Distributor's actual expenses in selling Class C
shares may be more than the payments it receives from contingent deferred
sales charges collected on redeemed shares and from the Fund under the
Distribution and Service plan for Class C shares, those expenses may be
carried over and paid in future years. If the Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for certain expenses it
incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions, including purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you
use to buy shares, or on your dealer's settlement instructions if you buy
your shares through your dealer. After your account is established, you
can request AccountLink privileges on signature-guaranteed instructions
to the Transfer Agent. AccountLink privileges will apply to each
shareholder listed in the registration on your account as well as to your
dealer representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically by phone
from your Fund account to another OppenheimerFunds account you have
already established by calling the special PhoneLink number. Please refer
to "How To Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will send the
proceeds directly to your AccountLink bank account. Please refer to "How
to Sell Shares," below for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent
to exchange an amount you establish in advance automatically for shares
of up to five other OppenheimerFunds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each other OppenheimerFunds account is $25. These exchanges are
subject to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying a
sales charge. This privilege applies to Class A shares that you sell, and
Class C shares on which you paid a contingent deferred sales charge when
you redeemed them. You must be sure to ask the Distributor for this
privilege when you send your payment. Please consult the Statement of
Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs and SAR-SEPs (Simplified Employee Pension Plans) for
small business owners or people with income from self-employment
- Pension and Profit-Sharing Plans for self-employed persons and
small business owners
Please call the Distributor for the OppenheimerFunds plan
documents, which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a Withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional Information.
- - Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, certain redemption requests must be in writing and must
include a signature guarantee in the following situations (there may be
other situations also requiring a signature guarantee):
- - You wish to redeem more than $50,000 worth of shares and receive a check
- - The check is not payable to all shareholders listed on the account
statement
- - The check is not sent to the address of record on your statement
- - Shares are being transferred to a Fund account with a different owner
or name
- - Shares are redeemed by someone other than the owners (such as an
Executor)
- - Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If you
are signing as a fiduciary or on behalf of a corporation, partnership or
other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- - Your name
- - The Fund's name
- - Your Fund account number (from your statement)
- - The dollar amount or number of shares to be redeemed
- - Any special payment instructions
- - Any share certificates for the shares you are selling, and
- - Any special requirements or documents requested by the Transfer Agent
to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by 4:00 P.M. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
- To redeem shares through a service representative, call 1-800-
852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the
address on the account, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that
account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, once in each 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. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no
dollar limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH wire to your
bank is initiated on the business day after the redemption. You do not
receive dividends on the proceeds of the shares you redeemed while they
are waiting to be wired.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges between already established
accounts on PhoneLink described below. To exchange shares, you must meet
several conditions:
- - Shares of the fund selected for exchange must be available for sale in
your state of residence
- - The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege
- - You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares every regular business day
- - You must meet the minimum purchase requirements for the fund you
purchase by exchange
- - Before exchanging into a fund, you should obtain and read its prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. In some
cases, sales charges may be imposed on exchange transactions. Certain
OppenheimerFunds offer Class A shares and either Class B or Class C
shares, and a list can be obtained by calling the Distributor at 1-800-
525-7048. Please refer to "How to Exchange Shares" in the Statement of
Additional Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can obtain a list of eligible OppenheimerFunds in the Statement
of Additional Information or by calling the Transfer Agent at 1-800-525-
7048. Exchanges of shares involve a redemption of the shares of the fund
you own and a purchase of shares of the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request by 4:00 P.M. that
is in proper form, but either fund may delay the purchase of shares of the
fund you are exchanging into if it determines it would be disadvantaged
by a same-day transfer of the proceeds to buy shares. For example, the
receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might require the disposition of securities at a time or price
disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of 4:00 P.M. each day The New York Stock Exchange is open by dividing
the value of the Fund's net assets attributable to a class by the number
of shares of that class that are outstanding. The Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities, short-term obligations for which market values
cannot be readily obtained, and call options and hedging instruments.
These procedures are described more completely in the Statement of
Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise it will not be liable for losses or expenses
arising out of telephone instructions reasonably believed to be genuine.
If you are unable to reach the Transfer Agent during periods of unusual
market activity, you may not be able to complete a telephone transaction
and should consider placing your order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A and Class C shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. 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 15 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to the Statement of
Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or taxpayer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A and Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report and
updated prospectus to shareholders having the same address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-800-
525-7048 to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
C shares quarterly, payable on or about the 29th of March, June, September
and December or such other date selected by the Fund's Board of Trustees.
In addition, distributions may be made annually in December from any net
short-term or long-term capital gains realized from the sale of
securities, premiums from expired options written by the Fund and net
profits from hedging transactions, realized in the 12 months ending on
October 31 of that year. It is expected that distributions paid with
respect to Class A shares will generally be higher than for Class C shares
because expenses allocable to Class C shares will generally be higher.
There is 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
amount of a class's dividends or distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio
and expenses borne by that class.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of the
year. Short-term capital gains are treated as dividends for tax purposes.
There can be no assurances that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
- Reinvest Capital Gains Only. You can elect to reinvest long-term
capital gains in the Fund while receiving dividends by check or sent to
your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a check
for all dividends and long-term capital gains distributions or have them
sent to your bank on AccountLink.
- Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. Dividends paid from short-term capital gains
and net investment income are taxable as ordinary income. Distributions
are subject to federal income tax and may be subject to state or local
taxes. Your distributions are taxable when paid, whether you reinvest
them in additional shares or take them in cash. Every year the Fund will
send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares on
or just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. A capital gain or loss
is the difference between the price you paid for the shares and the price
you received when you sold them.
- Returns of Capital: In certain cases if 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 tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
APPENDIX A TO PROSPECTUS OF
OPPENHEIMER ASSET ALLOCATION FUND
Graphic material included in Prospectus of Oppenheimer Asset
Allocation Fund: "Comparison of Total Return of Oppenheimer Asset
Allocation Fund with S&P 500 Index and The Lehman Brothers Aggregate Bond
Index - Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Asset
Allocation Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in the Fund
during each of the Fund's fiscal periods since the commencement of the
Fund's operations (April 24, 1987) as to Class A shares and the
commencement of the Class (December 1, 1993) as to Class C shares, and
comparing such values with the same investments over the same time periods
with S&P 500 Index and The Lehman Brothers Aggregate Bond Index. Set
forth below are the relevant data points that will appear on the linear
graph. Additional information with respect to the foregoing, including
a description of the S&P 500 Index and The Lehman Brothers Aggregate Bond
Index is set forth in the Prospectus under "How the Fund is Managed - How
Has the Fund Performed?"
<TABLE>
<CAPTION>
Oppenheimer Lehman
Fiscal Year Asset Allocation Brothers Aggregate
(Period) Ended Fund A Bond Index S&P 500 Index
<S> <C> <C> <C>
04/23/87(1) $9,425 $10,000 $10,000
12/31/87 $8,615 $10,343 $8,751
12/31/88 $9,982 $11,159 $10,200
12/31/89 $11,800 $12,780 $13,426
12/31/90 $11,910 $13,926 $13,009
12/31/91 $13,656 $16,154 $16,964
12/31/92 $14,686 $17,349 $18,255
12/31/93 $17,079 $19,041 $20,091
<CAPTION>
Oppenheimer Lehman
Fiscal Year Asset Allocation Brothers Aggregate
(Period) Ended Fund C Bond Index S&P 500 Index
12/01/93(2) $10,000 $10,000 $10,000
12/31/93 $10,151 $10,059 $10,121
</TABLE>
(1) Commencement of Fund's operations.
(2) Commencement of public offering of Class C shares.
<PAGE>
Oppenheimer Asset Allocation Fund
Two World Trade Center
New York, New York 10048
Telephone: 1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Additional Statement, and if given or
made, such information and representations must not be relied upon as
having been authorized by the Fund, Oppenheimer Management Corporation,
Oppenheimer Funds Distributor, Inc. or any affiliate thereof. This
Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any state to any
person to whom it is unlawful to make such an offer in such state.
PR240 (4/94) Printed on recycled paper.
<PAGE>
Prospectus and
New Account Application
OPPENHEIMER
Asset Allocation Fund
Effective April 29, 1994
(OppenheimerFunds Logo)
<PAGE>
Oppenheimer Asset Allocation Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated April 29, 1994
This Statement of Additional Information of Oppenheimer Asset Allocation
Fund is not a Prospectus. This document contains additional information
about the Fund and supplements information in the Prospectus dated April
29, 1994. It should be read together with the Prospectus which may be
obtained by writing to the Fund's Transfer Agent, Oppenheimer Shareholder
Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling the
Transfer Agent at the toll-free number shown above.
CONTENTS
Page
About the Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . 2
Investment Policies and Strategies . . . . . . . . . . . . . . . . 2
Other Investment Techniques and Strategies . . . . . . . . . . . . 9
Other Investment Restrictions. . . . . . . . . . . . . . . . . . .20
How the Fund is Managed . . . . . . . . . . . . . . . . . . . . . . . .21
Organization and History . . . . . . . . . . . . . . . . . . . . .21
Trustees and Officers of the Fund. . . . . . . . . . . . . . . . .21
The Manager and Its Affiliates . . . . . . . . . . . . . . . . . .25
Brokerage Policies of the Fund. . . . . . . . . . . . . . . . . . . . .26
Performance of the Fund . . . . . . . . . . . . . . . . . . . . . . . .28
Distribution and Service Plans. . . . . . . . . . . . . . . . . . . . .30
About Your Account. . . . . . . . . . . . . . . . . . . . . . . . . . .32
How To Buy Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .32
How To Sell Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .38
How To Exchange Shares. . . . . . . . . . . . . . . . . . . . . . . . .41
Dividends, Capital Gains and Taxes. . . . . . . . . . . . . . . . . . .42
Additional Information About the Fund . . . . . . . . . . . . . . . . .44
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . .45
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . .46
Appendix A: Bond Ratings. . . . . . . . . . . . . . . . . . . . . . . .A-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Certain capitalized terms used in this
Statement of Additional Information have the same meaning as those terms
have in the Prospectus.
Investment Risks in Fixed-Income Securities. All fixed-income
securities are subject to two types of risks: credit risk and interest
rate risk. Credit risk relates to the ability of the issuer to meet
interest or principal payments or both as they become due. Generally,
higher yielding bonds are subject to credit risk to a greater extent than
lower yielding, higher quality bonds. Interest rate risk refers to the
fluctuations in value of fixed-income securities resulting solely from the
inverse relationship between price and yield of outstanding fixed-income
securities. An increase in prevailing interest rates will generally
reduce the market value of fixed-income investments, and a decline in
interest rates will tend to increase their value. In addition, debt
securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities. Fluctuations in the market
value of fixed-income securities subsequent to their acquisition will not
affect the interest payable on those securities, and thus the cash income
from such securities, but will be reflected in the valuations of these
securities used to compute the Fund's net asset values.
As stated in the Prospectus, the Fund may invest in fixed-income
securities rated as low as "C" or "D" by Moody's or S&P. High yield
securities, whether rated or unrated, may be subject to greater market
fluctuations and risks of loss of income and principal than lower-
yielding, higher-rated, fixed-income securities. Risks of high yield
securities may include (i) limited liquidity and secondary market support,
(ii) substantial market price volatility resulting from changes in
prevailing interest rates, (iii) subordination to the prior claims of
banks and other senior lenders, (iv) the operation of mandatory sinking
fund or call/redemption provisions during periods of declining interest
rates that could cause the Fund to be able to reinvest premature
redemption proceeds only in lower-yielding portfolio securities, (v) the
possibility that earnings of the issuer may be insufficient to meet its
debt service, and (vi) the issuer's low creditworthiness and potential for
insolvency during periods of rising interest rates and economic downturn.
As a result of the limited liquidity of high yield securities, their
prices have at times experienced significant and rapid decline when a
substantial number of holders decided to sell. A decline is also likely
in the high yield bond market during an economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the
market for high yield bonds and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. In
addition, there have been several Congressional attempts to limit the use
of tax and other advantages of high yield bonds which, if enacted, could
adversely affect the value of these securities and the Fund's net asset
value. For example, federally-insured savings and loan associations have
been required to divest their investments in high yield bonds.
Domestic Equity Securities.
- Small, Unseasoned Companies. The securities of small, unseasoned
companies may have a limited trading market, which may adversely affect
their disposition and can result in their being priced lower than might
otherwise be the case. If other investment companies and investors that
invest in such securities trade the same securities when the Fund attempts
to dispose of its holdings, the Fund might receive lower prices than might
otherwise be obtained because of the thinner market for such securities.
- Preferred Stocks. Preferred stock, unlike common stock, offers
a stated dividend rate payable from the corporation's earnings. Such
preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. If interest rates rise, the fixed
dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity,
a negative feature when interest rates decline. Dividends on some
preferred stock may be "cumulative," requiring all or a portion of prior
unpaid dividends to be paid. Preferred stock also generally has a
preference over common stock on the distribution of a corporation's assets
in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases. The rights of preferred
stocks 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.
Domestic Debt Securities. The Fund may purchase or sell debt securities
(including U.S. Government Securities, discussed below) and money market
instruments without regard to the length of time the security has been
held to take advantage of short-term differentials in yields. While
short-term trading increases the portfolio turnover, the execution cost
for these securities is substantially less than for equivalent dollar
values of equity securities. The Fund will only purchase securities
meeting the requirements, including applicable rating qualifications,
stated in the Prospectus. See Appendix A to this Statement of Additional
Information for a description of the factors considered by the rating
agencies in rating particular securities. General changes in prevailing
interest rates will affect the value of the debt securities and money
market instruments held by the Fund, the value of which will vary
inversely to the changes in such rates. For example, if such rates go up
after a security is purchased, the value of the security would normally
decline.
- U.S. Government Securities. U.S. Government Securities are debt
obligations issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities. The U.S. Government Securities the Fund
can invest in are described in the Prospectus and include U.S. Treasury
securities such as "zero coupon" U.S. Treasury securities, mortgage-backed
securities and CMOs.
- Floating Rate/Variable Rate Notes. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable rates are
adjustable at stated periodic intervals. Floating rates are automatically
adjusted according to a specified market rate for such investments, such
as a percentage of the prime rate of a bank or the 91-day U.S. Treasury
bill rate. Such obligations may be secured by bank letters of credit or
other credit support arrangements.
- Variable Amount Master Demand Notes. Variable amount master
demand notes are obligations that permit the investment of fluctuating
amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund as lender and the corporate borrower. These
notes permit daily changes in the amounts borrowed. The Fund has the
right to increase the amount under the note at any time up to the full
amount provided by the note agreement, or to decrease the amount, and the
borrower may repay up to the full amount of the note at any time without
penalty. Because these notes are direct lending arrangements between the
lender and the borrower, it is not generally contemplated that such
instruments will be traded, and there is no secondary market for these
notes, although they are redeemable and thus immediately repayable by the
borrower at face value, plus accrued interest, at any time. Accordingly,
the Fund's right to redeem is dependent upon the ability of the borrower
to pay principal and interest on demand. In connection with such
investments, earning power, cash flow, and other liquidity ratios of the
issuer will be considered. Master demand notes, as such, are not
typically rated by credit rating agencies. If not so rated, the Fund may
invest in them only if at the time of an investment, the borrower meets
the criteria set forth in the Prospectus for all other commercial paper
issuers. The Manager will continuously monitor the borrower's financial
ability to meet all of its obligations because the Fund's liquidity might
be impaired if the borrower were unable to pay principal and interest on
demand. The Fund does not currently intend that its investments in
variable amount master demand notes in the coming year will exceed 5% of
its total assets.
- Participation Interests. The Fund may invest in participation
interests, subject to the limitation described in "Illiquid and Restricted
Securities" in the Prospectus on investments by the Fund in illiquid
investments. Participation interests represent an undivided interest in
or assignment of a loan made by the issuing financial institution.
Participation interests are primarily dependent upon the financial
strength of the borrowing corporation, which is obligated to make payments
of principal and interest on the loan, and there is a risk that such
borrowers may have difficulty making payments. Such borrowers may have
senior securities rated as low as "C" or "D" by Moody's or S&P. In the
event the borrower fails to pay scheduled interest or principal payments,
the Fund could experience a reduction in its income and might experience
a decline in the net asset value of its shares. In the event of a failure
by the financial institution to perform its obligation in connection with
the participation agreement, the Fund might incur certain costs and delays
in realizing payment or may suffer a loss of principal and/or interest.
The Manager has set certain creditworthiness standards for issuers of loan
participation and monitors their creditworthiness. These same standards
apply to participation interests in loans to foreign companies.
- Asset-Backed Securities. These securities, issued by trusts and
special purpose corporations, are backed by pools of assets, primarily
automobile and credit-card receivables and home equity loans, which pass
through the payments on the underlying obligations to the security holders
(less servicing fees paid to the originator or fees for any credit
enhancement). The value of an asset-backed security is affected by
changes in the market's perception of the asset backing the security, the
creditworthiness of the servicing agent for the loan pool, the originator
of the loans, or the financial institution providing any credit
enhancement, and is also affected if any credit enhancement has been
exhausted. Payments of principal and interest passed through to holders
of asset-backed securities are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee
by another entity or having a priority to certain of the borrower's other
securities. The degree of credit enhancement varies, and generally
applies to only a fraction of the asset-backed security's par value until
exhausted. If the credit enhancement of an asset-backed security held by
the Fund has been exhausted, and if any required payments of principal and
interest are not made with respect to the underlying loans, the Fund may
experience losses or delays in receiving payment. The risks of investing
in asset-backed securities are ultimately dependent upon payment of
consumer loans by the individual borrowers. As a purchaser of an asset-
backed security, the Fund would generally have no recourse to the entity
that originated the loans in the event of default by a borrower. The
underlying loans are subject to prepayments, which shorten the weighted
average life of asset-backed securities and may lower their return, in the
same manner as described above for prepayments of a pool of mortgage loans
underlying mortgage-backed securities. However, asset-backed securities
do not have the benefit of the same security interest in the underlying
collateral as do mortgage backed securities.
- Mortgage-Backed Securities. These securities represent
participation interests in pools of residential mortgage loans that may
or may not be guaranteed by agencies or instrumentalities of the U.S.
Government. Such securities differ from conventional debt securities
which generally provide for periodic payment of interest in fixed or
determinable amounts (usually semi-annually) with principal payments at
maturity or specified call dates. Some of the mortgage-backed securities
in which the Fund may invest may be backed by the full faith and credit
of the U.S. Treasury (e.g., direct pass-through certificates of the GNMA);
some are supported by the right of the issuer to borrow from the U.S.
Government (e.g., obligations of the FHLMC); and some are backed by only
the credit of the issuer itself. Any such guarantees do not extend to the
value or yield of the mortgage-backed securities themselves or to the net
asset value of the Fund's shares. Any of these government agencies may
issue collateralized mortgage-backed obligations ("CMOs"), discussed
below.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life
of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally
result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages. The occurrence of prepayments is
affected by a wide range of economic, demographic and social factors and,
accordingly, it is not possible to predict accurately the average life of
a particular pool. Yield on such pools is usually computed by using the
historical record of prepayments for that pool or, in the case of newly-
issued mortgages, the prepayment history of similar pools. The actual
prepayment experience of a pool of mortgage loans may cause the yield
realized by the Fund to differ from the yield calculated on the basis of
the expected average life of the pool.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates prepayments will most
likely decline. When prevailing interest rates rise, the value of a pass-
through security may decrease as do other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security
is not likely to rise on a comparable basis with other debt securities
because of the prepayment feature of pass-through securities. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments
it receives may occur at higher or lower rates than the original
investment, thus affecting the yield of the Fund. Monthly interest
payments received by the Fund have a compounding effect that may increase
the yield to the Fund more than debt obligations that pay interest semi-
annually. Due to those factors, mortgage-backed securities may be less
effective than Treasury bonds of similar maturity at maintaining yields
during periods of declining interest rates. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of principal amount) and may involve
additional risk of loss of principal because the premium may not have been
fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount. The Fund may
purchase mortgage-backed securities at par, at a premium or at a discount.
- GNMA Certificates. Certificates of the GNMA ("GNMA Certificates")
are mortgage-backed securities which evidence an undivided interest in a
pool or pools of mortgages. The GNMA Certificates that the Fund may
purchase are of the "modified pass-through" type, which entitle the holder
to receive timely payment of all interest and principal payments due on
the mortgage pool, net of fees paid to the "issuer" and the GNMA,
regardless of whether the mortgagor actually makes the payments.
The National Housing Act authorized the GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration (the "FHA") or
guaranteed by the Veterans Administration (the "VA"). The GNMA guarantee
is backed by the full faith and credit of the U.S. Government. The GNMA
is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee, except to the extent that the Fund has purchased the
certificates at a premium in the secondary market.
- FNMA Securities. The Federal National Mortgage Association (the
"FNMA") was established to create a secondary market in mortgages insured
by the FHA. The FNMA issues guaranteed mortgage pass-through certificates
("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in
that each FNMA Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. The FNMA
guarantees timely payment of interest and principal on FNMA Certificates.
The FNMA guarantee is not backed by the full faith and credit of the U.S.
Government.
- FHLMC Securities. The FHLMC was created to promote development
of a nationwide secondary market for conventional residential mortgages.
The FHLMC issues mortgage pass-through certificates ("PCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying pool. The
FHLMC guarantees timely monthly payment of interest on PCs and the
ultimate payment of principal. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. Government.
- Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are
fully-collateralized bonds that are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. Government instrumentality,
or a private issuer. Such bonds generally are secured by an assignment
to a trustee (under the indenture pursuant to which the bonds are issued)
of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages
are not passed through to the holders of the CMOs as such (i.e., the
character of payments of principal and interest is not passed through, and
therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such
payments are dedicated to payment of interest on, and repayment of
principal of, the CMOs. CMOs often are issued in two or more classes with
different characteristics such as varying maturities and stated rates of
interest. Because interest and principal payments on the underlying
mortgages are not passed though to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest on each class and to retire successive
maturities in sequence. Unlike other mortgage-backed securities
(discussed above), CMOs are designed to be retired as the underlying
mortgages are repaid. In the event of prepayment on such mortgages, the
class of CMO first to mature generally will be paid down. Therefore,
although in most cases the issuer of CMOs will not supply additional
collateral in the event of such prepayment, there will be sufficient
collateral to secure CMOs that remain outstanding.
- Mortgage-Backed Security Rolls. The Fund may enter into "forward
roll" transactions with respect to mortgage-backed securities issued by
the GNMA, FNMA or FHLMC. In a forward roll transaction, which is
considered to be a borrowing by the Fund, the Fund will sell a mortgage
security to a bank or other permitted entity and simultaneously agree to
repurchase a similar security from the institution at a later date at an
agreed upon price. The mortgage-backed securities that are repurchased
will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories than those sold. Risks of mortgage-backed security rolls
include (i) the risk of prepayment prior to maturity, (ii) the possibility
that the Fund may not be entitled to receive interest and principal
payments on the securities sold and that the proceeds of the sale may have
to be invested in money market instruments (typically repurchase
agreements) maturing not later than the expiration of the roll, and (iii)
the risk that the market value of the securities sold by the Fund may
decline below the price at which the Fund is obligated to purchase the
securities. Upon entering into a mortgage-backed security roll, the Fund
will be required to place cash, U.S. Government Securities or other high-
grade debt securities in a segregated account with its Custodian in an
amount equal to its obligation under the roll.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury. Zero coupon U.S. Treasury
securities are U.S. Treasury bills issued without interest coupons, U.S.
Treasury notes and bonds that have been stripped of their unmatured
interest coupons and receipts or certificates representing interest in
such stripped debt obligations or coupons. These securities usually trade
at a deep discount from their face or par value and will be subject to
greater fluctuations in market value in response to changing interest
rates than debt obligations of comparable maturities that make current
payments of interest. However, the lack of periodic interest payments
means that the interest rate is "locked in" and there is no risk of having
to reinvest periodic interest payments in securities having lower rates.
The Fund may also invest in zero coupon securities issued by private
issuers. Because the Fund accrues taxable income from zero coupon
securities issued by either the U.S. Treasury or other issuers without
receiving cash, the Fund may be required to sell portfolio securities in
order to pay a dividend depending, among other things, upon the proportion
of shareholders who elect to receive dividends in cash rather than
reinvesting dividends in additional shares of the Fund. The Fund might
also sell portfolio securities to maintain portfolio liquidity. In either
case, cash distributed or held by the Fund and not reinvested in Fund
shares will hinder the Fund in seeking a high level of current income.
- Certificates of Deposit. Except as described below, the Fund may
purchase certificates of deposit if they are issued or guaranteed by
domestic banks (including foreign branches of domestic banks) which have
total assets in excess of $500 million, and the Fund may purchase bankers'
acceptances (which may be supported by letters of credit) only if
guaranteed by U.S. commercial banks having total assets in excess of $500
million. The Fund may invest in certificates of deposit of $100,000 or
less of a domestic bank, even if such bank has assets of less than $500
million, if the certificate of deposit is fully insured as to principal
by the Federal Deposit Insurance Corporation. At no time will the Fund
hold more than one certificate of deposit from any one such bank. Because
of the limited marketability of such certificates of deposit, no more than
10% of the Fund's net assets will be invested in certificates of deposit
of banks having total assets of less than $500 million. For these
purposes, the term "bank" includes U.S. commercial banks, savings banks
and savings and loan associations.
- Commercial Paper. The Fund may purchase commercial paper only
if rated "A-1" or "A-2" by S&P or "Prime-1" or "Prime-2" by Moody's or,
if not rated, issued by a corporation having an existing debt security
rated at least "AA" or "Aa" by S&P or Moody's, respectively. See
Appendix A hereto for a description of the factors considered by S&P and
Moody's for determining such ratings. The Fund may purchase obligations
issued by other entities (including U.S. dollar-denominated securities of
foreign branches of U.S. banks) if they are (i) guaranteed as to
principal and interest by a bank, government or corporation whose
certificates of deposit or commercial paper may otherwise be purchased by
the Fund, or (ii) subject to repurchase agreements (described below). The
foregoing ratings restrictions do not apply to banks in which the Fund's
cash is kept.)
Foreign Equity and Debt Securities. Investments in foreign securities
offer potential benefits not available from investing solely in securities
of domestic issuers, by offering 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. Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and the Fund's income available for distribution. In buying
foreign securities, the Fund may convert U.S. dollars into foreign
currency, but only to effect securities transactions on foreign securities
exchanges and not to hold such currency as an investment. In addition,
although a portion of the Fund's investment income, if any, may be
received or realized in foreign currencies, the Fund will be required to
compute and distribute its income in U.S. dollars, and absorb the cost of
currency fluctuations. The Fund may engage in foreign currency exchange
transactions for hedging purposes to protect against changes in future
exchange rates. See "Other Investment Techniques and Strategies - Hedging
With Options and Futures Contracts" below.
Investment in foreign securities involves considerations and risks
not associated with investment in securities of U.S. issuers. For
example, foreign issuers are not required to use generally-accepted
accounting principles ("G.A.A.P."). If foreign securities are not
registered under the Securities Act of 1933, the issuer does not have to
comply with the disclosure requirements of the Securities Exchange Act of
1934. The values of foreign securities investments will be affected by
incomplete or inaccurate information available as to foreign issuers,
changes in currency rates, exchange control regulations or currency
blockage, expropriation or nationalization of assets, application of
foreign tax laws (including withholding taxes), changes in governmental
administration or economic or monetary policy in the U.S. or abroad, or
changed circumstances in dealings between nations. In addition, it is
generally more difficult to obtain court judgments outside the United
States. The values of foreign securities will be affected by changes in
currency rates or exchange control regulations or currency blockage,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the U.S.
or abroad) or changed circumstances in dealings between nations. Costs
will be incurred in connection with conversions between various
currencies. Foreign brokerage commissions are generally higher than
commissions in the U.S., and foreign securities markets may be less
liquid, more volatile and less subject to governmental regulation than in
the U.S. Investments in foreign countries could be affected by other
factors not generally thought to be present in the U.S., including
expropriation or nationalization, confiscatory taxation and potential
difficulties in enforcing contractual obligations, and could be subject
to extended settlement periods.
The Fund may invest in U.S. dollar-denominated foreign securities
referred to as "Brady Bonds". These are debt obligations of foreign
entities that may be fixed-rate par bonds or floating rate discount bonds
and are generally collateralized in full as to principal due at maturity
by U.S. Treasury zero coupon obligations that have the same maturity as
the Brady Bonds. However, the Fund may also invest in uncollateralized
Brady Bonds. Brady Bonds are generally viewed as having three or four
valuation components: (i) any collateralized repayment of principal at
final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts
constitute what is referred to as the "residual risk"of such bonds). In
the event of a default with respect to collateralized Brady Bonds as a
result of which the payment obligations of the issuer are accelerated, the
zero coupon U.S. Treasury securities held as collateral for the payment
of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be
held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments which would
have then been due on the Brady Bonds in the normal course. In addition,
in light of the residual risk of Brady Bonds, and among other factors, the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady
Bonds are to be viewed as speculative.
Other Investment Techniques And Strategies
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities (other than in repurchase transactions) to brokers, dealers and
other financial institutions meeting certain credit standards if the loan
is collateralized in accordance with applicable regulatory requirements,
and if, after any loan, the value of securities loaned does not exceed 25%
of the value of the Fund's total assets. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on
each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government Securities, 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. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Fund pays in arranging the loan. The
Fund may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by its Board of Trustees.
In connection with securities lending, the Fund might experience risks of
delay in receiving additional collateral, or risks of delay in recovery
of the securities, or loss of rights in the collateral should the borrower
fail financially. The Fund will not lend its portfolio securities to any
officer, trustee, employee or affiliate of the Fund or its Manager. The
terms of the Fund's loans must meet certain tests under the Internal
Revenue Code and permit the Fund to reacquire loaned securities on five
business days' notice or in time to vote on any important matter.
When-Issued and Delayed Delivery Transactions. The Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. Although the Fund will enter
into such transactions for the purpose of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. During the period between commitment by the
Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser,
and no interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government Securities
or other high grade debt obligations at least equal to the value of
purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure to do so may result
in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous. If the Fund chooses to (i) dispose of the right to
acquire a when-issued security prior to its acquisition or (ii) dispose
of its right to deliver or receive against a forward commitment, it may
incur a gain or loss. At the time the Fund makes a commitment to purchase
or sell a security on a when-issued or forward commitment basis, it
records the transaction and reflects the value of the security purchased,
or if a sale, the proceeds to be received in determining its net asset
value.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above) when-issued securities and
forward commitments may be sold prior to the settlement date. In
addition, 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 loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, the Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
- Repurchase Agreements. The Fund may acquire securities subject
to repurchase agreements to generate income for liquidity purposes to meet
anticipated redemptions, or pending the investment of proceeds from sales
of Fund shares or settlement of purchases of portfolio investments. The
Fund will not enter into a repurchase agreement that will cause more than
10% of the Fund's net assets to be subject to repurchase agreements
maturing in more than seven days. There is no limit on the amount of the
Fund's net assets that may be subject to repurchase agreements maturing
in seven days or less.
In a repurchase transaction, the Fund purchases a security from, and
simultaneously resells it to, an approved vendor (a U.S. commercial bank
or the U.S. branch of a foreign bank with total domestic assets of at
least $1 billion or a broker-dealer with a net capital of at least $50
million and which has been designated a primary dealer in government
securities), for delivery on an agreed-on 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. The majority of these transactions run from day
to day, and delivery pursuant to the resale typically will occur within
one to five days of the purchase. Repurchase agreements are considered
"loans" under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements require that at all times
while the repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
- Illiquid and Restricted Securities. The Fund will not purchase
or otherwise acquire any security if, as a result, more than 10% of its
net assets (taken at current value) would be invested in securities that
are illiquid by virtue of the absence of a readily available market or
because of legal or contractual restrictions on resale ("restricted
securities"). As noted in the Prospectus, that amount may, in the future,
increase to 15%. This policy applies to participation interests, bank
time deposits, master demand notes, repurchase transactions having a
maturity beyond seven days, over-the-counter options held by the Fund and
that portion of assets used to cover such options. This policy is not a
fundamental policy and does not limit purchases of restricted securities
eligible for resale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933 that are determined to be liquid by
the Board of Trustees or by the Manager under Board-approved guidelines.
Such guidelines take into account trading activity for such securities and
the availability of reliable pricing information, among other factors.
If there is a lack of trading interest in particular Rule 144A securities,
the Fund's holdings of those securities may be illiquid. There may be
undesirable delays in selling illiquid securities at prices representing
their fair value. The expenses of registration of restricted securities
that are subject to legal restrictions on resale (excluding securities
that may be resold by the Fund pursuant to Rule 144A, as explained in the
Prospectus) may be negotiated at the time such securities are purchased
by the Fund. When registration is required, a considerable period may
elapse between a decision to sell the securities and the time the Fund
would be permitted to sell them. Thus, the Fund might not be able to
obtain as favorable a price as that prevailing at the time of the decision
to sell. The Fund also may acquire, through private placements,
securities having contractual resale restrictions, which might lower the
amount realizable upon the sale of such securities.
- Writing Covered Calls. As described in the Prospectus, the Fund
may write covered calls. When the Fund writes a call on an investment,
it receives a premium and agrees to sell the callable investment to a
purchaser of a corresponding call during the call period (usually not more
than nine months) at a fixed exercise price (which may differ from the
market price of the underlying securities), regardless of market price
changes during the call period. To terminate its obligation on a call it
has written, the Fund may purchase a corresponding call in a "closing
purchase transaction." A profit or loss will be realized, depending upon
whether the net of the amount of option transaction costs and the premium
received on the call written is more or less than the price of the call
subsequently purchased. A profit may also be realized if the call lapses
unexercised because the Fund retains the underlying investment and the
premium received. Any such profits are considered short-term capital
gains for Federal income tax purposes, as are premiums on lapsed calls,
and when distributed by the Fund are taxable as ordinary income. 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 a particular option. If the Fund
could not effect a closing purchase transaction due to a lack of a market,
it would have to hold the callable investment until the call lapsed or was
exercised.
- Hedging With Options and Futures Contracts. As described in the
Prospectus, the Fund may employ one or more types of hedging instruments,
including the Futures identified in the Prospectus. When 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, the Fund may (i) sell Futures, (ii) buy
puts on such Futures or securities, or (iii) write covered calls on
securities held by it or on Futures. When hedging to permit the Fund to
establish a position in the equities market as a temporary substitute for
purchasing individual equity securities (which the Fund will normally
purchase, and then terminate that hedging position) or to attempt to
protect against the possibility that portfolio debt securities are not
fully included in a rise in value of the debt securities market, the Fund
may (i) buy Futures, or (ii) buy calls on such Futures or on securities.
The Fund's strategy of hedging with Futures and options on Futures will
be incidental to the Fund's activities in the underlying cash market.
When hedging to attempt to protect against declines in the dollar value
of a foreign currency-denominated security or in a payment on such
security, the Fund may (a) purchase puts on that foreign currency, (b)
write calls on that currency or (c) enter into Forward Contracts at a
different rate than the spot ("cash") rate. At present, the Fund does not
intend to enter into Futures and options on Futures if, after any such
purchase or sale, the sum of margin deposits on Futures and premiums paid
on Futures options exceeds 5% of the value of the Fund's total assets.
Certain options on foreign currencies are considered related options for
this purpose. Additional information about the hedging instruments the
Fund may use is provided below. The Fund may, in the future, employ
Hedging Instruments and strategies that are not presently contemplated to
the extent such investment methods are consistent with the Fund's
investment objective, are legally permissible and are adequately
disclosed.
- Writing 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.
Writing a put covered by segregated liquid assets equal to the exercise
price of the put has the same economic effect to the Fund as writing a
covered call. The premium the Fund receives from writing a put option
represents a profit, as long as the price of the underlying investment
remains above the exercise price. However, the Fund has also assumed the
obligation during the option period to buy the underlying investment from
the buyer of the put at the exercise price, even though the value of the
investment may fall below the exercise price. If the put expires
unexercised, the Fund (as the writer of the put) realizes a gain in the
amount of the premium less transaction costs. If the put is exercised,
the Fund must fulfill its obligation to purchase the underlying investment
at the exercise price, which will usually exceed the market value of the
investment at that time. In that case, the Fund may incur a loss, 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
incurred.
When writing put options on securities or on foreign currencies, 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 foregoes
the opportunity of investing the segregated assets or writing calls
against those assets. As long as the obligation of the Fund as the put
writer continues, it may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring the Fund to take
delivery of the underlying security against payment of 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.
This obligation terminates upon expiration of the put, or such earlier
time at which the Fund effects a closing purchase transaction by
purchasing a put of the same series as that previously sold. Once the
Fund has been assigned an exercise notice, it is thereafter not allowed
to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As above for
writing covered calls, any and all such profits described herein from
writing puts are considered short-term gains for Federal tax purposes, and
when distributed by the Fund, are taxable as ordinary income.
- Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and, except as
to calls on stock indices or Stock Index Futures, 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. When the
Fund purchases a call on a stock index or Stock Index Future, settlement
is in cash rather than by delivery of the underlying investment to the
Fund. The Fund benefits only if the call is sold at a profit or if,
during the call period, the market price of the underlying investment is
above the sum of the call price plus the transaction costs and the premium
paid and the call is exercised. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration
date and the Fund will lose its premium payment and the right to purchase
the underlying investment.
When the Fund purchases a put, it pays a premium and, except as to
puts on stock indices, has the right to sell the underlying investment to
a seller of a corresponding put on the same investment during the put
period at a fixed exercise price. Buying a put on an investment the Fund
owns enables the Fund to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price
by selling such 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,
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit).
Purchasing a put on Futures it does not own permits the Fund either
to resell the put or, if applicable, to buy the underlying investment and
sell it at the exercise price. The resale price of the put will vary
inversely with the price of the underlying investment. If the market
price of the underlying investment is above the exercise price, and, as
a result, the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in price of the underlying
investment, the Fund could exercise or sell the put at a profit to attempt
to offset some or all of its loss on its portfolio securities. When the
Fund purchases a put on a Future not held by it, the put protects the Fund
to the extent that the prices of the underlying Futures move in a similar
pattern to the prices of the securities in the Fund's portfolio.
- Stock Index Futures and Interest Rate Futures. The Fund may buy
and sell futures contracts relating either to broadly-based stock indices
("Stock Index Futures") or to debt securities ("Interest Rate Futures").
A Stock Index Future obligates the seller to deliver (and the purchaser
to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the
index is made. Generally, contracts are closed out with offsetting
transactions prior to the expiration date of the contract. An Interest
Rate Future obligates the seller to deliver and the purchaser to take a
specific type of debt security or cash to settle the futures transaction,
or to enter into an offsetting contract. Upon entering into a Futures
transaction, the Fund will be required to deposit an initial margin
payment in cash or U.S. Treasury bills with the futures commission
merchant (the "futures broker"). The initial margin will be deposited
with the Fund's Custodian in an account registered in the futures broker's
name; however, the futures broker can gain access to that account only
under certain specified conditions. As the Future is marked to market to
reflect changes in its market value, subsequent margin payments, called
variation margin, will be paid to or by the futures broker on a daily
basis.
Prior to expiration of the Future, if the Fund elects to close out
its position by taking an opposite position, a final determination of
variation margin is made and additional cash is required to be paid by
or released to the Fund. Any gain or loss is then realized. Although
Stock Index Futures and Interest Rate Futures by their terms call for
settlement by the delivery of cash and of debt securities, respectively,
in most cases the obligation is fulfilled without such delivery by
entering into an offsetting transaction. All futures transactions are
effected through a clearinghouse associated with the exchange on which the
contracts are traded.
- Options on Foreign Currencies. The Fund intends to write and
purchase calls and puts on foreign currencies. A call written on a
foreign currency by the Fund is "covered" if the Fund owns the underlying
foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign
currency held in its portfolio. Normally this will be effected by the
sale of a security denominated in the relevant currency at a price higher
or lower than the original acquisition price of the security. This will
result in a loss or gain in addition to that resulting from the currency
option position. The Fund will not engage in writing options on foreign
currencies unless the Fund has sufficient liquid assets denominated in the
same currency as the option or in a currency that, in the judgment of the
Manager, will experience substantially similar movements against the U.S.
dollar as the option currency.
- Forward Contracts. A Forward Contract involves bilateral
obligations of one party to purchase, and another party to sell, a
specific currency at a future date (which may be any fixed number of days
from the date of the contract agreed upon by the parties), at a price set
at the time the contract is entered into. These contracts are traded in
the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase. The Fund will not speculate with Forward Contracts or foreign
currency exchange rates.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross-hedge").
The Fund will not enter into such Forward Contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities denominated in that currency.
The Fund, however, in order to avoid excess transactions and transaction
costs, may maintain a net exposure to Forward Contracts in excess of the
value of the Fund's portfolio securities denominated in that currency
provided the excess amount is "covered" by liquid, high grade debt
securities, denominated in either that foreign currency or U.S. dollars,
at least equal at all times to the amount of such excess. As an
alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the Forward Contract price or the Fund
may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high
or higher than the Forward Contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the Fund than
if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value
of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of
such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and incur
transactions costs.
At or before the maturity of a Forward Contract requiring the Fund
to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security
and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund may close out a Forward
Contract requiring it to purchase a specified currency by entering into
a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would
realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate
or rates between the currencies involved moved between the execution dates
of the first contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. As Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
by they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
- Interest Rate Swap Transactions. The value of securities subject
to interest rate swaps will not exceed 25% of the Fund's net assets. Swap
agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the
payments made by the Fund under a swap agreement will have been greater
than those received by it. Credit risk arises from the possibility that
the counterparty will default. If the counterparty to an interest rate
swap defaults, the Fund's loss will consist of the net amount of
contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis. The Fund will enter
into swap transactions with appropriate counterparties pursuant to master
netting agreements. A master netting agreement provides that all swaps
done between the Fund and that counterparty under that master agreement
shall be regarded as parts of an integral agreement. If on any date
amounts are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency shall
be paid. In addition, the master netting agreement may provide that if
one party defaults generally or on one swap, the counterparty may
terminate the swaps with that party. Under such agreements, if there is
a default resulting in a loss to one party, the measure of that party's
damages is calculated by reference to the average cost of a replacement
swap with respect to each swap (i.e., the mark-to-market value at the time
of the termination of each swap). The gains and losses on all swaps are
then netted, and the result is the counterparty's gain or loss on
termination. The termination of all swaps and the netting of gains and
losses on termination is generally referred to as "aggregation".
- Additional Information About Hedging Instruments and Their Use.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options traded on exchanges, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities covering a call on the expiration of the calls
or upon the Fund entering into a closing purchase transaction. Call
writing affects the Fund's turnover rate and the brokerage commissions it
pays. Commissions, normally higher than on general securities
transactions, are payable on writing or purchasing a call.
When the Fund writes an 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 would have the absolute right to
repurchase that OTC option. That formula price would 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 extent to which the option is "in-the-money"). For
any OTC option the Fund writes, it will treat as illiquid (for purposes
of the limit on its assets that may be invested in illiquid securities,
stated in the Prospectus) an amount of assets used to cover written OTC
options, equal to the formula price for the repurchase of the OTC option
less the amount by which the OTC option is "in-the-money." The Fund will
also treat as illiquid any OTC option held by it. The SEC is evaluating
whether OTC options should be considered liquid securities, and the
procedure described above could be affected by the outcome of that
evaluation.
The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise by the Fund of puts on securities
will cause the sale of related investments, increasing portfolio turnover.
Although such exercise is within the Fund's control, holding a put might
cause the Fund to sell the related investments for reasons which would not
exist in the absence of the put. The Fund will pay a brokerage commission
each time it buys a put or call, or sells a call. Such commissions may
be higher than those which would apply to direct purchases or sales of
such underlying investments. Premiums paid for options are small in
relation to the market value of the related investments, and consequently,
put and call options offer large amounts of leverage. The leverage
offered by trading in options could result in the Fund's net asset value
being more sensitive to changes in the value of the underlying
investments.
- Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its long and short positions in Futures
and options thereon under a rule ("CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange Act (the
"CEA"), which excludes the Fund from registration with the CFTC as a
"commodity pool operator" (as defined under the CEA), if the Fund complies
with the CFTC Rule. Under these restrictions, the Fund will not, as to
any positions, whether long, short or a combination thereof, enter into
Futures and options thereon for which the aggregate initial margins and
premiums exceed 5% of the fair market value of its net assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona fide hedging purposes within the meaning and
intent of the applicable provisions of the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more different exchanges or through one
or more brokers. Thus, the number of options which the Fund may write or
hold may be affected by options written or held by other entities,
including other investment companies having the same or an affiliated
investment adviser. Position limits also apply to Futures. An exchange
may order the liquidation of positions found to be in violation of those
limits and may impose certain other sanctions. Due to provisions under
the Investment Company Act, when the Fund purchases a Future, the Fund
will maintain in a segregated account or accounts with its Custodian, cash
or readily marketable short-term (maturing in one year or less) debt
instruments in an amount equal to the market value of the securities
underlying such Future, less the margin deposit applicable to it.
- Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. That qualification enables the Fund to "pass through" its
income and realized capital gains to shareholders without the Fund having
to pay tax on them. This avoids a "double tax" on that income and capital
gains, since shareholders will be taxed on the dividends and capital gains
they receive from the Fund. One of the tests for the Fund's qualification
is that less than 30% of its gross income (irrespective of losses) must
be derived from gains realized on the sale of securities held for less
than three months. To comply with that 30% cap, the Fund will limit the
extent to which it engages in the following activities, (but will not be
precluded from them): (i) selling investments, including Futures, held
for less than three months, whether or not they were purchased on the
exercise of a call held by the Fund; (ii) writing calls on investments
held for less than three months; (iii) purchasing calls or puts which
expire in less than three months; (iv) effecting closing transactions with
respect to calls or puts purchased less than three months previously; and
(v) exercising puts or calls held by the Fund for less than three months.
Certain foreign currency exchange contracts (Forward Contracts) in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including Forward Contracts)
generally are treated as ordinary income or loss. In addition, section
1256 contracts held by the Fund at the end of each taxable year are
"marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized. These contracts also may be marked-
to-market for purposes of the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt
these transactions from this marked-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a
position(s) making up a straddle is allowed only to the extent such loss
exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there
is no unrecognized gain in the offsetting positions making up the
straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as an ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
- Risks of Hedging With Futures and Options. In addition to the
risks with respect to hedging discussed in the Prospectus and above,
there is a risk in using short hedging by (i) selling Futures or (ii)
purchasing puts on stock indices, Stock Index Futures or Interest Rate
Futures that the prices of the Future or the applicable index will
correlate imperfectly with the behavior of the cash (i.e., market value)
prices of the Fund's portfolio securities. The ordinary spreads between
prices in the cash and futures markets are subject to distortions due to
differences in the natures of those markets. First, all participants in
the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures 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 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 may use hedging instruments in a
greater dollar amount than the dollar amount of portfolio securities being
hedged if the historical volatility of the prices of such portfolio
securities being hedged is more than the historical volatility of the
applicable index. It is also possible that where the Fund has used
hedging instruments in a short hedge, the market may advance and the value
of the securities held in the Fund's portfolio may decline. If this
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value in its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move
in the same direction as the indices upon which the hedging instruments
are based.
If the Fund uses hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of
particular securities (long hedging) by buying Futures and/or calls on
such Futures, on securities or on stock indices, it is possible that the
market may decline. If the Fund then concludes not to invest in
securities at that time because of concerns as to possible further market
decline or for other reasons, the Fund will realize a loss on the hedging
instruments that is not offset by a reduction in the price of such
securities.
- Short Sales Against-the-Box. In such short sales, while the short
position is open, the Fund must own an equal amount of the securities sold
short, or by virtue of ownership of securities have the right, without
payment of further consideration, to obtain an equal amount of the
securities sold short. Short sales against-the-box may be made to defer,
for Federal income tax purposes, recognition of gain or loss on the sale
of securities "in the box" until the short position is closed out.
Other Investment Restrictions
The Fund's significant investment restrictions are set forth in the
Prospectus. There are additional investment restrictions that the Fund
must follow that are also fundamental policies. Fundamental policies and
the Fund's investment objective cannot be changed without the vote of a
"majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (1) 67% or more of the shares present or
represented by proxy at a shareholder meeting, if the holders of more than
50% of the outstanding shares are present, or (2) more than 50% of the
outstanding shares.
Under these additional restrictions, the Fund cannot: (1) invest in
real estate or in interests in real estate, but may purchase readily
marketable securities of issuers holding real estate or interests therein;
(2) purchase securities on margin; however, the Fund may make margin
deposits in connection with any of the hedging instruments which it may
use as permitted by any of its other respective fundamental policies; (3)
underwrite securities of other companies, except insofar as it might be
deemed to be an underwriter for purposes of the Securities Act of 1933 in
the resale of any securities held in its own portfolio; (4) invest in
companies for the purpose of acquiring control or management thereof; (5)
invest in or hold securities of any issuer if officers and Trustees or
Directors of the Fund and the Manager individually owning more than .5%
of the securities of such issuer together own more than 5% of the
securities of such issuer; or (6) invest in other open-end investment
companies, or invest more than 5% of its net assets at the time of
purchase in closed-end investment companies (including small business
investment companies), nor make any such investments at commission rates
in excess of normal brokerage commissions.
In connection with the qualification of its shares in certain states,
the Fund has undertaken that in addition to the above, as a non-
fundamental policy, the Fund will not (i) invest in oil, gas or mineral
leases or (ii) invest in real estate limited partnership interests. In
the event the Fund's shares cease to be qualified under such laws or if
such undertaking(s) otherwise cease to be operative, the Fund would not
be subject to such restrictions.
The percentage restrictions described above and in the Prospectus are
applicable only at the time of investment and require no action by the
Fund as a result of subsequent changes in value of the investments or the
size of the Fund.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. The address of each Trustee and officer is Two
World Trade Center, New York, New York 10048-0203, unless another address
is listed below. All of the Trustees are also trustees of Oppenheimer
Fund, Oppenheimer Global Fund, Oppenheimer Time Fund, Oppenheimer Special
Fund, Oppenheimer Discovery Fund, Oppenheimer Global Growth & Income Fund,
Oppenheimer Global Bio-Tech Fund, Oppenheimer Global Environment Fund,
Oppenheimer Gold & Special Minerals Fund, Oppenheimer Tax-Free Bond Fund,
Oppenheimer New York Tax-Exempt Fund, Oppenheimer California Tax-Exempt
Fund, Oppenheimer Multi-State Tax-Exempt Trust, Oppenheimer Target Fund,
Oppenheimer Mortgage Income Fund, Oppenheimer U.S. Government Trust,
Oppenheimer Multi-Sector Income Trust and Oppenheimer Multi-Government
Trust (the "New York OppenheimerFunds"). Messrs. Spiro, Donohue, Bowen,
Zack, Bishop and Farrar hold the same offices with the other New York
OppenheimerFunds as with the Fund. As of March 29, 1994, the Trustees and
officers of the Fund as a group owned less than 1% of the outstanding
shares of the Fund.
Leon Levy, Chairman of the Board of Trustees
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership);
Chairman of Avatar Holdings, Inc. (real estate development).
Leo Cherne, Trustee
386 Park Avenue South, New York, New York 10016
Chairman Emeritus of the International Rescue Committee (philanthropic
organization); formerly Executive Director of The Research Institute of
America.
Edmund T. Delaney, Trustee
5 Gorham Road, Chester, Connecticut 06412
Attorney-at-law; formerly a member of the Connecticut State Historical
Commission and Counsel to Copp, Berall & Hempstead (a law firm).
Robert G. Galli, Trustee
Vice Chairman of the Manager and Vice President and Counsel of Oppenheimer
Acquisition Corp. ("OAC"), the Manager's parent holding company; formerly
he held the following positions: a director of the Manager and Oppenheimer
Funds Distributor, Inc. (the "Distributor"), Vice President and a director
of HarbourView Asset Management Corporation ("HarbourView") and Centennial
Asset Management Corporation ("Centennial"), investment advisory
subsidiaries of the Manager, a director of Shareholder Financial Services,
Inc. ("SFSI") and Shareholder Services, Inc. ("SSI"), transfer agent
subsidiaries of the Manager, an officer of other OppenheimerFunds and
Executive Vice President of the Manager and the Distributor.
Benjamin Lipstein, Trustee
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Elizabeth B. Moynihan, Trustee
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the American Schools of
Oriental Research and of the Freer Gallery of Art, Smithsonian
Institution; a member of the Indo-U.S. Sub-Commission on Education and
Culture; a trustee of the Institute of Fine Arts, New York University; and
a trustee of the Preservation League of New York State.
Kenneth A. Randall, Trustee
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Northeast Bancorp, Inc. (bank holding company), Dominion
Resources, Inc. (electric utility holding company), and Kemper Corporation
(insurance and financial services company); formerly Chairman of the Board
of ICL Inc. (information systems).
Edward V. Regan, Trustee
40 Park Avenue, New York, New York 10016
President of Jerome Levy Economics Institute; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health care
provider); formerly New York State Comptroller and trustee, New York State
and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee
200 Park Avenue, New York, New York 10166
Founder and Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directors Publication, Inc. (consulting and
publishing); a trustee of Mystic Seaport Museum, International House,
Greenwich Hospital and the Greenwich Historical Society.
Sidney M. Robbins, Trustee
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions, Graduate
School of Business, Columbia University; Visiting Professor of Finance,
University of Hawaii; a director of The Korea Fund, Inc. and The Malaysia
Fund, Inc. (closed-end investment companies); a member of the Board of
Advisors, Olympus Private Placement Fund, L.P.; Professor Emeritus of
Finance, Adelphi University.
Donald W. Spiro, President and Trustee
Chairman Emeritus and a director of the Manager; formerly Chairman of the
Manager and the Distributor.
Pauline Trigere, Trustee
550 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and sale of
women's fashions).
Clayton K. Yeutter, Trustee
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar, Inc.
(machinery), ConAgra, Inc. (food and agricultural products), FMC Corp.
(chemicals and machinery), Lindsay Manufacturing Co. and Texas
Instruments, Inc. (electronics); formerly (in descending chronological
order) Deputy Chairman, Bush/Quayle Presidential Campaign, Counsellor to
the President (Bush) for Domestic Policy, Chairman of the Republican
National Committee, Secretary of the U.S. Department of Agriculture, and
U.S. Trade Representative, Executive Office of the President.
David P. Negri, Vice President and Portfolio Manager
Vice President of the Manager; an officer of other OppenheimerFunds.
Richard H. Rubinstein, Vice President and Portfolio Manager
Vice President of the Manager; an officer of other OppenheimerFunds;
formerly Vice President and Portfolio Manager/Security Analyst for
Oppenheimer Capital Corp., an investment adviser.
Andrew J. Donohue, Secretary
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other OppenheimerFunds; formerly Senior Vice
President and Associate General Counsel of the Manager and the
Distributor; prior to which he was a partner in, Kraft & McManimon (a law
firm); an officer of First Investors Corporation (a broker-dealer) and
First Investors Management Company, Inc. (broker-dealer and investment
adviser); director and an officer of First Investors Family of Funds and
First Investors Life Insurance Company.
George C. Bowen, Treasurer
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and Secretary
of Oppenheimer Asset Management Corporation.
Robert G. Zack, Assistant Secretary
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
Robert Bishop, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other OppenheimerFunds; previously a Fund Controller for the Manager,
prior to which he was an Accountant for Resolution Trust Corporation and
previously an Accountant and Commissions Supervisor for Stuart James
Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80310
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other OppenheimerFunds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman Co., a bank, and previously a Senior Fund Accountant for
State Street Bank & Trust Company, before which he was a sales
representative for Central Colorado Planning.
- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Mr. Galli and Mr. Spiro, who is both an officer and a
Trustee) receive no salary or fee from the Fund. During the Fund's fiscal
year ended December 31, 1993, the remuneration (including expense
reimbursements) paid to all Trustees of the Fund (excluding Mr. Galli and
Mr. Spiro) as a group for services as Trustees and as members of one or
more committees of the Board totalled $51,300. The Fund has adopted a
retirement plan that provides for payment to a retired Trustee of up to
80% of the average compensation paid during that Trustee's five years of
service in which the highest compensation was received. A Trustee must
serve in that capacity for any of the New York OppenheimerFunds for at
least 15 years to be eligible for the maximum payment. No Trustee has
retired since the adoption of the plan and no payments have been made by
the Fund under the plan. The accumulated liability for the Fund's
projected benefit obligations under the plan was $50,137, as of December
31, 1993.
- Major Shareholders. As of March 29, 1994, the only person who
owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding Class A or Class C shares was Massachusetts
Mutual Life Insurance Company ("MassMutual") and its affiliates (including
its employee benefit plans), which collectively owned of record
2,307,948.357 Class A shares (10.9% of the Class A shares then
outstanding). MassMutual is located at 1295 State Street, Springfield,
MA 01111, and its affiliation with the Manager is described below.
The Manager and Its Affiliates. The Manager is wholly-owned by OAC, a
holding company controlled by MassMutual. OAC is also owned in part by
certain of the Manager's directors and officers, some of whom also serve
as officers of the Fund and two of whom (Messrs. Galli and Spiro) also
serve as Trustees of the Fund.
- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide corporate
effective administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation and
filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the Distribution Agreement are paid
by the Fund. The advisory agreement lists examples of expenses paid by
the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including
litigation costs. For the Fund's fiscal years ended December 31, 1991,
1992 and 1993, the management fees paid by the Fund to the Manager were
$1,552,541, $2,110,846 and $2,130,917, respectively.
The advisory agreement contains no provisions limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has undertaken that the total expenses of the Fund in any fiscal year
(including the management fee but excluding taxes, interest, brokerage
commissions, distribution assistance payments and extraordinary expenses
such as litigation costs) shall not exceed (and the Manager undertakes to
reduce the Fund's management fee in the amount by which such expenses
shall exceed) the most stringent applicable state regulatory limitation
on fund expenses. Currently, the most stringent state expense limitation
is imposed by California, and limits the Fund's expenses (with specified
exclusions) to 2.5% of the first $30 million of average net assets, 2.0%
of the next $70 million of average annual net assets, and 1.5% of average
annual net assets in excess of $100 million. The payment of the
management fee at the end of any month will be reduced or eliminated such
that there will not be any accrued but unpaid liability under this expense
limitation. The Manager reserves the right to terminate or amend the
undertaking at any time. Any assumption of the Fund's expenses under this
undertaking would lower the Fund's overall expense ratio and increase its
total return during any period in which expenses are limited.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, or gross negligence in the performance of its
duties, or reckless disregard for its obligations and duties under the
advisory agreement, the Manager is not liable for any loss resulting from
a good faith error or omission on its part with respect to any of its
duties thereunder. The advisory agreement permits the Manager to act as
investment adviser for any other person, firm or corporation and to use
the name "Oppenheimer" in connection with its other investment companies
for which it may act as investment advisor or general distributor. If the
Manager shall no longer act as investment adviser to the Fund, the right
of the Fund to use the name "Oppenheimer" as part of its name may be
withdrawn.
- The Distributor. Under its Distribution Agreement with the Fund,
the Distributor acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A and Class C shares but is not
obligated to sell a specific number of shares. Expenses normally
attributable to sales, including advertising and the cost of printing and
mailing prospectuses, other than those furnished to existing shareholders,
are borne by the Distributor. During the Fund's fiscal years ended
December 31, 1991, 1992 and 1993, the aggregate amount of sales charges
on sales of the Fund's Class A shares was $38,724,674, $39,326,104 and
$413,077 in those respective years, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $10,331,365, $9,834,389
and $165,368, in those respective years. For additional information about
distribution of the Fund's shares and the expenses connected with such
activities, please refer to "Distribution and Service Plans" below.
- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
transfer agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in it's best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding, but is expected to minimize the
commissions paid to the extent consistent with the interest and policies
of the Fund as established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager and the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are made by portfolio managers
of the Manager under the supervision of the Manager's executive officers.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers.
Brokerage commissions are paid primarily for effecting transactions in
listed securities and otherwise only if it appears likely that a better
price or execution can be obtained. In connection with transactions on
foreign exchanges, the Fund may be required to pay fixed brokerage
commissions and thereby forego the benefit of negotiated commissions
available in U.S. markets. When the Fund engages in an option
transaction, ordinarily the same broker will be used for the purchase or
sale of the option and any transactions in the securities to which the
option relates. When possible, concurrent orders to purchase or sell the
same security by more than one of the accounts managed by the Manager or
its affiliates are combined. The transactions effected pursuant to such
combined orders are averaged as to price and allocated in accordance with
the purchase or sale orders actually placed for each account. Option
commissions may be relatively higher than those which would apply to
direct purchases and sales of portfolio securities.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it is determined that a better
price or execution can be obtained by using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers include a spread
between the bid and asked price. The Fund seeks to obtain prompt
execution of such orders at the most favorable net price.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid for in
commission dollars.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "Independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" (as defined in the Investment
Company Act), and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution and Service Plans
described below), annually reviews information furnished by the Manager
as to the commissions paid to brokers furnishing such services so that the
Board may ascertain whether the amount of such commissions was reasonably
related to the value or benefit of such services. The Board of Trustees
has permitted the Manager to use concessions on fixed price offerings to
obtain research, in the same manner as is permitted for agency
transactions.
During the Fund's fiscal years ended December 31, 1991, 1992 and
1993, total brokerage commissions paid by the Fund (not including spreads
or concessions on principal transactions on a net trade basis) amounted
to $503,305, $359,816 and $2,914,950 respectively. During the fiscal year
ended December 31, 1993, $83,463 was paid to brokers as commissions in
return for research services (including special research, statistical
information and execution); the aggregate dollar amount of those
transactions was $32,594,147.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to
time the "average annual total return", "total return," and "total return
at net asset value" of an investment in each class of Fund shares may be
advertised. An explanation of these are calculated for each class and the
components of those calculations is set forth below.
The Fund's advertisement of its performance must, under applicable
rules of the Securities and Exchange Commission, include the average
annual total returns for each class of shares of the Fund for the 1, 5 and
10-year period (or the life of the class, if less) as of the most recently
ended calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number of
factors should be considered before using such information as a basis for
comparison with other investments. An investment in the Fund is not
insured; total return and share prices are not guaranteed and normally
will fluctuate on a daily basis. When redeemed, an investor's shares may
be worth more or less than their original cost. Total return for any
given past period are not a prediction or representation by the Fund of
future rates of return. The total returns of the Class A and Class C
shares of the Fund are affected by portfolio quality, the type of
investments the Fund holds and its operating expenses allocated to a
particular class.
- - Average Annual Total Returns. The "average annual total return" of
each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV"), according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
- - Cumulative Total Returns. The cumulative "total return" calculation
measures the change in value of a hypothetical investment of $1,000 over
an entire period of years. Its calculation uses some of the same factors
as average annual total return, but it does not average the rate of return
on an annual basis. Cumulative total return is determined as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as discussed below). For Class C shares, the payment of the 1.0%
contingent deferred sales charge is applied to the investment result for
the one-year period (or less). Total returns also assume that all
dividends and capital gains distributions during the period are reinvested
to buy additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The "average annual
total returns" on an investment in Class A shares of the Fund for the one-
and five-year periods ended December 31, 1993 and for the period from
April 24, 1987 (commencement of operations) to December 31, 1993, were
9.61%, 10.03% and 8.33%, respectively. The cumulative "total return" on
Class A shares for the latter period was 70.79%. For the fiscal period
from December 1, 1993 through December 31, 1993, the cumulative total
return on an investment in Class C shares of the Fund was 1.51%.
- - Total Returns at Net Asset Value. From time to time the Fund may also
quote an "average annual total return at net asset value" or a "cumulative
total return at net asset value" for Class A or Class C shares. Each is
based on the difference in net asset value per share at the beginning and
the end of the period for a hypothetical investment in that class of
shares (without considering front-end or contingent deferred sales
charges) and takes into consideration the reinvestment of dividends and
capital gains distributions. The cumulative "total returns at net asset
value" of the Fund's Class A shares for the fiscal year ended December 31,
1993, and for the period from April 24, 1987 (commencement of operations)
to December 31, 1993 were 16.30% and 81.21%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A or Class C shares. However, when
comparing total return of an investment in Class A or Class C shares of
the Fund with that of other alternatives, investors should understand that
as the Fund is an aggressive equity fund seeking capital appreciation, its
shares are subject to greater market risks than shares of funds having
other investment objectives and that the Fund is designed for investors
who are willing to accept greater risk of loss in the hopes of realizing
greater gains.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A or Class C shares by Lipper Analytical Services,
Inc. ("Lipper"), a widely-recognized independent service. Lipper monitors
the performance of regulated investment companies, including the Fund, and
ranks their performance for various periods based on categories relating
to investment objectives. The performance of the Fund is ranked against
(i) all other funds, excluding money market funds, and (ii) flexible
portfolio funds. The Lipper performance rankings are based on total
return that includes the reinvestment of capital gains distributions and
income dividends but does not take sales charges or taxes into
consideration.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class C shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the
Fund, monthly in broad investment categories (equity, taxable bond, tax-
exempt and other), based upon each fund's three, five and ten-year average
annual total returns (when available) and a risk adjustment factor that
reflects fund performance relative to three-month U.S. Treasury bill
monthly returns. Such returns are adjusted for fees and sales loads.
There are five ranking categories with a corresponding number of stars:
highest (5), above average (4), neutral (3), below average (2) and lowest
(1). Morningstar ranks the Class A and Class C shares of the Fund in
relation to other rated "hybrid" funds, including all other asset
allocation funds.
The total return on an investment in the Fund's Class A or Class C
shares of the Fund may be compared with performance for the same period
of one or more of the following indices: (i) the S&P 500 Index, an
unmanaged index of common stocks widely used as a measure of general U.S.
stock market performance; and (ii) the Lehman Brothers Aggregate Bond
Index, an unmanaged index of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities, widely regarded as a measure
of the performance of the domestic debt securities market. Other indices
may be used from time to time. The foregoing indices do not reflect
reinvestment of capital gains or takes transaction charges or taxes into
consideration, as these items are not applicable to indices.
Investors may also wish to compare the Fund's Class A or Class C
return to the return on fixed income investments available from banks and
thrift institutions, such as certificates of deposit, ordinary interest-
paying checking and savings accounts, and other forms of fixed or variable
time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed and will
fluctuate daily, while bank depository obligations may be insured by the
FDIC and may provide fixed rates of return, and Treasury bills are
guaranteed as to principal and interest by the U.S. government.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and a
Distribution and Service Plan for Class C shares under Rule 12b-1 of the
Investment Company Act, pursuant to which the Fund will reimburse the
Distributor quarterly for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of that
class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class (for the
Distribution and Service Plan for the Class C shares, that vote was cast
by the Manager as the sole initial holder of Class C shares of the Fund).
In addition, under the Plans, the Manager and the Distributor in
their sole discretion from time to time may use their own resources
(which, as to the Manager, may include profits derived from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make to Recipients from their own
resources.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as such continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Either Plan may be terminated at
any time by the vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the Investment Company
Act) of the outstanding shares of that class. Neither Plan may be amended
to increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which the payment was made and the identity of each Recipient
that received any such payment. The report for the Class C Plan shall
also include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in such selection and nomination if the
final decision on any such selection or nomination is approved by a
majority of such Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares acquired on
or after April 1, 1988, held by the Recipient for itself and its customers
did not exceed a minimum amount, if any, that may be determined from time
to time by a majority of the Fund's Independent Trustees. Initially, the
Board of Trustees has set the fee at the maximum rate and set no minimum
amount. For the fiscal year ended December 31, 1993, payments under the
Class A Plan totaled $313,174, all of which was paid by the Distributor
to Recipients, including $124,537 paid to MML Investor Services, Inc., an
affiliate of the Distributor.
Any unreimbursed expenses incurred with respect to Class A shares for
any fiscal quarter by the Distributor may not be recovered in subsequent
fiscal quarters. Payments received by the Distributor under the Plan for
Class A shares will not be used to pay any interest expense, carrying
charges, or other financial costs, or allocation of overhead by the
Distributor. The Class C Plan allows the service fee payment to be paid
by the Distributor to Recipients in advance for the first year Class C
shares are outstanding, and thereafter on a quarterly basis, as described
in the Prospectus. The advance payment is based on the net asset value
of the Class C shares sold. An exchange of shares does not entitle the
Recipient to an advance service fee payment. In the event Class C shares
are redeemed during the first year such shares are outstanding, the
Recipient will be obligated to repay a pro rata portion of such advance
payment to the Distributor.
Although the Class C Plan permits the Distributor to retain both the
asset-based sales charges and the service fee on Class C shares, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor intends to pay the service fee to Recipients in
the manner described above. A minimum holding period may be established
from time to time under the Class C Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class C
Plan are subject to the limitations imposed by the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees.
The Class C Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described above and in the Prospectus. The asset-based
sales charge paid to the Distributor by the Fund under the Class C Plan
is intended to allow the Distributor to recoup the cost of sales
commissions paid to authorized brokers and dealers at the time of sale,
plus financing costs, as described in the Prospectus. Such payments may
also be used to pay for the following expenses in connection with the
distribution of Class C shares: (i) financing the advance of the service
fee payment to Recipients under the Class C Plan, (ii) compensation and
expenses of personnel employed by the Distributor to support distribution
of Class C shares, and (iii) costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders) and
state "blue sky" registration fees.
ABOUT YOUR ACCOUNT
How to Buy Shares
Alternative Sales Arrangements - Class A and Class C Shares. The
Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor depending on the
amount of the purchase, the length of time the investor expects to hold
shares and other relevant circumstances. Investors should understand that
the purpose and function of the deferred sales charge and asset-based
sales charge with respect to Class C shares are the same as those of the
initial sales charge with respect to Class A shares. Any salesperson or
other person entitled to receive compensation for selling Fund shares may
receive different compensation with respect to one class of shares than
the other. The Distributor will not accept any order for $1 million or
more of Class C shares on behalf of a single investor (not including
dealer "street name" or omnibus accounts) because generally it will be
more advantageous for that investor to purchase Class A shares of the Fund
instead.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
C shares and the dividends payable on Class C shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class C shares are subject.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A and Class C shares recognizes two
types of expenses. General expenses that do not pertain specifically to
either class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total net
assets, and then equally to each outstanding share within a given class.
Such general expenses include (i) management fees, (ii) legal, bookkeeping
and audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to unaffiliated Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution and/or
Service Plan fees, (ii) incremental transfer and shareholder servicing
agent fees and expenses, (iii) registration fees and (iv) shareholder
meeting expenses, to the extent that such expenses pertain to a specific
class rather than to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class C shares of the Fund are determined as of 4:00
P.M. New York time each day The New York Stock Exchange (the "NYSE") is
open (a "regular business day"), by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The NYSE's most recent annual holiday schedule (which is
subject to change) states that it will close New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day; it may also close on other days. Trading may occur
in debt securities and in foreign securities primarily listed on foreign
exchanges or in foreign over-the-counter markets at times when the NYSE
is closed (including weekends or holidays or after 4:00 P.M., New York
time, on a regular business day). Because the Fund's price and net asset
value will not be calculated at such times, the net assets value per share
of Class A and Class C shares of the Fund may be significantly affected
at such times when shareholders do not have the ability to purchase or
redeem shares.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign securities and corporate bonds, where last sale
information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity and other special factors involved.
The Fund's Board of Trustees has authorized the Manager to employ a
pricing service to price U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds. The
Trustees will monitor the accuracy of pricing services by comparing prices
used for portfolio evaluation to actual sales prices of selected
securities.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a securities exchange or on NASDAQ for which last
sale information is regularly reported are valued at the last reported
sale prices on their primary exchange or NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) securities
traded on NASDAQ and other unlisted equity securities for which last sale
prices are not regularly reported but for which over-the-counter market
quotations are readily available are valued at the highest closing bid
price at the time of valuation, or, if no closing bid price is reported,
on the basis of a closing bid price obtained from a dealer who maintains
an active market in that security; (iii) securities (including restricted
securities) not having readily-available market quotations are valued at
fair value under the Board's procedures; (iv) debt securities having a
maturity in excess of 60 days are valued at the mean between the asked and
bid prices determined by a portfolio pricing service approved by the
Fund's Board of Trustees or obtained from an active market maker in the
security on the basis of reasonable inquiry; (v) short-term debt
securities (having a remaining maturity of 60 days or less) are valued at
cost, adjusted for amortization of premiums and accretion of discounts;
and (vi) securities traded on foreign exchanges or in foreign over-the-
counter markets are valued as determined by a portfolio pricing service
approved by the Board, based upon last sales prices reported or, if none,
at the mean between closing bid and asked prices and reflect prevailing
rates of exchange taken from the closing price on the London foreign
exchange market that day. Foreign currency will be valued as close to the
time fixed for the valuation date as is reasonably practicable. The value
of securities denominated in foreign currency will be converted to U.S.
dollars at the prevailing rates of exchange at the time of valuation.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of the NYSE.
Events affecting the values of foreign securities traded in such markets
that occur between the time their prices are determined and the close of
the NYSE will not be reflected in the Fund's calculation of net asset
value unless the Board of Trustees or the Manager, under procedures
established by the Board of Trustees, determines that the particular event
would materially affect the Fund's net asset value, in which case an
adjustment would be made. Foreign currency will be valued as close to the
time fixed for the valuation date as is reasonably practicable. The
values of securities denominated in foreign currency will be converted to
U.S. dollars at the prevailing rates of exchange at the time of valuation.
Puts, calls and Futures held by the Fund are valued at the last sales
price on the principal exchange on which they are traded, or on NASDAQ,
as applicable or, if there were no sales that day, in accordance with (i)
above. Forward currency contracts are valued at the closing price on the
London foreign exchange market. When the Fund writes an option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as an asset, and an equivalent
deferred credit is included in the liability section. The deferred credit
is adjusted ("marked-to-market") to reflect the current market value of
the option. In determining the Fund's gain on investments, if a call
written by the Fund is exercised, the proceeds are increased by the
premium received. If a call or put written by the Fund expires, the Fund
has a gain in the amount of the premium; if the Fund enters into a closing
purchase transaction, it will have a gain or loss depending on whether the
premium was more or less than the cost of the closing transaction. If
the Fund exercises a put it holds, the amount the Fund receives on its
sale of the underlying investment is reduced by the amount of premium paid
by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy the shares. Dividends will begin to accrue on such shares
on the day the Fund receives Federal Funds for such purchase through the
ACH system before 4:00 P.M., which is normally 3 days after the ACH
transfer is initiated. The Distributor and the Fund are not responsible
for any delays. If the Federal Funds are received after 4:00 P.M.,
dividends will begin to accrue on the next regular business day after such
Federal Funds are received.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor or
dealer or broker incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren,
parents, grandparents, parents-in-law, sons- and daughters-in-law,
siblings, a sibling's spouse and a spouse's siblings.
- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Bio-Tech Fund
Oppenheimer Global Environment Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Tax-Exempt Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestments of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter to obtain the reduced sales charge rate (as set forth in the
Prospectus) applicable to purchases of shares in that amount (the
"intended amount"). Each purchase under the Letter will be made at the
public offering price applicable to a single lump-sum purchase of shares
in the intended amount, as described in the Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended amount, the investor agrees to pay the additional
amount of sales charge applicable to such purchases, as set forth in
"Terms of Escrow," below (as those terms may be amended from time to
time). The investor agrees that shares equal in value to 5% of the
intended amount will be held in escrow by the Transfer Agent subject to
the Terms of Escrow. Also, the investor agrees to be bound by the terms
of the Prospectus, this Statement of Additional Information and the
Application used for such Letter of Intent, and if such terms are amended,
as they may be from time to time by the Fund, that those amendments will
apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended 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 amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended amount specified in the Letter shall be held in
escrow by the Transfer Agent. For example, if the intended amount
specified under the Letter is $50,000, the escrow shall be shares valued
in the amount of $2,500 (computed at the public offering price adjusted
for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the 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 amount
specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid
if the total amount purchased had been made at a single time. Such sales
charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is not paid
within twenty days after a request from the Distributor or the dealer, the
Distributor will, within sixty days of the expiration of the Letter,
redeem the number of escrowed shares necessary to realize such difference
in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of the Letter) do not
include any shares sold without a front-end sales charge or without being
subject to a Class A contingent deferred sales charge unless (for the
purpose of determining completion of the obligation to purchase shares
under the Letter) the shares were acquired in exchange for shares of one
of the OppenheimerFunds whose shares were acquired by payment of a sales
charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Payments in Kind. The Prospectus states that payment for shares tendered
for redemption is ordinarily made in cash. However, if the Board of
Trustees of the Fund determines 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, the Fund may pay the redemption
proceeds in whole or in part by a distribution "in kind" of securities
from the portfolio of the Fund, in lieu of cash, in conformity with
applicable rules of the Securities and Exchange Commission. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage or other
costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Value Per Share", and such valuation will be
made as of the time the redemption price is determined.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Tax-Exempt Cash Reserves or
Oppenheimer Cash Reserves to use those accounts for monthly automatic
purchases of shares of up to four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds.
An application should be obtained from the Transfer Agent, completed and
returned, and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating Asset Builder payments.
The amount of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions
for redemptions set forth in the Prospectus.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class C shares that were subject to the Class C contingent
deferred sales charge when redeemed, in Class A shares of the Fund or any
of the other OppenheimerFunds into which shares of the Fund are
exchangeable as described below, at the net asset value next computed
after receipt by the Transfer Agent of the reinvestment order. The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the OppenheimerFunds within
90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfer of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of either class at the time of transfer to the name
of another person or entity (whether the transfer occurs by absolute
assignment, gift or bequest, not involving, directly or indirectly, a
public sale). The transferred shares will remain subject to the
contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class C contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 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. The request must: (i) state the reason
for the distribution; (ii) state the owner's awareness of tax penalties
if the distribution is premature; and (iii) conform to the requirements
of the plan and the Fund's other redemption requirements. Participants
(other than self-employed persons) in OppenheimerFunds-sponsored pension
or profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed before the
distribution may be made. Distributions from retirement plans are subject
to withholding requirements under the Internal Revenue Code, and IRS Form
W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed.
Unless the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M., and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required documents, with signature(s) 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 (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are by check
payable to all shareholders of record and sent to the address of record
for the account (and if the address has not been changed within the prior
30 days). Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis. Payments are normally
made by check, but shareholders having AccountLink privileges (see "How
To Buy Shares") may arrange to have Automatic Withdrawal Plan payments
transferred to the bank account designated on the OppenheimerFunds New
Account Application or signature-guaranteed instructions. The Fund cannot
guarantee receipt of the payment on the date requested and reserves the
right to amend, suspend or discontinue offering such plans at any time
without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A
purchases while participating in an Automatic Withdrawal Plan. Class C
shareholders should not establish withdrawal plans that would require the
redemption of shares held less than 12 months, because of the imposition
of the Class C contingent deferred sales charge on such withdrawals
(except where the Class C contingent deferred sales charge is waived as
described in "Class C Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other OppenheimerFunds
automatically on a monthly, quarterly, semi-annual or annual basis under
an Automatic Exchange Plan. The minimum amount that may be exchanged to
each other fund account is $25. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in
"Exchange Privilege" in the Prospectus and "How to Exchange Shares" below
in this Statement of Additional Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter 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
such plans should not be considered as a yield or income on your
investment.
The transfer agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use 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 because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. All of the
OppenheimerFunds offer Class A shares, but only the following other
OppenheimerFunds (referred to as "Advisors Portfolio" funds) offer Class
C shares:
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Target Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Cash Reserves
Oppenheimer Strategic Diversified Income Fund
Class A shares of OppenheimerFunds may be exchanged for shares of any
Money Market Fund; shares of any Money Market Fund purchased without a
sales charge may be exchanged for shares of OppenheimerFunds offered with
a sales charge upon payment of the sales charge (or, if applicable, may
be used to purchase shares of OppenheimerFunds subject to a contingent
deferred sales charge); and shares of the Fund acquired by reinvestment
of dividends or distributions from any other of the OppenheimerFunds 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 OppenheimerFunds. No contingent deferred sales
charge is imposed on exchanges of shares of either class purchased subject
to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the end
of the calendar month of the initial purchase of the exchanged Class A
shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus), and the Class C contingent deferred sales charge is imposed
on Class C shares redeemed within 12 months of the initial purchase of the
exchanged Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or shares covered by a share
certificate that is not tendered with the request. In those cases, only
the shares available for exchange without restriction will be exchanged.
When 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 C contingent deferred sales charge will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class C shares.
When exchanging shares by telephone, the shareholder must either have
an existing account in, or acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges
of an account made by telephone, any special account features such as
Asset Builder Plans, Automatic Withdrawal Plans and retirement plan
contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
request from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal 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
transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Daily dividends on newly
purchased shares will not be declared or paid until such time as Federal
Funds (funds credited to a member bank's account at the Federal Reserve
Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on
the next business day. Dividends will be declared on shares repurchased
by a dealer or broker for four business days following the trade date
(i.e., to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares
of the same class in the account will be paid together with the redemption
proceeds.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds.
Tax Status of The Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the dividends-received deduction
for corporate shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends paid by
the Fund which may qualify for the deduction is limited to the aggregate
amount of qualifying dividends which the Fund derives from its portfolio
investments that the Fund has held for a minimum period, usually 46 days.
A corporate shareholder will not be eligible for the deduction on
dividends paid on 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 capital gains from the sale of securities,
or dividends from foreign corporations, its dividends will not qualify for
the deduction. It is expected that for the most part the Fund's dividends
will not qualify, because of the nature of the investments held by the
Fund in its portfolio.
Distributions may be made annually in December out of any net short-
term or long-term capital gains realized from the sale of securities,
premiums from expired calls written by the Fund and net profits from
hedging instruments and closing purchase transactions realized in the
twelve months ending on October 31 of the current year. Any difference
between the net asset value of Class A and Class C shares will be
reflected in such distributions. Distributions from net short-term
capital gains are taxable to shareholders as ordinary income and when paid
by the Fund are considered "dividends." The Fund may make a supplemental
distribution of capital gains and ordinary income following the end of its
fiscal year. Any long-term capital gains distributions will be identified
separately when paid and when tax information is distributed by the Fund.
If prior distributions must be re-characterized at the end of the fiscal
year as a result of the effect of the Fund's investment policies,
shareholders may have a non-taxable return of capital, which will be
identified in notices to shareholders. There is no fixed dividend rate
(although the Fund may have a targeted dividend rate for Class A shares)
and there can be no assurance as to the payment of any dividends or the
realization of any capital gains.
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 and intends to
qualify in future years, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine
whether the Fund will qualify, and the Fund might not meet those tests in
a particular year. For example, if the Fund derives 30% or more of its
gross income from the sale of securities held less than three months, it
may fail to qualify (see "Tax Aspects of Hedging Instruments and Covered
Calls," above). If it does not qualify, the Fund will be treated for tax
purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board and the Manager might determine in
a particular year that it might be in the best interest of shareholders
for the Fund not to make such distributions at the required levels and to
pay the excise tax on the undistributed amounts. That would reduce the
amount of income or capital gains available for distribution to
shareholders.
The Internal Revenue Code requires that a holder (such as the Fund)
of a zero coupon security accrue as income each year a portion of the
discount at which the security was purchased even though the Fund receives
no interest payment in cash on the security during the year. As an
investment company, the Fund must pay out substantially all of its net
investment income each year or be subject to excise taxes, as described
above. Accordingly, when the Fund holds zero coupon securities, it may
be required to pay out as an income distribution each year an amount which
is greater than the total amount of cash interest the Fund actually
received during that year. Such distributions will be made from the cash
assets of the Fund or by liquidation of portfolio securities, if
necessary. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution than they
would have had in the absence of such transactions.
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 OppenheimerFunds listed in "Reduced
Sales Charges" above at net asset value without sales charge. Class C
shareholders should be aware that as of the date of this Statement of
Additional Information, not all OppenheimerFunds offer Class C shares.
The names of funds that do as of the date of this document can be obtained
by referring to "How to Exchange Shares," above or by calling the
Distributor at 1-800-525-7048. To elect this option, a shareholder must
notify the Transfer Agent in writing and either have an existing account
in the fund selected for reinvestment or must obtain a prospectus for that
fund and an application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from certain OppenheimerFunds may be
invested in shares of this Fund on the same basis.
Additional Information About The Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to and
from the Fund. The Manager has represented to the Fund that its banking
relationships with the Custodian have been and will continue to be
unrelated to and unaffected by the relationship between the Fund and the
Custodian. It will be the practice of the Fund to deal with the
Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager
and its affiliates.
<PAGE>
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INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------
The Board of Trustees and Shareholders of
Oppenheimer Asset Allocation Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Asset Allocation Fund as of December 31, 1993,
and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in
the six-year period then ended and the period from April 24, 1987
(commencement of operations) to December 31, 1987. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of December 31,
1993, by correspondence with the custodian and brokers; and where
confirmations 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 Asset Allocation Fund as of December 31, 1993, the results
of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the six-year period then ended and the
period from April 24, 1987 (commencement of operations) to December 31,
1987, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
/s/ KPMG Peat Marwick
Denver, Colorado
January 21, 1994
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
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STATEMENT OF INVESTMENTS December 31, 1993
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENTS--3.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Boston Corp.
(The), 3.125%, dated 12/31/93 and maturing
1/3/94, collateralized by U.S. Treasury Nts., 8.75%,
10/15/97, with a value of $10,209,880 (Cost $10,000,000) $ 10,000,000 $10,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS--27.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Bonds, Bonos de Consolidacion de
Deudas, Series I, 3.1875%, 4/1/01(5)(6) 3,357,900 2,917,955
------------------------------------------------------------------------------------------------
Australia (Government of) Bonds, 12%, 5/15/06 1,600,000(1) 1,483,925
------------------------------------------------------------------------------------------------
Canada (Government of) Bonds:
9.75%, 12/1/01 6,000,000(1) 5,447,289
8.50%, 4/1/02 3,000,000(1) 2,554,834
------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 12.25%, 9/1/13 13,846 15,966
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
11.50%, 7/1/11 338,563 387,224
11%, 11/1/14 30,613 34,618
11.75%, 1/1/16 285,560 328,674
------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
9%, 11/15/08 336,842 362,657
9%, 2/15/09 406,213 437,199
9%, 5/15/09 103,892 111,817
------------------------------------------------------------------------------------------------
Queensland (Government of) Development Authority Global
Transferable Registered Nts., 10.50%, 5/15/03 5,000,000(1) 4,261,791
------------------------------------------------------------------------------------------------
Spain (Kingdom of) Bonds:
13.45%, 4/15/96 435,000,000(1) 3,388,997
11.45%, 8/30/98 125,000,000(1) 997,288
------------------------------------------------------------------------------------------------
United Mexican States Gtd. Cv. Bonds, Series B, 6.25%,
12/31/19 4,000,000 3,342,500
------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, STRIPS, 0%, 8/15/02 6,100,000 3,689,853
------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
9.25%, 1/15/96 825,000 904,662
7.875%, 2/15/96 800,000 857,248
7.875%, 6/30/96 8,500,000 9,241,029
8%, 1/15/97 500,000 547,495
6.75%, 5/31/97 3,000,000 3,188,430
8.75%, 10/15/97 350,000 396,046
7.875%, 1/15/98 1,600,000 1,766,992
8.25%, 7/15/98 16,000,000 18,009,918
9.25%, 8/15/98 9,450,000 11,038,734
8.875%, 11/15/98 950,000 1,099,919
------------------------------------------------------------------------------------------------
Venezuela (Republic of) Collateralized Par Bonds,
Series W-B, 6.75%, 3/31/20 1,000,000 744,375
-----------
Total Government Obligations (Cost $72,124,687) 77,557,435
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--12.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 9.875% Sr. Debs., 3/1/05 1,000,000 1,105,000
------------------------------------------------------------------------------------------------
American Medical International, Inc., 13.50% Sr. Sub.
Nts., 8/15/01 500,000 585,625
------------------------------------------------------------------------------------------------
Amstar Corp., 11.375% Sr. Sub. Nts., 2/15/97 900,000 922,500
------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12.375% Gtd. Exch. Ctfs., 5/1/20(5) 800,000 1,230,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES
(CONTINUED)
Aztar Corp., 11% Sr. Sub. Nts., 10/1/02 $ 475,000 $ 484,500
------------------------------------------------------------------------------------------------
Cablevision Industries Corp., 9.25% Sr. Debs.,
Series B, 4/1/08 1,000,000 1,040,000
------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 10.75% Sr. Sub. Debs., 4/1/04 1,000,000 1,122,500
------------------------------------------------------------------------------------------------
Centennial Cellular Corp., 8.875% Sr. Nts., 11/1/01 500,000 497,500
------------------------------------------------------------------------------------------------
Conseco, Inc., 8.125% Sr. Nts., 2/15/03 1,000,000 1,047,295
------------------------------------------------------------------------------------------------
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 750,000 815,625
------------------------------------------------------------------------------------------------
Epic Holdings, Inc., 0%/12% Sr. Def. Cpn. Nts., 3/15/02(4) 1,100,000 803,000
------------------------------------------------------------------------------------------------
Flagstar Corp., 10.875% Sr. Nts., 12/1/02 400,000 415,000
------------------------------------------------------------------------------------------------
Foodmaker, Inc., 14.25% Sr. Sub. Nts., 5/15/98 1,000,000 1,073,750
------------------------------------------------------------------------------------------------
Gaylord Container Corp., 12.75% Sr. Sub. Disc. Debs., 5/15/05 600,000 496,500
------------------------------------------------------------------------------------------------
Gillett Holdings, Inc., 12.25% Sr. Sub. Nts., 6/30/02 400,000 438,000
------------------------------------------------------------------------------------------------
Global Marine, Inc., 12.75% Sr. Sec. Nts., 12/15/99 400,000 446,000
------------------------------------------------------------------------------------------------
Grand Union Co., 11.25% Sr. Nts., 7/15/00 800,000 844,000
------------------------------------------------------------------------------------------------
Greyhound Lines, Inc., 10% Sr. Nts., 7/31/01 500,000 518,750
------------------------------------------------------------------------------------------------
Horsehead Industries, Inc., 14% Sub. Nts., 6/1/99 400,000 366,000
------------------------------------------------------------------------------------------------
Host Marriott Hospitality, Inc., 9.125% Sr. Nts.,
Series C, 12/1/00 950,000 976,125
------------------------------------------------------------------------------------------------
Infinity Broadcasting Corp., 10.375% Sr. Sub. Nts., 3/15/02 700,000 754,250
------------------------------------------------------------------------------------------------
Inland Steel Industries, Inc., 12.75% Nts., 12/15/02 400,000 461,000
------------------------------------------------------------------------------------------------
Interco, Inc., 9% Secd. Nts., Series B, 6/1/04 1,000,000 1,002,500
------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 11.25% Gtd. Sub. Nts., 4/15/02 725,000 792,969
------------------------------------------------------------------------------------------------
MacAndrews & Forbes Group, Inc., 12.25% Sub. Debs., 7/1/96 500,000 515,625
------------------------------------------------------------------------------------------------
Maxus Energy Corp., 11.50% Debs., 11/15/15 1,000,000 1,055,000
------------------------------------------------------------------------------------------------
Mediq, Inc., 7.50% Exch. Sub. Debs., 7/15/03 900,000 865,125
------------------------------------------------------------------------------------------------
Multicare Cos., Inc. (The), 12.50% Sr. Sub. Nts., 7/1/02 345,000 388,125
------------------------------------------------------------------------------------------------
News America Holdings, Inc., 8.50% Sr. Nts., 2/15/05 1,000,000 1,090,117
------------------------------------------------------------------------------------------------
Owens-Illinois, Inc., 10% Sr. Sub. Nts., 8/1/02 500,000 533,125
------------------------------------------------------------------------------------------------
Panamsat L.P./Panamsat Capital Corp., 11.375% Sr. Sub.
Disc. Nts., 8/1/03 1,000,000 670,000
------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% Fst. Mort. Nts., 6/1/03 500,000 609,605
------------------------------------------------------------------------------------------------
Ralph's Grocery Co., 10.25% Sr. Sub. Nts., 7/15/02 500,000 526,250
------------------------------------------------------------------------------------------------
Revco D.S., Inc., 9.125% Sr. Nts., 1/15/00 500,000 532,500
------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp.:
9.375% Sr. Nts., Series B, 4/1/01 250,000 245,625
10.50% Sr. Sub. Nts., Series B, 2/15/03 1,000,000 970,000
------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.75% Sr. Nts., 6/15/00 500,000 546,250
------------------------------------------------------------------------------------------------
RJR Nabisco, Inc., 10.50% Sr. Nts., 4/15/98 400,000 442,000
------------------------------------------------------------------------------------------------
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 1,000,000 1,117,500
------------------------------------------------------------------------------------------------
SCI Television, Inc., 11% Sr. Sec. Nts., 6/30/05 1,000,000 1,040,000
------------------------------------------------------------------------------------------------
Southland Corp., 4.50% 2nd Priority Sr. Sub. Debs.,
Series A, 6/15/04 1,700,000 1,166,625
------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 900,000 990,000
------------------------------------------------------------------------------------------------
Time Warner, Inc., 7.95% Nts., 2/1/00 1,000,000 1,070,000
------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,100,000 1,342,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES Unisys Corp.:
(continued) 15% Credit Sensitive Nts., 7/1/97 $400,000 $ 456,000
10.625% Nts., 10/1/99 600,000 645,000
------------------------------------------------------------------------------------------------
USG Corp., 10.25% Sr. Sec. Nts., 12/15/02 500,000 515,000
----------
Total Corporate Bonds and Notes (Cost $33,530,593) 35,569,861
SHARES
- -----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--1.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Alumax, Inc., $4.00 Cv., Series A 7,333 722,301
------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc., $1.28 Depositary Shares(2) 50,000 681,250
------------------------------------------------------------------------------------------------
Cyprus Amax Minerals Co., $4.00 Cv., Series A 14,666 953,290
------------------------------------------------------------------------------------------------
Dairy Farm International Holdings Ltd., $65.00 Cv.(3) 40 61,600
------------------------------------------------------------------------------------------------
Delta Airlines, Inc., $3.50 Cv. Depositary Shares, Series C(2) 22,000 1,177,000
----------
Total Preferred Stocks (Cost $3,063,620) 3,595,441
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--54.6%
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--2.7%
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.0% biosys(2) 40,000 230,000
------------------------------------------------------------------------------------------------
Hauser Chemical Research, Inc.(2) 56,000 448,000
------------------------------------------------------------------------------------------------
Praxair, Inc. 55,500 922,687
------------------------------------------------------------------------------------------------
Sybron Chemical Industries, Inc.(2) 48,000 1,158,000
----------
2,758,687
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS: DIVERSIFED--0.5% Bayer AG, ADR 6,700 1,413,700
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS: SPECIALTY--0.1% Goldschmidt (T.H.) AG 750 300,167
- -----------------------------------------------------------------------------------------------------------------------------------
GOLD--0.1% Arimetco International, Inc.(2) 180,000 251,518
- -----------------------------------------------------------------------------------------------------------------------------------
METALS: MISCELLANEOUS--0.5% Brush Wellman, Inc. 90,500 1,289,625
- -----------------------------------------------------------------------------------------------------------------------------------
STEEL--0.5% Inland Steel Industries, Inc.(2) 38,800 1,285,250
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--10.9%
- -----------------------------------------------------------------------------------------------------------------------------------
AUTO PARTS: AFTER MARKET--0.3% Hi-Lo Automotive, Inc.(2) 77,700 767,287
- -----------------------------------------------------------------------------------------------------------------------------------
BROADCAST MEDIA--1.8% Comcast Corp., Cl. A Special 84,500 3,042,000
------------------------------------------------------------------------------------------------
Grupo Televisa SA, ADS(2) 28,800 2,016,000
---------
5,058,000
- -----------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--2.1% Disney (Walt) Co.(7) 31,500 1,342,687
------------------------------------------------------------------------------------------------
King World Productions, Inc.(2)(7) 37,300 1,431,387
------------------------------------------------------------------------------------------------
Paramount Communications, Inc.(7) 23,100 1,787,362
------------------------------------------------------------------------------------------------
WMS Industries, Inc.(2)(7) 40,000 1,150,000
----------
5,711,436
- -----------------------------------------------------------------------------------------------------------------------------------
LEISURE TIME--0.6% Eastman Kodak Co.(2) 15,000 840,000
------------------------------------------------------------------------------------------------
International Game Technology 24,000 708,000
----------
1,548,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PUBLISHING--1.2% Time Warner, Inc. 60,000 $2,655,000
-----------------------------------------------------------------------------------------------------
Wolters Kluwer NV 10,167 642,282
----------
3,297,282
- -----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--0.3% Quantum Restaurant Group, Inc. 74,000 906,500
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--1.7% Blockbuster Entertainment Corp.(7) 58,500 1,791,562
-----------------------------------------------------------------------------------------------------
CML Group, Inc. 29,000 685,125
-----------------------------------------------------------------------------------------------------
Inacom Corp.(2) 65,000 877,500
-----------------------------------------------------------------------------------------------------
Venture Stores, Inc. 55,600 1,299,650
----------
4,653,837
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL STORES: GENERAL Centros Comerciales Pryca 20,000 264,474
MERCHANDISE CHAINS--0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
SHOES--0.7% Baker (J.), Inc. 108,500 1,898,750
- -----------------------------------------------------------------------------------------------------------------------------------
TEXTILES: APPAREL Authentic Fitness Corp.(2) 39,000 1,096,875
MANUFACTURERS--0.8% -----------------------------------------------------------------------------------------------------
Warnaco Group, Inc. (The), Cl. A(2) 33,500 1,017,562
----------
2,114,437
- -----------------------------------------------------------------------------------------------------------------------------------
TOYS--1.3% Mattel, Inc. 107,712 2,975,544
-----------------------------------------------------------------------------------------------------
Nintendo Co. 12,000 772,008
----------
3,747,552
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--11.3%
- -----------------------------------------------------------------------------------------------------------------------------------
BEVERAGES: ALCOHOLIC--0.4% Guinness PLC 160,000 1,130,338
- -----------------------------------------------------------------------------------------------------------------------------------
BEVERAGES: SOFT DRINKS--0.5% Whitman Corp. 83,900 1,363,375
- -----------------------------------------------------------------------------------------------------------------------------------
COSMETICS--0.6% Avon Products, Inc.(7) 35,400 1,721,325
- -----------------------------------------------------------------------------------------------------------------------------------
DRUGS--1.9% Agouron Pharmaceuticals, Inc.(2) 24,000 282,000
-----------------------------------------------------------------------------------------------------
Astra AB Free, Series A 37,250 849,105
-----------------------------------------------------------------------------------------------------
Ciba-Geigy AG 1,825 1,106,039
-----------------------------------------------------------------------------------------------------
Lilly (Eli) & Co. 18,000 1,068,750
-----------------------------------------------------------------------------------------------------
Sandoz AG 700 1,949,120
----------
5,255,014
- -----------------------------------------------------------------------------------------------------------------------------------
FOOD PROCESSING--1.2% Chiquita Brands International, Inc. 2,965 34,098
-----------------------------------------------------------------------------------------------------
CP Pokphand Co. 1,935,000 851,378
-----------------------------------------------------------------------------------------------------
Nestle SA, Sponsored ADR 56,600 2,447,950
----------
3,333,426
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE: DIVERSIFIED--1.3% Abbott Laboratories 20,200 595,900
-----------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 30,000 1,743,750
-----------------------------------------------------------------------------------------------------
Schering AG 1,825 1,192,822
----------
3,532,472
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HEALTHCARE: MISCELLANEOUS--3.5% Amgen, Inc.(2)(7) 17,000 $ 841,500
------------------------------------------------------------------------------------------------
Biogen, Inc.(2) 21,000 837,375
------------------------------------------------------------------------------------------------
Chiron Corp.(2) 7,700 646,800
------------------------------------------------------------------------------------------------
FHP International Corp.(2)(7) 90,000 2,430,000
------------------------------------------------------------------------------------------------
Genzyme Corp.(2) 19,700 541,750
------------------------------------------------------------------------------------------------
Manor Care, Inc. 52,678 1,284,026
------------------------------------------------------------------------------------------------
Protein Design Labs, Inc.(2) 28,000 679,000
------------------------------------------------------------------------------------------------
U.S. Healthcare, Inc.(7) 43,400 2,500,925
----------
9,761,376
- -----------------------------------------------------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT--0.4% Medical Care America, Inc.(2)(7) 46,300 1,059,112
- -----------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS--0.9% Bard (C.R.), Inc.(7) 23,000 580,750
------------------------------------------------------------------------------------------------
Medtronic, Inc.(7) 12,000 985,500
------------------------------------------------------------------------------------------------
Nellcor, Inc.(2) 32,000 792,000
----------
2,358,250
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL STORES:
FOOD CHAINS--0.2% Dairy Farm International Holdings Ltd. 328,052 653,771
- -----------------------------------------------------------------------------------------------------------------------------------
TOBACCO--0.4% Philip Morris Cos., Inc. 21,000 1,170,750
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY--3.2%
- -----------------------------------------------------------------------------------------------------------------------------------
COAL--0.4% Ashland Coal, Inc. 38,500 1,164,625
- -----------------------------------------------------------------------------------------------------------------------------------
OIL: EXPLORATION AND Burlington Resources, Inc.(7) 28,700 1,216,163
PRODUCTION--0.8% ------------------------------------------------------------------------------------------------
Oryx Energy Co. 63,300 1,091,925
----------
2,308,088
- -----------------------------------------------------------------------------------------------------------------------------------
OIL AND GAS DRILLING--0.3% Santa Fe Energy Resources, Inc. 90,000 810,000
- -----------------------------------------------------------------------------------------------------------------------------------
OIL: INTEGRATED DOMESTIC--0.6% Unocal Corp.(7) 62,000 1,728,250
- -----------------------------------------------------------------------------------------------------------------------------------
OIL: INTEGRATED Amoco Corp. 17,600 930,600
INTERNATIONAL--0.8% ------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 7,000 730,625
------------------------------------------------------------------------------------------------
Saga Petroleum AS, Cl. B 70,000 679,444
----------
2,340,669
- -----------------------------------------------------------------------------------------------------------------------------------
OIL WELL SERVICES AND McDermott International, Inc.(7) 30,100 797,650
EQUIPMENT--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--6.6%
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: Bear Stearns Cos., Inc. (The) 33,600 735,000
MISCELLANEOUS--2.5% ------------------------------------------------------------------------------------------------
Catellus Development Corp.(2) 121,000 937,750
------------------------------------------------------------------------------------------------
Dean Witter, Discover & Co.(7) 20,000 692,500
------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 35,200 1,478,400
------------------------------------------------------------------------------------------------
Peregrine Investment Holdings Ltd. 266,000 654,030
------------------------------------------------------------------------------------------------
Salomon, Inc.(7) 52,500 2,500,313
----------
6,997,993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
INSURANCE: LIFE--0.2% Bankers Life Holding Corp. 30,000 $ 645,000
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE: MULTI-LINE--0.3% American Re Corp.(2) 32,900 933,538
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE: PROPERTY AND Loews Corp.(2) 8,500 790,500
CASUALTY--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
MAJOR BANKS: OTHER--0.8% BankAmerica Corp. 21,600 1,001,700
------------------------------------------------------------------------------------------------
Deutsche Bank AG, ADR 2,250 1,153,125
-----------
2,154,825
- -----------------------------------------------------------------------------------------------------------------------------------
MAJOR BANKS: REGIONAL--0.6% NationsBank Corp. 36,300 1,778,700
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY CENTER BANKS--1.6% Bank of New York Co., (The)(7) 25,000 1,425,000
- -----------------------------------------------------------------------------------------------------------------------------------
Bankers Trust New York Corp. 21,400 1,693,275
- -----------------------------------------------------------------------------------------------------------------------------------
Chemical Banking Corp. 33,900 1,360,238
------------
4,478,513
- -----------------------------------------------------------------------------------------------------------------------------------
SAVINGS AND LOANS/HOLDING Golden West Financial Corp. 25,000 975,000
COS.--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--6.6%
- -----------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS GROUP--0.8% Owens-Corning Fiberglas Corp.(2) (7) 53,000 2,351,875
- -----------------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES--0.5% Tenneco, Inc. 28,000 1,473,500
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.3% Amphenol Corp., Cl. A(2) 135,000 2,227,500
- -----------------------------------------------------------------------------------------------------------------------------------
General Electric Co. 13,200 1,384,350
------------
3,611,850
- -----------------------------------------------------------------------------------------------------------------------------------
ENGINEERING AND Huarte SA 80,350 961,333
CONSTRUCTION--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
HEAVY DUTY TRUCKS AND Spartan Motors, Inc.(7) 50,700 861,900
PARTS--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
MACHINE TOOLS--0.3% FANUC Ltd. 22,500 741,902
- -----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING: DIVERSIFIED Mannesmann AG 7,412 1,792,675
INDUSTRIALS--1.1% ------------------------------------------------------------------------------------------------
Siemens AG, ADR 14,200 1,297,525
------------
3,090,200
- -----------------------------------------------------------------------------------------------------------------------------------
POLLUTION CONTROL--0.7% WMX Technologies, Inc. 73,500 1,938,563
- -----------------------------------------------------------------------------------------------------------------------------------
RAILROADS--0.6% Burlington Northern, Inc.(7) 30,800 1,782,550
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: OMI Corp. 124,300 854,563
MISCELLANEOUS--0.7% ------------------------------------------------------------------------------------------------
Stolt-Nielsen SA 65,000 1,088,750
------------
1,943,313
- -----------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--10.9%
- -----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--1.0% General Dynamics Corp.(7) 16,000 1,476,000
------------------------------------------------------------------------------------------------
McDonnell Douglas Corp. 11,000 1,177,000
------------
2,653,000
- -----------------------------------------------------------------------------------------------------------------------------------
COMMUNICATION: EQUIPMENT/ QUALCOMM, Inc.(2) (7) 7,700 408,100
MANUFACTURERS--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
MARKET VALUE
SHARES SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
COMPUTER SOFTWARE AND BMC Software, Inc. 16,500 $ 792,000
SERVICES--2.8% ------------------------------------------------------------------------------------------------
Lotus Development Corp.(2) (7) 45,300 2,491,500
------------------------------------------------------------------------------------------------
Marcam Corp.(2) 66,000 643,500
------------------------------------------------------------------------------------------------
Microsoft Corp. 11,500 927,188
------------------------------------------------------------------------------------------------
Network General Corp.(2) (7) 69,000 1,233,375
------------------------------------------------------------------------------------------------
Novell, Inc. 32,800 680,600
------------------------------------------------------------------------------------------------
Sap AG Preference 1,000 930,014
------------
7,698,177
- -----------------------------------------------------------------------------------------------------------------------------------
COMPUTER SYSTEMS--1.6% International Business Machines Corp.(2) 23,000 1,299,500
------------------------------------------------------------------------------------------------
Micropolis Corp.(2) 150,000 1,050,000
------------------------------------------------------------------------------------------------
Synoptics Communications, Inc. 45,600 1,271,100
------------------------------------------------------------------------------------------------
Tandem Computers, Inc. 79,800 867,825
------------------------------------------------------------------------------------------------
4,488,425
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS: Hewlett-Packard Co.(7) 19,800 1,564,200
INSTRUMENTATION--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS: Cirrus Logic, Inc.(2) (7) 27,500 1,017,500
SEMICONDUCTORS--1.8% ------------------------------------------------------------------------------------------------
Intel Corp.(7) 42,800 2,653,600
------------------------------------------------------------------------------------------------
Xilinx, Inc.(2) (7) 28,700 1,370,425
------------
5,041,525
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICE EQUIPMENT AND Xerox Corp.(7) 14,100 1,260,188
SUPPLIES--0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--2.4% American Telephone & Telegraph Co.(2) 20,600 1,081,500
------------------------------------------------------------------------------------------------
MCI Communications Corp. 106,000 2,994,500
------------------------------------------------------------------------------------------------
NEXTEL Communications, Inc., Cl. A 20,500 763,625
------------------------------------------------------------------------------------------------
Rogers Cantel Mobile Communications, Inc., Cl. B, Sub. Vtg.(2) 69,500 1,876,500
------------
6,716,125
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--2.4%
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC COS.--0.7% Korea Electric Power Corp. 25,000 678,313
------------------------------------------------------------------------------------------------
Verbund Oest Electriz 19,000 1,156,285
------------
1,834,598
- -----------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS--0.5% Hong Kong & China Gas 516,000 1,495,754
- -----------------------------------------------------------------------------------------------------------------------------------
TELEPHONE (NEW)--1.2% BCE, Inc. 34,000 1,185,750
------------------------------------------------------------------------------------------------
U S West Communications, Inc. 47,300 2,169,888
------------
3,355,638
------------
Total Common Stocks (Cost $113,750,090) 151,781,778
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $232,468,990) 100.1% 278,504,515
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (.1) (194,837)
--------- ------------
NET ASSETS 100.0% $278,309,678
--------- ------------
--------- ------------
</TABLE>
<PAGE>
--------------------------------------------
- -------------------------------------------------------------------------------
1. Face amount is reported in foreign
currency.
2. Non-income producing security.
3. Restricted security--See Note 6 of Notes
to Financial Statements.
4. Represents a zero coupon bond that
converts to a fixed rate of interest at
a designated future date.
5. Represents the current interest rate for
a variable rate security.
6. Interest or dividend is paid in kind.
7. Securities with an aggregate market value
of $18,264,288 are held in escrow to
cover outstanding call options, as
follows:
<TABLE>
<CAPTION>
SHARES SUBJECT EXPIRATION EXERCISE PREMIUM MARKET VALUE
TO CALL DATE PRICE RECEIVED SEE NOTE 1
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amgen, Inc. 3,000 1/94 $50.00 $4,410 $4,125
Avon Products, Inc. 7,000 4/94 55.00 7,700 6,125
Bank of New York Co., (The) 5,000 1/94 60.00 12,974 1,875
Bard (C.R.), Inc. 11,500 1/94 25.00 19,779 9,344
Bard (C.R.), Inc. 11,500 4/94 30.00 16,186 5,750
Blockbuster Entertainment Corp. 22,500 1/94 25.00 23,343 123,750
Blockbuster Entertainment Corp. 22,500 3/94 30.00 24,637 50,625
Blockbuster Entertainment Corp. 13,500 6/94 30.00 43,468 43,875
Burlington Northern, Inc. 2,800 1/94 55.00 13,215 8,400
Burlington Northern, Inc. 2,800 1/94 60.00 6,740 1,750
Burlington Resources, Inc. 9,000 5/94 55.00 13,229 3,937
Cirrus Logic, Inc. 13,500 3/94 35.00 68,780 59,062
Cirrus Logic, Inc. 14,000 3/94 30.00 60,828 110,250
Dean Witter, Discover & Co. 10,000 1/94 40.00 27,199 625
Dean Witter, Discover & Co. 10,000 1/94 45.00 13,450 625
Disney (Walt) Co. 6,300 4/94 40.00 16,348 27,562
FHP International Corp. 9,000 3/94 25.00 36,809 28,125
General Dynamics Corp. 4,000 2/94 95.00 16,859 9,500
Hewlett-Packard Co. 4,000 2/94 85.00 8,470 5,000
Intel Corp. 6,000 1/94 65.00 12,570 6,375
Intel Corp. 4,000 4/94 70.00 16,379 10,000
King World Productions, Inc 7,500 2/94 45.00 15,048 6,563
Lotus Development Corp. 7,800 1/94 40.00 35,840 120,900
Lotus Development Corp. 7,000 4/94 60.00 33,039 21,000
Lotus Development Corp. 7,800 4/94 50.00 52,414 66,300
McDermott International, Inc. 15,100 2/94 30.00 26,915 3,775
McDermott International, Inc. 15,000 5/94 35.00 14,624 3,750
Medical Care America, Inc. 23,000 4/94 25.00 62,558 40,250
Medtronic, Inc. 2,400 1/94 85.00 5,328 2,400
Network General Corp. 21,600 1/94 15.00 37,151 62,100
Network General Corp. 10,800 7/94 20.00 25,325 25,650
Owens-Corning Fiberglas Corp. 10,600 3/94 50.00 21,544 7,950
Paramount Communications, Inc. 6,900 1/94 80.00 19,630 8,194
Paramount Communications, Inc. 9,400 3/94 80.00 54,325 23,500
Paramount Communications, Inc. 6,700 3/94 85.00 12,780 6,700
QUALCOMM, Inc. 7,700 1/94 50.00 50,780 38,500
Salomon, Inc. 13,100 1/94 45.00 43,818 39,300
Salomon, Inc. 13,100 1/94 50.00 24,169 5,731
Salomon, Inc. 13,100 4/94 55.00 13,781 9,825
Spartan Motors, Inc. 8,200 3/94 22.50 18,716 3,075
U.S. Healthcare, Inc. 11,700 1/94 55.00 49,685 48,263
Unocal Corp. 6,000 1/94 30.00 20,069 750
Unocal Corp. 6,000 1/94 35.00 8,070 1,125
WMS Industries, Inc. 9,000 5/94 35.00 32,354 13,500
Xerox Corp. 3,000 3/94 85.00 8,535 21,000
Xilinx, Inc. 7,700 3/94 45.00 27,681 43,313
Xilinx, Inc. 7,700 3/94 50.00 26,718 25,025
Xilinx, Inc. 6,600 3/94 55.00 17,951 13,200
---------- ----------
$1,222,221 $1,178,319
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES December 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSET Investments, at value (cost $232,468,990)--see accompanying statement $278,504,515
------------------------------------------------------------------------------------------------
Cash 388,512
Receivables:
Dividends and interest 2,619,901
Investments sold and options written 1,478,742
Shares of beneficial interest sold 348,501
------------------------------------------------------------------------------------------------
Other 94,565
Total assets 283,434,736
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Options written, at value (premiums received $1,222,221)--see
accompanying statement--Note 4 1,178,319
------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 1,799,948
Shares of beneficial interest redeemed 1,205,840
Dividends and distributions 546,232
Distribution assistance--Note 5 83,600
Other 311,119
Total liabilities 5,125,058
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $278,309,678
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS Paid-in capital $231,645,746
------------------------------------------------------------------------------------------------
Overdistributed net investment income (340,955)
------------------------------------------------------------------------------------------------
Accumulated net realized gain from investment, written option and foreign
currency transactions 947,609
------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments, options written and translation
of assets and liabilities denominated in foreign currencies--Note 3 46,057,278
------------
Net assets $278,309,678
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE Class A Shares:
Net asset value and redemption price per share (based on net assets
of $277,914,116 and 21,302,040 shares of beneficial interest outstanding) $13.05
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $13.85
------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $395,562 and 30,319 shares of beneficial interest outstanding) $13.05
</TABLE>
See accompanying Notes to Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For The Year Ended December 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME Interest $10,492,271
------------------------------------------------------------------------------------------------
Dividends (net of withholding taxes of $53,569) 2,360,414
-----------
Total income 12,852,685
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 5 2,130,917
------------------------------------------------------------------------------------------------
Distribution assistance:
Class A--Note 5 313,174
Class C--Note 5 155
------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 5 266,298
------------------------------------------------------------------------------------------------
Shareholder reports 105,776
------------------------------------------------------------------------------------------------
Trustees' fees and expenses 101,437
------------------------------------------------------------------------------------------------
Custodian fees and expenses 87,880
------------------------------------------------------------------------------------------------
Legal and auditing fees 41,492
------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 125
Class C 80
------------------------------------------------------------------------------------------------
Other 49,883
-----------
Total expenses 3,097,217
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 9,755,468
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized gain (loss) from:
GAIN ON INVESTMENTS, Investments and options written (including premiums on options exercised) 8,493,206
OPTIONS WRITTEN AND Closing and expiration of option contracts written--Note 4 419,639
FOREIGN CURRENCY Foreign currency transactions (295,852)
TRANSACTIONS ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written 25,714,525
Translation of assets and liabilities denominated in foreign currencies (3,097,192)
-----------
Net realized and unrealized gain on investments, options written and foreign
currency transactions 31,234,326
-----------
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $40,989,794
-----------
-----------
</TABLE>
See accompanying Notes to Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS Net investment income $ 9,755,468 $ 9,173,269
----------------------------------------------------------------------------------------------------------
Net realized gain on investments, options written and foreign
currency transactions 8,616,993 6,549,881
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments,
options written and translation of assets and liabilities denominated in
foreign currencies 22,617,333 3,684,652
------------ ------------
Net increase in net assets resulting from operations 40,989,794 19,407,802
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.438 and $.419 per share, respectively) (9,529,080) (9,801,510)
SHAREHOLDERS Class C ($.12 per share) (2,987) --
----------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments, options written and
foreign currency transactions:
Class A ($.012 per share) (254,071) --
Class C ($.012 per share) (298) --
- -----------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net decrease in net assets resulting from Class A beneficial interest
TRANSACTIONS transactions--Note 2 (20,002,391) (19,693,466)
----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class C beneficial interest
transactions--Note 2 395,601 --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase (decrease) 11,596,568 (10,087,174)
----------------------------------------------------------------------------------------------------------
Beginning of year 266,713,110 276,800,284
------------ ------------
End of year (including overdistributed net investment income of $340,955
and $564,356, respectively) $278,309,678 $266,713,110
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS A CLASS C
----------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDING
DECEMBER 31, DECEMBER 31,
1993 1992 1991(3) 1990 1989 1988 1987(2) 1993(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.63 $11.22 $10.19 $10.67 $9.78 $8.89 $10.00 $12.86
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) .44 .39 .40 .53 .49 .39 .27 (.97)
Net realized and unrealized gain (loss)
on investments, options written and
foreign currency transactions 1.43 .44 1.06 (.43) 1.17 1.09 (1.11) 1.29
-------- -------- -------- ------- ------- ------- ------- ------
Total income (loss) from investment
operations 1.87 .83 1.46 .10 1.66 1.48 (.84) .32
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.44) (.42) (.43) (.52) (.48) (.40) (.26) (.12)
Distributions from net realized gain
on investments, options written, and
foreign currency transactions (.01) -- -- (.06) (.29) (.19) (.01) (.01)
-------- -------- -------- ------- ------- ------- ------- ------
Total dividends and distributions
to shareholders (.45) (.42) (.43) (.58) (.77) (.59) (.27) (.13)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.05 $11.63 $11.22 $10.19 $10.67 $9.78 $ 8.89 $13.05
-------- -------- -------- ------- ------- ------- ------- ------
-------- -------- -------- ------- ------- ------- ------- ------
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 16.30% 7.54% 14.67% .93% 18.21% 15.88% (8.60)% 2.51%
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $277,914 $266,713 $276,800 $83,292 $81,194 $51,602 $32,718 $396
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $272,303 $269,096 $192,870 $82,490 $68,134 $40,662 $31,407 $194
- -------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end
of period (in thousands) 21,302 22,938 24,666 8,171 7,611 5,275 3,679 30
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.58% 3.41% 3.78% 5.14% 4.71% 4.30% 3.84%(5) 2.19%(5)
Expenses 1.14% 1.17% 1.27% 1.36% 1.47% 1.50% 1.60%(5) 2.50%(5)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 32.7% 60.3% 102.0% 71.3% 60.2% 185.5% 83.7% 32.7%
<FN>
(1) For the period from December 1, 1993 (inception of offering) to
December 31, 1993.
(2) For the period from April 24, 1987 (commencement of operations) to
December 31, 1987.
(3) Per share amounts calculated based on the weighted average number of shares
outstanding during the year.
(4) Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
(5) Annualized.
(6) The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding short-
term securities) for the year ended December 31, 1993 were $87,719,113 and
$122,411,907, respectively.
</TABLE>
See accompanying Notes to Financial
Statements.
<PAGE>
------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer Asset Allocation Fund (the Fund) is
ACCOUNTING POLICIES registered under the Investment Company Act of
1940, as amended, as a diversified, open-end
management investment company. The Fund's
investment advisor is Oppenheimer Management
Corporation (the Manager). The Fund offers both
Class A and Class C shares. Class A shares are
sold with a front-end sales charge. Class C
shares may be subject to a contingent deferred
sales charge. Both classes of shares have
identical rights to earnings, assets and voting
privileges, except that each class has its own
distribution plan, expenses directly attributable
to a particular class and exclusive voting rights
with respect to matters affecting a single class.
The following is a summary of significant
accounting policies consistently followed by the
Fund.
------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are
valued at 4:00 p.m. (New York time) on each
trading day. Listed and unlisted securities for
which such information is regularly reported are
valued at the last sale price of the day or, in
the absence of sales, at values based on the
closing bid or asked price or the last sale price
on the prior trading day. Long-term debt
securities are valued by a portfolio pricing
service approved by the Board of Trustees.
Long-term debt securities which cannot be valued
by the approved portfolio pricing service are
valued by averaging the mean between the bid and
asked prices obtained from two active market
makers in such securities. Short-term debt
securities having a remaining maturity of 60 days
or less are valued at cost (or last determined
market value) adjusted for amortization to
maturity of any premium or discount. Securities
for which market quotes are not readily available
are valued under procedures established by the
Board of Trustees to determine fair value in good
faith. A call option is valued based upon the
last sales price on the principal exchange on
which the option is traded or, in the absence of
any transactions that day, the value is based
upon the last sale on the prior trading date if
it is within the spread between the closing bid
and asked prices. If the last sale price is
outside the spread, the closing bid or asked
price closest to the last reported sale price is
used.
------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting
records of the Fund are maintained in U.S.
dollars. Prices of securities denominated in
foreign currencies are translated into U.S.
dollars at the closing rates of exchange. Amounts
related to the purchase and sale of securities
and investment income are translated at the rate
of exchange prevailing on the respective dates of
such transactions.
The Fund generally enters into
forward currency exchange contracts as a hedge,
upon the purchase or sale of a security
denominated in a foreign currency. Risks may
arise from the potential inability of the
counterparty to meet the terms of the contract
and from unanticipated movements in the value of
a foreign currency relative to the U.S. dollar.
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
results 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. 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.
------------------------------------------------
CALL OPTIONS WRITTEN. The Fund may write covered
call options. When an option is written, the Fund
receives a premium and becomes obligated to sell
the underlying security at a fixed price, upon
exercise of the option. In writing an option, the
Fund bears the market risk of an unfavorable
change in the price of the security underlying
the written option. Exercise of an option written
by the Fund could result in the Fund selling a
security at a price different from the current
market value. All securities covering call
options written are held in escrow by the
custodian bank.
------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND
LOSSES. Income, expenses (other than those
attributable to a specific class) and gains and
losses are allocated daily to each class of
shares based upon the relative proportion of net
assets represented by such class. Operating
expenses directly attributable to a specific
class are charged against the operations of that
class.
<PAGE>
------------------------------------------------
- -------------------------------------------------------------------------------
1. SIGNIFICANT FEDERAL INCOME TAXES. The Fund intends to
ACCOUNTING POLICIES continue to comply with provisions of the
(CONTINUED) 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 tax
provision is required. At December 31, 1993, the
Fund had available for federal income tax
purposes an unused capital loss carryover of
approximately $3,138,000, $1,336,000 of which
will expire in 1996, $445,000 in 1997, $445,000
in 1998 and $912,000 in 1999, the usage of which
is subject to certain limitations.
------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted
a nonfunded retirement plan for the Fund's
independent trustees. Benefits are based on years
of service and fees paid to each trustee during
the years of service. During the year ended
December 31, 1993, a provision of $50,137 was
made for the Fund's projected benefit
obligations, resulting in an accumulated
liability of $149,499 at December 31, 1993. No
payments have been made under the plan.
------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and
distributions to shareholders are recorded on the
ex-dividend date.
------------------------------------------------
OTHER. Investment transactions are accounted for
on the date the investments are purchased or sold
(trade date) and dividend income is recorded on
the ex-dividend date. Discount on securities
purchased is amortized over the life of the
respective securities, in accordance with federal
income tax requirements. Realized gains and
losses on investments and options written and
unrealized appreciation and depreciation are
determined on an identified cost basis, which is
the same basis used for federal income tax
purposes.
- -------------------------------------------------------------------------------
2. SHARES OF The Fund has authorized an unlimited number of no
BENEFICIAL INTEREST par value shares of beneficial interest of each
class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993(1) YEAR ENDED DECEMBER 31, 1992
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,309,237 $ 16,208,603 2,398,948 $ 27,227,497
Dividends and distributions
reinvested 593,184 7,426,650 635,868 7,205,095
Redeemed (3,538,545) (43,637,644) (4,762,925) (54,126,058)
---------- ------------ ---------- ------------
Net decrease (1,636,124) $(20,002,391) (1,728,109) $(19,693,466)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
-----------------------------------------------------------------------------------------------------
Class C:
Sold 30,068 $392,326 -- $ --
Dividends and distributions
reinvested 251 3,275 -- --
---------- ------------ ---------- ------------
Net increase 30,319 $395,601 -- $ --
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<FN>
(1) For the year ended December 31, 1993 for
Class A shares and for the period from
December 1, 1993 (inception of offering) to
December 31, 1993 for Class C shares.
</TABLE>
- --------------------------------------------------------------------------------
3. UNREALIZED GAINS AND At December 31, 1993, net unrealized appreciation
LOSSES ON on investments and options written of $49,154,470
INVESTMENTS AND was composed of gross appreciation of
OPTIONS WRITTEN $52,371,957, and gross depreciation of
$3,217,487.
<PAGE>
------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Call Option Activity Call option activity for the year ended
December 31, 1993 was as follows:
<TABLE>
<CAPTION>
NUMBER AMOUNT
OF OPTIONS OF PREMIUMS
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1992 2,754 $ 518,448
------------------------------------------------------------------------------------------------
Options written 12,170 3,081,158
------------------------------------------------------------------------------------------------
Options cancelled in closing purchase transactions (3,666) (960,987)
------------------------------------------------------------------------------------------------
Options exercised (4,074) (855,136)
------------------------------------------------------------------------------------------------
Options expired prior to exercise (2,620) (561,262)
------- ----------
Options outstanding at December 31, 1993 4,564 $1,222,221
------- ----------
------- ----------
</TABLE>
The cost of cancelling options in closing
purchase transactions was $1,102,610, result in
a net short-term capital loss of $141,623.
Premiums received on expired options resulted
in a short-term capital gain of $561,262.
5. MANAGEMENT FEES AND Management fees paid to the Manager were in
OTHER TRANSACTIONS accordance with the investment advisory agreement
WITH AFFILIATES with the Fund which provides for an annual fee of
1% on the first $50 million of net assets, .75%
on the next $150 million with a reduction of .05%
on each $200 million thereafter, to .60% on net
assets in excess of $600 million. The Manager has
voluntarily agreed to reduce its fee to .75% on
the first $200 million of net assets with a
reduction of .03% on each $200 million thereafter
to $800 million, and .60% on net assets in excess
of $800 million. The Manager has agreed to
reimburse the Fund if aggregate expenses (with
specified exceptions) exceed the most stringent
applicable regulatory limit on Fund expenses.
For the year ended December 31,
1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled
$413,077, of which $165,368 was retained by
Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general
distributor, and by an affiliated broker/dealer.
Oppenheimer Shareholder Services
(OSS), a division of the Manager, is the
transfer and shareholder servicing agent for
the Fund, and for other registered investment
companies. OSS's total costs of providing such
services are allocated ratably to these
companies.
Under separate approved plans of
distribution, each class may expend up to .25% of
its net assets annually to reimburse OFDI for
costs incurred in distributing shares of the Fund
(sold subsequent to March 31, 1988 for Class A),
including amounts paid to brokers, dealers, banks
and other institutions. In addition, Class C
shares are subject to an asset-based sales charge
of .75% of net assets annually, to reimburse OFDI
for sales commissions paid from its own resources
at the time of sale and associated financing
costs. In the event of termination or
discontinuance of the Class C plan of
distribution, the Fund would be contractually
obligated to pay OFDI for any expenses not
previously reimbursed or recovered through
contingent deferred sales charges. During the
year ended December 31, 1993, OFDI paid $124,537
to an affiliated broker/dealer as reimbursement
for Class A distribution-related expenses and
retained $155 as reimbursement for Class C
distribution-related expenses and sales
commissions.
- -------------------------------------------------------------------------------
6. RESTRICTED SECURITIES The Fund owns securities purchased in private
placement transactions, without registration
under the Securities Act of 1933 (the Act). The
securities are valued under methods approved by
the Board of Trustees as reflecting fair value.
The Fund intends to invest no more than 10% of
its net assets (determined at the time of
purchase) in restricted and illiquid securities,
excluding securities eligible for resale pursuant
to Rule 144A of the Act that are determined to be
liquid by the Board of Trustees or by the Manager
under Board-approved guidelines.
<TABLE>
<CAPTION>
VALUATION PER UNIT
ACQUISITION COST AS OF
SECURITY DATE PER UNIT DECEMBER 31, 1993
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dairy Farm International
Holdings Ltd.,$65.00 Cv.(1) 4/30/93 $1,000 $1,540
----------------------------------------------------------------------------------------------------
Grupo Televisa SA, ADS(1) 8/20/92-8/26/92 $28 $70
<FN>
(1) Transferable under Rule 144A of the Act.
</TABLE>
<PAGE>
APPENDIX A: BOND RATINGS
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality
and to carry the smallest degree of investment risk. Interest payments
are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, the changes that can be expected are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group, they comprise what are
generally known as "high-grade" bonds. They are rated lower than the best
bonds because margins of protection may not be as large as with "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than those of "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
The investments in which the Fund will principally invest will be in
the lower-rated categories described below.
Baa: Bonds which are rated "Baa" are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered well-assured. Often the
protection of interest and principal payments may be very moderate and not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics of
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are
speculative in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" are the lowest rated class of bonds and
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Description of Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to adverse effects
of change in circumstances and economic conditions.
The investments in which the Fund will principally invest will be in
the lower-rated categories, described below.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded,
on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C: Bonds on which no interest is being paid are rated "C".
D: Bonds rated "D" are in payment default and payment of interest
and/or repayment of principal is in arrears.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
