Registration No. 2-86903
File No. 811-3864
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 22 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
AMENDMENT NO. 22 / X /
OPPENHEIMER ASSET ALLOCATION FUND
(Exact Name of Registrant as Specified in Charter)
Two World Trade Center
New York, New York 10048-0203
(Address of Principal Executive Offices)
212-323-0200
(Registrant's Telephone Number)
ANDREW J. DONOHUE, ESQ.
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On May 1, 1995, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On _________________, pursuant to paragraph (a)(1)
/ / 75 days after filing, pursuant to paragraph (a)(2)
/ / On ______________, pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's
fiscal year ended December 31, 1994 was filed on February 27, 1995.
<PAGE>
FORM N-1A
OPPENHEIMER ASSET ALLOCATION FUND
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
- --------- ------------------
1 Front Cover Page
2 Expenses; Overview of the Fund
3 Financial Highlights; Performance of the Fund
4 Front Cover Page; How the Fund is Managed - Organization and
History; Investment Objective and Policies; Investment
Restrictions
5 Expenses; How the Fund is Managed; Back Cover
5A Performance of the Fund
6 How the Fund is Managed - Organization and History;
Dividends, Capital Gains and Taxes; Investment Objective and
Policies - Portfolio Turnover
7 Shareholder Account Rules and Policies; How to Buy Shares;
Special Investor Services; How to Sell Shares; How to
Exchange Shares; Service Plan for Class A Shares;
Distribution and Service Plan for Class C Shares
8 Special Investor Services; How to Sell Shares
9 *
Part B of
Form N-1A
Item No. Heading in Statement of Additional Information
- --------- ----------------------------------------------
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Other Investment
Techniques and Strategies; Additional Investment Restrictions
14 How the Fund is Managed - Trustees and Officers of the Fund
15 How the Fund is Managed - Major Shareholders
16 How the Fund is Managed - Distribution and Service Plans
17 Brokerage Policies of the Fund
18 Additional Information About the Fund
19 Your Investment Account - How to Buy Shares; How to Sell
Shares; How to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Brokerage Policies of the Fund
22 Performance of the Fund
23 Financial Statements
_________________________________
* Not applicable or negative answer.
<PAGE>
OPPENHEIMER ASSET ALLOCATION FUND
Prospectus dated May 1, 1995.
Oppenheimer Asset Allocation Fund is a mutual fund that seeks high
total investment return as its investment objective. That means the Fund
seeks current income and capital appreciation in the value of its shares.
In seeking this objective, the Fund may invest in different types of
securities, including common stocks and other equity securities, money
market securities and bonds and other debt securities, including lower-
rated, high yield debt securities of U.S. companies commonly known as
"junk bonds."
In seeking its objective, the Fund periodically allocates some or all
of its assets to invest in any one or more of different types of
securities. The Fund also uses "hedging instruments" to try to reduce the
risks of market fluctuations that can affect the value of the securities
the Fund holds. The Fund may invest up to 100% of its assets in junk
bonds or foreign debt securities rated below investment grade. These
securities may be considered to be speculative and involve greater risks,
including risk of default, than higher-rated securities. An investment
in the Fund does not constitute a complete investment program and is not
appropriate for persons unwilling or unable to assume the high degree of
risk associated with investing in lower rated securities. Investors
should carefully consider these risks before investing. Some other
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 __.
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 May 1, 1995, 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 the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
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
Appendix: Description of Ratings Categories
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net
asset value per share. All shareholders therefore pay those expenses
indirectly. Shareholders pay other expenses directly, such as sales
charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's operating expenses that you will bear
indirectly. The calculations are based on the Fund's expenses during its
last fiscal year ended December 31, 1994.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account", from
pages __ through __ for an explanation of how and when these charges
apply.
Class A Class C
Shares 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 None None
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 - Class A 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 - Class C 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 (which is referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund Is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds the Fund's portfolio securities, audit fees and legal expenses.
Those expenses are detailed in the Fund's Financial Statements in the
Statement of Additional Information.
The numbers in the table below 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 Plan fees for Class A
shares are 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 fee of 0.25% and the asset-based sales charge of 0.75%. These
plans are described in greater detail in "How to Buy Shares." The
Management Fees have been restated to apply the new management fee rates
approved by the Fund's shareholders at a meeting held on June 27, 1994,
as if those rates had been in effect for the entire fiscal year. The
actual management fee rates for the fiscal year ended December 31, 1994,
were 0.70% of average net assets for both classes of shares.
Also, as of July 1, 1994, a new Service Plan took effect for Class
A shares that applies to all Class A shares, regardless of the date on
which the shares were purchased. Therefore, those fees are restated as
though the new rates had been in effect during the entire fiscal year
ended December 31, 1994. The actual Class A Service Plan fee rate was
0.15% of average net assets, and actual total Fund operating expenses were
1.09% of average net assets for Class A shares and 2.00% for Class C
shares.
The actual expenses for each class of shares in future years may be
more or less than the figures in the table, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares.
Class A Class C
Shares Shares
Management Fees (restated) .74% .74%
12b-1 Distribution or Service Plan Fees .25%(1) 1.00%(2)
Other Expenses .24% .30%
Total Fund Operating Expenses (restated) 1.23% 2.04%
___________________
1. Service Plan fees only (restated)
2. Includes Service Plan fees 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 Annual Fund
Operating Expenses table above (as restated). If you were to redeem your
shares at the end of each period shown below, your investment would incur
the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
Class A Shares $69 $94 $121 $198
Class C Shares $31 $64 $110 $237
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $69 $94 $121 $198
Class C Shares $21 $64 $110 $237
* Because of the effect 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 regulations.
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>
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What Is the Fund's Investment Objective? The Fund's investment
objective is to seek high total investment return, which includes both
current income and capital appreciation.
- What Does the Fund Invest In? The Fund invests in a variety of
different types of securities. These include common and preferred stocks,
convertible securities and warrants; debt securities such as corporate
bonds and notes, U.S. Government securities, and money market instruments.
The Fund's investments can include "junk bonds" and foreign securities,
including foreign debt securities that are below investment grade, which
have special risks. While all securities investments entail risks, high
yield bonds and foreign securities have special risks, described in more
detail in "Investment Objective and Policies." The Fund may also write
covered calls and use certain types of securities called "derivative
investments" and hedging instruments to try to manage investment risks.
These investments are more fully explained in "Investment Objective and
Policies" starting on page __.
- Who Manages the Fund? The Fund's investment adviser (the
"Manager") is Oppenheimer Management Corporation. The Manager (including
a subsidiary) manages investment company portfolios having over $30
billion in assets. The Manager is paid an advisory fee by the Fund, based
on its net assets. The Fund has a portfolio manager, Richard H.
Rubinstein, who is employed by the Manager. He is primarily responsible
for the selection of the Fund's securities. The Fund's Board of
Trustees, elected by shareholders, oversees the investment adviser and the
portfolio manager. Please refer to "How the Fund is Managed," starting
on page ___ for more information about the Manager and its fees.
- How Risky Is the Fund? All investments carry risks to some
degree. The Fund's investments in stocks and bonds are subject to changes
in their value from a number of factors such as changes in general bond
and stock market movements. The change in value of particular stocks or
bonds may result from an event affecting the issuer, or changes in
interest rates that can affect bond prices. These changes affect the
value of the Fund's investments and its share prices for each class of its
shares. In the OppenheimerFunds spectrum, the Fund is generally
considered moderately aggressive because it may invest in foreign
securities and high-yield debt securities ("junk bonds") and may invest
for capital appreciation in stocks. While the Manager tries to reduce
risks by diversifying investments, by carefully researching securities
before they are purchased for the portfolio, and in some cases by using
hedging techniques, there is no guarantee of success in achieving the
Fund's objective, and your shares may be worth more or less than their
original cost when you redeem them. Please refer to "Investment Objective
and Policies" starting on page ___ for a more complete discussion of the
Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How To Buy Shares"
on page ___ for more details.
- Will I Pay A Sales Charge to Buy Shares? The Fund has two classes
of shares. Both have the same investment portfolio but different
expenses. Class A shares are offered with a front-end sales charge,
starting at 5.75%, and reduced for larger purchases. Class C shares are
offered without a front-end sales charge, but may be subject to a
contingent deferred sales charge of 1% if redeemed within 12 months of
purchase. There is also an annual asset-based sales charge on Class C
shares. Please review "How To Buy Shares" starting on page ___ for more
details, including a discussion about factors you and your financial
advisor should consider in determining which class may be appropriate for
you.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How To Sell Shares" on page ___. The Fund also
offers exchange privileges to other OppenheimerFunds, described in "How
To Exchange Shares" on page __.
- How Has the Fund Performed? The Fund measures its performance by
quoting its average annual total return and cumulative total return, which
measure historical performance. Those returns can be compared to the
returns (over similar periods) of other funds. Of course, other funds may
have different objectives, investments, and levels of risk. The Fund's
performance can also be compared to broad market indices, which we have
done on page ___. Please remember that past performance does not
guarantee future results.
<PAGE>
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data, expense ratios and
other data based on the Fund's average net assets. This information has
been audited by KPMG Peat Marwick LLP, the Fund's independent auditors,
whose report on the Fund's financial statements for the fiscal year ended
December 31, 1994, is included in the Statement of Additional Information.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------------------------
Class A Class C
------------------------------------------------------------------------------- ------------------
Year Period
Year Ended Ended Ended
December 31, Dec.31, Dec.31,
1994 1993 1992 1991(3) 1990 1989 1988 1987(2) 1994 1993(1)
==========================================================
==========================================================
===============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Per Share Operating Data:
Net asset value,
beginning of period $ 13.05 $ 11.63 $ 11.22 $ 10.19 $ 10.67 $ 9.78 $ 8.89 $ 10.00 $ 13.05 $ 12.86
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income (loss) .54 .44 .39 .40 .53 .49 .39 .27 .44 (.97)
Net realized and unrealized
gain (loss) on investments,
options written and
foreign currency transactions (.75) 1.43 .44 1.06 (.43) 1.17 1.09 (1.11) (.77) 1.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations (.21) 1.87 .83 1.46 .10 1.66 1.48 (.84) (.33) .32
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.53) (.44) (.42) (.43) (.52) (.48) (.40) (.26) (.44) (.12)
Distributions from net
realized gain on investments,
options written, and
foreign currency transactions (.79) (.01) -- -- (.06) (.29) (.19) (.01) (.79) (.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (1.32) (.45) (.42) (.43) (.58) (.77) (.59) (.27) (1.23) (.13)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.52 $ 13.05 $11.63 $11.22 $ 10.19 $ 10.67 $ 9.78 $ 8.89 $ 11.49 $
13.05
======= ======= ====== ====== ======= =======
======= ======= ======= =======
==========================================================
==========================================================
===============
Total Return,
at Net Asset Value(4) (1.59)% 16.30% 7.54% 14.67% .93% 18.21% 15.88% (8.60)% (2.50)%
2.51%
==========================================================
==========================================================
===============
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $237,771 $277,914 $266,713 $276,800 $83,292 $81,194 $51,602 $32,718 $9,182
$ 396
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)$260,767 $272,303 $269,096 $192,870 $82,490 $68,134 $40,662 $31,407 $5,601
$ 194
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 20,633 21,302 22,938 24,666 8,171 7,611 5,275 3,679 799 30
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.10% 3.58% 3.41% 3.78% 5.14% 4.71% 4.30% 3.84%(5) 3.30%
2.19%(5)
Expenses 1.09% 1.14% 1.17% 1.27% 1.36% 1.47% 1.50% 1.60%(5) 2.00%
2.50%(5)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 31.5% 32.7% 60.3% 102.0% 71.3% 60.2% 185.5% 83.7% 31.5%
32.7%
</TABLE>
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, 1994 were
$80,945,381 and $94,867,765, respectively.
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks 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 its assets in a variety of different types of
securities. In general, those investments include the categories listed
below.
- Equity securities. Generally these are securities that represent
an ownership interest in the company issuing the security. They include
common stocks, preferred stocks, convertible securities and warrants
issued by domestic and foreign companies. When investing in convertible
securities, the Manager looks to the conversion feature and treats the
securities as "equity securities."
- Debt securities. The Fund's debt security investments may include
bonds and notes issued by domestic or foreign companies, and obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (these are referred to as U.S. Government securities),
and by foreign governments. The Fund is not required to limit those
investments to securities having particular ratings by nationally-
recognized rating agencies. The Manager does not rely solely on ratings
of securities in making investment decisions, but evaluates other business
and economic factors affecting the issues as well. The Fund can buy
unrated securities, and when doing so, the Manager will determine in its
judgement whether unrated securities are of comparable quality to
securities rated by rating organizations.
- Money market instruments. These are short-term debt securities
(that is, they have a maturity of 13 months or less). They include U.S.
Treasury Bills (which have maturities of one year or less) and short-term
debt obligations, payable in U.S. dollars, issued by banks, savings and
loan associations and corporations.
- Hedging Instruments. These are investments used by the Fund
primarily to manage or "hedge" against investment risks. The Fund's
Hedging Instruments may include put and call options, forward contracts,
swap agreements, Futures and options on Futures.
The Fund is not required to invest any set amount or percentage of
its assets at any one time in one or more of the types of investments
identified above. To seek the Fund's investment objective of a high total
investment return, from time to time the Manager reallocates the Fund's
assets among the different investment categories listed above. That
allocation is based upon many factors, including the Manager's evaluation
of general economic and market conditions in the U.S. and abroad and its
expectations as to the potential total return of a particular category of
investments. For example, at certain times, equity securities may be
emphasized. When stock market conditions are unstable, the Fund may
reallocate its assets to debt securities, with emphasis on money market
instruments. Using this "asset allocation" approach, the proportion of
the Fund's assets invested in any one type of investment will vary from
time to time.
The Fund's portfolio manager may employ special investing techniques
in selecting investments for the Fund. These are also described below in
"Other Investment Techniques and Strategies." Additional information
about the types of investments, techniques and strategies the Fund employs
may be found under the same headings in the Statement of Additional
Information.
- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, 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 investment policies. The Fund's investment policies and practices
are not "fundamental" unless this Prospectus or the Statement of
Additional Information says that a particular policy is "fundamental."
The Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's Board
of Trustees may change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus.
- Interest Rate Risks. In addition to credit risks, described
below, debt securities are subject to changes in their value due to
changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise. When
interest rates rise, the values of already-issued debt securities
generally decline. The magnitude of these fluctuations will often be
greater for longer-term debt securities than shorter-term debt securities.
Changes in the value of securities held by the Fund mean that the Fund's
share prices can go up or down when interest rates change, because of the
effect of the change on the value of the Fund's portfolio of debt
securities.
- Special Risks of Lower-Rated Securities. The domestic and foreign
debt securities the Fund can invest in may include (without any
restriction as to the amount) high-yield, "lower-grade" debt securities
(including both high-yielding rated and unrated securities). They
generally offer higher income potential than investment grade securities.
"Lower-grade" securities are those rated below "investment grade," which
means they have a rating below "BBB" by Standard & Poor's Corporation or
"Baa" by Moody's Investors Service, Inc. or similar ratings by other
rating organizations. "Lower-grade" debt securities the Fund may invest
in also include securities that are not rated by a nationally-recognized
rating organization like Standard & Poor's or Moody's, but which the
Manager judges to be comparable to lower-rated securities. The Fund may
invest in securities rated as low as "D" by Standard & Poor's or "C" by
Moody's. For a description of these securities ratings, please refer to
the Appendix to this Prospectus.
At December 31, 1994, the Fund's portfolio contained domestic and
foreign debt securities in the categories that follow. The ratings were
by Standard & Poor's and the percentages relate to the weighted average
value of the bonds in each rating category as a percentage of the Fund's
total assets: AAA, 18.4%; BBB, .2%; BB, .5%; B, 2.75%; CCC, .6%; CC, .4%;
D, .4%; and unrated, 9.7%. If a bond was not rated by Standard & Poor's
but was rated by Moody's, it is included in Standard & Poor's comparable
category. Unrated bonds were not rated by either Moody's or Standard &
Poor's.
High yield, lower-grade securities, whether rated or unrated, often have
speculative characteristics and special risks that make them riskier
investments than investment grade securities. They may be subject to
greater market fluctuations and risk of loss of income and principal than
lower yielding, investment grade securities. There may be less of a
market for them and therefore they may be harder to sell at an acceptable
price. There is a relatively greater possibility that the issuer's
earnings may be insufficient to make the payments of interest due on the
bonds. The issuer's low creditworthiness may increase the potential for
its insolvency. For foreign lower-grade debt securities, these risks are
in addition to the risks of investing in foreign securities, described in
"Foreign Securities," below.
These risks mean that the Fund may not achieve the income it
expects from lower-grade securities, and that the Fund's net asset value
per share may be affected by declines in value of these securities.
However, the Fund's allocation of its assets among different types of
investments under normal conditions may reduce some of the risk that
investing in these securities can have on the value of the Fund's shares,
as will the Fund's policy of diversifying its investments. Also,
convertible securities may be less subject to some of these risks than
other debt securities, to the extent they can be converted into stock.
That is because stock may be more liquid and less affected by the other
risk factors affecting junk bonds.
- Stock Investment Risks. Because the Fund can invest a substantial
portion (or all) of its assets in stocks, the value of the Fund's
portfolio will be affected by changes in the stock markets. This market
risk will affect the Fund's net asset values per share, which will
fluctuate as the values of the Fund's portfolio securities change. Not
all stock prices change uniformly or at the same time, and other factors
can affect a particular stock's price (for example, poor earnings reports
by an issuer, loss of major customers, major litigation against an issuer,
changes in government regulations affecting an industry). Not all of
these factors can be predicted.
As discussed below, the Fund attempts to limit market risks by
diversifying its investments, that is, by not holding a substantial amount
of the stock of any one company and by not investing too great a
percentage of the Fund's assets in any one company. Also, the Fund does
not concentrate its investments in any one industry or group of
industries. Because changes in overall market prices can occur at any
time, and because the income earned on securities is subject to change,
there is no assurance that the Fund will achieve its investment objective,
and when you redeem your shares, they may be worth more or less than what
you paid for them.
Equity Securities. When investing for capital appreciation, the Fund may
buy equity securities issued by domestic or foreign companies in any
industry (for example, industrial, financial or utility). These
investments may include common stocks, preferred stocks, convertible
securities and warrants. In selecting stocks, the Fund 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.
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 corporations
in any industry.
The Fund may also invest in U.S. Government Securities. Certain of
these obligations, including U.S. Treasury notes, bills and bonds, and
mortgage-backed securities guaranteed by Government National Mortgage
Association (these securities are called "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 are issued or guaranteed
by federal agencies or government-sponsored entities but 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 (these securities are referred to as "Freddie Macs") and
obligations supported only by the credit of the instrumentality, such as
Federal National Mortgage Association (these securities are referred to
as "Fannie Maes"). The Fund may invest in zero coupon U.S. Treasury
securities (described below) and short-term U.S. Government Securities
that are money market instruments.
- Participation Interests. The Fund may acquire participation interests
in loans that are made to U.S. or foreign companies. These interests are
acquired from banks or brokers that have made the loan or are members of
the lending syndicate. No more than 5% of the Fund's net assets can be
invested in participation interests of the same borrower. The value of
loan participation interests depends primarily upon the creditworthiness
of the borrower, and its ability to pay interest and repay the principal.
The Manager has set creditworthiness standards for issuers of loan
participations, and monitors their creditworthiness. One risk of these
investments is that the borrower may have difficulty making payments on
the loan. Under the Fund's standard for creditworthiness, some borrowers
may have senior securities rated as low as "C" by Moody's or "D" by
Standard & Poor's, but may be considered to be acceptable credit risks.
If a borrower fails to make scheduled interest or principal payments, the
value of the Fund's participation in that loan could decline, and the Fund
could experience a decline in the net asset value of its shares as well
as a reduction of income. Participation interests are subject to the
Fund's limitations on investments in illiquid securities, described in
"Illiquid and Restricted Securities."
- Asset-Backed Securities. The Fund may invest in "asset-backed"
securities. These are 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 may be 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 debt that forms the income stream for the security.
- Mortgage-Backed Securities and CMOs. The Fund may invest in
securities that represent an interest in a pool of residential mortgage
loans. These include collateralized mortgage-backed obligations (referred
to as "CMOs"). CMOs are considered U.S. Government Securities if they are
issued or guaranteed by agencies or instrumentalities of the U.S.
Government (for example, Ginnie Maes, Freddie Macs and Fannie Maes).
However, other mortgage-backed securities represent pools of mortgages
"packaged" and offered by private issuers, and there is a risk that
private issuers will be unable to meet their obligations on CMOs.
CMOs and mortgage-backed securities differ from conventional debt
securities that provide periodic payments of interest in fixed amounts and
repay the principal at maturity or specified call dates. Mortgage-backed
securities provide monthly payments that are, in effect, a "pass-through"
of the monthly interest and principal payments made by the individual
borrowers on the pooled mortgage loans. Those payments may include
prepayments of mortgages, which have the effect of paying the debt on the
CMO early. When the Fund receives scheduled principal payments and
unscheduled prepayments it will have cash to reinvest but may have to
invest that cash in investments having lower interest rates than the
original investment. That could reduce the yield of the Fund.
The Fund may also invest in CMOs that are "stripped." That means that
the security is divided into two parts, one of which receives some or all
of the principal payments and the other which receives some or all of the
interest. Stripped securities that receive only interest are subject to
increased price volatility when interest rates change. They have an
additional risk that if the principal underlying the CMO is prepaid (which
is more likely to happen if interest rates fall), the Fund will lose the
anticipated cash flow from the interest on the mortgages that were
prepaid.
- Zero Coupon Securities. The Fund may invest in zero coupon securities
issued either by private issuers or by the U.S. Treasury. Some zero
coupon securities of private issuers are notes or debentures that do not
pay current interest and are issued at substantial discounts from par
value. Other private issuer zero coupon securities are notes or
debentures that pay no current interest until a stated date one or more
years in the future, after which the issuer is obligated to pay interest
until maturity. Usually that interest rate is higher than if interest
were payable from the date the security is issued. Private issuer zero
coupon securities are subject to the risk of the issuer's failure to pay
interest and repay the principal value of the security.
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. It will be subject to greater market fluctuations
from changes in interest rates than interest-paying securities.
While the Fund does not receive cash payments of interest on zero coupon
securities, it does accrue taxable income on these securities. As a
result, the Fund may be forced to sell portfolio securities to pay cash
dividends or meet redemptions.
- Derivative Investments. In general, a "derivative investment" is a
specially designed investment whose performance is linked to the
performance of another investment or security, such as an option, future,
index, currency or commodity. The Fund can invest in a number of
different kinds of "derivative investments." They are used in some cases
for hedging purposes and in other cases to attempt to enhance income. In
the broadest sense, exchange-traded options and futures contracts
(discussed in "Hedging," below) may be considered "derivative
investments."
There are special risks in investing in derivative investments. The
company issuing the instrument may fail to pay the amount due on the
maturity of the instrument. Also, the underlying investment or security
on which the derivative is based might not perform the way the Manager
expected it to perform. The performance of derivative investments may
also be influenced by interest rate changes in the U.S. and abroad. All
of this can mean that the Fund will realize less principal or income from
the investment than expected. Certain derivative investments held by the
Fund may trade in the over-the-counter market and may be illiquid. Please
refer to "Illiquid and Restricted Securities" for an explanation.
The Fund may invest in different types of derivative investments. For
example, "index-linked" or "commodity-linked" notes 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 or a weighted index of commodity
futures, such as crude oil, gasoline and natural gas. The Fund may invest
in debt exchangeable for common stock of an issuer or "equity-linked" debt
securities of an issuer. At maturity, the principal amount of the debt
security is exchanged for common stock of the issuer or is payable in an
amount based on the issuer's common stock price at the time of maturity.
In either case there is a risk that the amount payable at maturity will
be less than the principal amount of the debt.
The Fund may also invest in currency-indexed securities. Typically,
these are short-term or intermediate-term debt securities having a value
at maturity or an interest rate determined by reference to one or more
foreign currencies. The currency-indexed securities purchased by the Fund
may make payments based on a formula. The payment may be calculated as
a multiple of the movement of one currency against another currency, or
against an index. These investments may entail increased risk to
principal and increased price volatility.
Money Market Instruments. The Fund may invest in money market
instruments, which are debt obligations generally maturing in 13 months
or less. They may include short-term certificates of deposit, bankers'
acceptances, commercial paper (including variable amount master demand
notes), U.S. Government obligations, and other debt instruments (including
bonds) issued by corporations. These securities may have variable or
floating interest rates. The Fund will purchase only high quality
commercial paper (in general, paper in the top two ratings categories of
Standard & Poor's or Moody's) and has restrictions on the types of issuers
whose securities will be purchased. These are more fully described in the
Statement of Additional Information.
- 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, and the Fund's portfolio turnover rate
is normally expected to be less than 100% a year. However, the portfolio
turnover rate may vary when the Fund re-allocates its assets. The Fund
will actively use portfolio trading to try to benefit from differences in
short-term yields among different issues of debt securities, to try to
increase its income or to take advantage of differences in securities
prices. The "Financial Highlights," above, show the Fund's portfolio
turnover rate during past fiscal years.
High portfolio turnover may affect the ability of the Fund to qualify
as a "regulated investment company" under the Internal Revenue Code for
tax deductions for dividends and capital gains distributions the Fund pays
to shareholders. The Fund qualified in its last fiscal year and intends
to do so in the coming year, although it reserves the right not to
qualify. Portfolio turnover affects brokerage costs, dealer markups and
other transaction costs, and results in the Fund's realization of capital
gains or losses for tax purposes.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that may help reduce some of the risks.
- Foreign Securities. The Fund may invest in equity and debt
securities issued by foreign companies and debt securities issued by
foreign governments. The Fund does not have any limit on the amount of
foreign securities it may purchase. However, normally the Fund does not
expect to have more than 35% of its assets invested in foreign securities.
Foreign securities are those that are listed on a foreign securities
exchange or are traded in the foreign over-the-counter markets. The Fund
may purchase foreign securities issued by companies engaged in mining gold
and other precious metals. If the Fund's investments are held abroad, the
countries in which they are held and the sub-custodians holding them must
be approved by the Fund's Board of Trustees.
Foreign Securities Have Special Risks. There are certain risks of
holding foreign securities. The first is the risk of changes in foreign
currency values. Because the Fund may purchase securities denominated in
foreign currencies, a change in the value of a foreign currency against
the U.S. dollar will result in a change in the U.S. dollar value of the
Fund's securities denominated in that currency. The currency rate change
will also affect its income available for distribution. Although the
Fund's investment income from foreign securities may be received in
foreign currencies, the Fund will be required to distribute its income in
U.S. dollars. Therefore, the Fund will absorb the cost of currency
fluctuations. If the Fund suffers losses on foreign currencies after it
has distributed its income during the year, the Fund may find that it has
distributed more income than was available from actual investment income.
That could result in a return of capital to shareholders.
The Fund may invest in foreign securities issued in any country,
developed or underdeveloped. Securities of issuers in non-industrialized
countries generally involve more risk and may be considered highly
speculative. There are other risks of foreign investing. For example,
foreign issuers are not required to use generally-accepted accounting
principles. If foreign securities are not registered for sale in the U.S.
under U.S. securities laws, the issuer does not have to comply with the
disclosure requirements of our laws, which are generally more stringent
than foreign laws. The values of foreign securities investments will be
affected by other factors, including exchange control regulations or
currency blockage and possible expropriation or nationalization of assets.
There may also be changes in governmental administration or economic or
monetary policy in the U.S. or abroad that can affect foreign investing.
In addition, it is generally more difficult to obtain court judgments
outside the United States if the Fund has to sue a foreign broker or
issuer. Additional costs may be incurred because foreign broker
commissions are generally higher than U.S. rates, and there are additional
custodial costs associated with holding securities abroad.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active trading
market, making it difficult to value them or dispose of them promptly at
an acceptable price. A restricted security is one that has a contractual
restriction on its resale or which cannot be sold publicly until it is
registered under the Securities Act of 1933. The Fund will not invest
more than 10% of its net assets in illiquid or restricted securities (that
limit may increase to 15% if certain state laws are changed or the Fund's
shares are no longer sold in those states). The Fund's percentage
limitation on these investments does not apply to certain restricted
securities that are eligible for resale to qualified institutional
purchasers.
- Loans of Portfolio Securities. To attempt to increase its income,
or to raise cash for liquidity purposes, the Fund may lend its portfolio
securities to brokers, dealers and other financial institutions. As a
matter of fundamental policy, these loans are limited to not more than 25%
of the value of the Fund's total assets. They are also subject to other
conditions described in the Statement of Additional Information. The Fund
presently does not intend to lend its portfolio securities, but if it
does, the value of securities loaned is not expected to exceed 5% of the
value of its total assets.
- - Repurchase Agreements. The Fund may enter into repurchase agreements.
In a repurchase transaction, the Fund buys a security and simultaneously
sells it to the vendor for delivery at a future date. Repurchase
agreements must be fully collateralized. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in
disposing of the collateral and may experience losses if there is any
delay in its ability to do so. The Fund will not enter into a repurchase
agreement that will cause more than 10% of its 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 of seven days or less.
- "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.
- Hedging. As described below, the Fund may purchase and sell certain
kinds of futures contracts, put and call options, forward contracts, and
options on futures, broadly-based stock or bond indices and foreign
currency, or enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of them,
described below. The hedging instruments the Fund may use are described
below and in greater detail in "Hedging" in the Statement of Additional
Information.
The Fund may buy and sell options, futures and forward contracts for a
number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options, tend
to increase the Fund's exposure to the securities market. Forward
contracts are used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Fund for liquidity purposes, defensive reasons, or to raise cash to
distribute to shareholders. At present, the Fund does not intend to enter
into Futures contracts, forward contracts or options on Futures if, after
any purchase or sale, the value of all put and call options held by the
Fund would exceed 5% of its total assets.
- Futures. The Fund may buy and sell futures contracts that relate to
(1) foreign currencies (these are called Forward Contracts), (2) broadly-
based stock indices (these are called Stock Index Futures) or (3) interest
rates (these are referred to as Interest Rate Futures).
- Put and Call Options. The Fund may buy and sell certain kinds of put
options (puts) and call options (calls). A call or put may be purchased
only if, after the purchase, the value of all call and put options held
by the Fund will not exceed 5% of the Fund's total assets.
The Fund may buy calls on debt or equity securities, broadly-based stock
indices, foreign currencies, or Futures, or to terminate its obligation
on a call the Fund previously wrote. The value of debt securities
underlying calls bought by the Fund will not exceed the value of the
Fund's cash or cash-equivalent portfolio holdings (that is, securities
with a maturity of less than one year).
The Fund may write (that is, sell) call options that are listed on a
domestic securities exchange or quoted on NASDAQ. In addition, the Fund
may write calls on debt securities in the over-the-counter market, and on
foreign currency or Futures. All calls must be "covered." That means
the Fund must own the security subject to the call while the call is
outstanding (or own other securities acceptable for applicable escrow
requirements). Calls on Futures must be covered by securities or other
liquid assets the Fund owns and segregates to enable it to satisfy its
obligations if the call is exercised.
When the Fund writes a call, it receives cash (called a premium). The
call gives the buyer the ability to buy the investment on which the call
was written from the Fund at the call price during the period in which the
call may be exercised. If the value of the investment does not rise above
the call price, it is likely that the call will lapse without being
exercised, while the Fund keeps the cash premium (and the investment).
Up to 25% of the Fund's total assets may be subject to calls.
The Fund may purchase put options. Buying a put on an investment gives
the Fund the right to sell the investment at a set price to a seller of
a put on that investment. The Fund can buy puts that relate to debt
securities, equity securities, broadly-based stock indices, Futures, or
foreign currencies. The Fund can buy a put on a debt or an equity
security, Futures, broadly-based stock indices or foreign currency,
whether or not the Fund owns the particular investment in its portfolio.
The Fund may sell a put on equity or debt securities or on Futures, but
only if the puts are covered by segregated liquid assets. The Fund will
not write puts if more than 50% of the Fund's net assets would have to be
segregated to cover put obligations.
Foreign currency options may be quoted by major recognized dealers in
those options. Options traded in the over-the-counter market may be
"illiquid," and therefore may be subject to the Fund's restrictions on
illiquid investments, described in "Illiquid and Restricted Securities,"
below.
- Forward Contracts. Forward Contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future
delivery at a fixed price. The Fund uses them to try to "lock in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has purchased or sold, or to protect against possible losses from
changes in the relative value of the U.S. dollar and a foreign currency.
The Fund may also use "cross hedging," where the Fund hedges against
changes in currencies other than the currency in which a security it holds
is denominated. The Fund limits its exposure in foreign currency exchange
contracts to the amount of its assets denominated in the foreign currency
to avoid having to buy or sell foreign currency at disadvantageous prices.
- - Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive, or their obligation to pay,
interest on a security. For example, they may swap a right to receive
floating rate interest payments for fixed rate payments. The Fund enters
into swaps only on securities it owns. The Fund may not enter into swaps
with respect to more than 50% of its total assets. The Fund will
segregate liquid assets (such as cash or U.S. Government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
- Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different from what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on an
investment that has increased in value, the Fund will be required to sell
the investment at the call price and will not be able to realize any
profit if the investment has increased in value above the call price. 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.
Interest rate swaps are subject to the risk that the other party will fail
to meet its obligations (or that the underlying issuer will fail to pay
on time), as well as interest rate risks. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a
result of interest rate changes. 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. In a short sale, the seller does not
own the security that is sold, but normally borrows the security to
fulfill the delivery obligation. The seller later buys the security to
repay the loan, in the expectation that the price of the security will be
lower when the purchase is made, resulting in a gain. The Fund may not
sell securities short except in collateralized transactions referred to
as "short sales against-the-box," where the Fund owns an equivalent amount
of the securities sold short. No more than 15% of the Fund's net assets
will be held as collateral for 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: (1) 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; (2) lend money, except that the Fund
may buy debt securities that 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"; (3) borrow money in excess of 5% of the value of
its total assets and then 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 a
mortgage, hypothecation or pledge); (4) invest more than 5% of the value
of its total assets in warrants nor more than 2% of that value in warrants
that are not listed on the New York or American Stock Exchanges; warrants
attached to other securities are not subject to this restriction; or (5)
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)
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 in 1987 as the result of the combination of three series
of a mutual fund managed by the Manager into a single fund that became
this Fund, with a new investment objective and policies. 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. The Board
has done so, and the Fund currently has two classes of shares, Class A and
Class C. Each class has its own dividends and distributions and pays
certain expenses, which may be different for the different classes. Each
class may have a different net asset value. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally. Only
shares of a particular class vote together on matters that affect that
class alone. Shares are freely transferable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, 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 with the Fund which states the Manager's
responsibilities. The agreement sets forth the fees paid by the Fund to
the Manager and describes the expenses that the Fund pays to conduct its
business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other OppenheimerFunds, with assets of more than $30 billion as
of March 31, 1995, and with more than 2.4 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.
- Portfolio Manager. The Portfolio Manager of the Fund is Richard H.
Rubinstein, who is a Vice President of the Fund and also a Vice President
of the Manager. Mr. Rubinstein is the person, and since April 1991, has
been one of the persons, primarily responsible for the day-to-day
management of the Fund's portfolio. He serves as an officer and portfolio
manager of other OppenheimerFunds. Before joining the Manager in 1990,
Mr. Rubinstein 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 that
became effective June 27, 1994, the Fund pays the Manager the following
annual fees, which decline on additional assets as the Fund grows: 0.75%
of the first $200 million of aggregate 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 aggregate net assets in excess of $800 million. Under the
Fund's investment advisory agreement in effect prior to June 27, 1994, the
rates were: 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; 0.65% of the next $200 million; and 0.60% of net assets in excess
of $600 million. Prior to the adoption of the current fee rates on June
27, 1994, the Manager had voluntarily agreed to reduce its management fee
rates to the rates under the current agreement. The Fund's management fee
for its last fiscal year was 0.70% of average annual net assets for both
Class A shares and Class C shares (based on the actual management fee
rates in effect during that year).
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 Fund's 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 number shown
below in this Prospectus or on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"cumulative total return" and "average annual total return" to illustrate
its performance. The performance of each class of shares is shown
separately, because each class of shares will usually have different
performance as a result of the different kinds of expenses each class
bears. These returns measure the performance of a hypothetical account
in the Fund over various periods, and do not show the performance of each
shareholder's account (which will vary if dividends are received in cash,
or shares are sold or purchased). The Fund's performance data may help
you see how well your Fund has done over time and to compare it to other
funds or market indices.
It is important to understand that the Fund's total returns represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but more
detailed information about how total returns are calculated is contained
in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
- Total Returns. There are different "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, 1994,
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 last
fiscal year, the stock and bond markets were both affected by a series of
increases in U.S. interest rates by the Federal Reserve Board. As
interest rates increased, the overall stock and bond markets declined.
The portfolio manager emphasized investments in technology, health care
and industrial stocks, to attempt to improve performance. The Fund also
increased its investments in foreign stocks, especially in Latin America
and Asia, in anticipation of the resumption of growth in those markets.
The manager employed a variety of investment styles in selecting stocks,
including value, growth, contrarian, foreign and dividend yield emphasis.
Bond investments were allocated principally among high yield bonds and
foreign securities, to broaden the Fund's diversification.
- 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, 1994, with all dividends and
capital gains distributions reinvested in additional shares; in the case
of Class A shares, from the inception of the Class on April 24, 1987, and
in the case of Class C shares, from the inception of the Class on December
1, 1993.
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.
Class A Shares
Comparison of Change in Value
of $10,000 Hypothetical Investments in
Oppenheimer Asset Allocation Fund Class A,
the S&P 500 Index and the
Lehman Brothers Aggregate Bond Index
(Graph)
Past performance is not predictive of future performance.
Average Annual Total Return of Class A shares
of the Fund at 12/31/94
1 Year 5 Years Life of Class*
-7.24% 6.07% 7.07%
- -------------------------
* The inception date of the Fund (Class A shares) was 4/24/87. The
average annual total returns reflect reinvestment of all dividends and
capital gains distributions and are shown net of the current maximum
initial sales charge of 5.75%.
Class C Shares
Comparison of Change in Value
of $10,000 Hypothetical Investments in
Oppenheimer Asset Allocation Fund Class C,
the S&P 500 Index and the
Lehman Brothers Aggregate Bond Index
(Graph)
Past performance is not predictive of future performance.
Average Annual Total Return of Class C shares
of the Fund at 12/31/94
1 Year Life of Class**
-3.39% -0.34%
- -------------------------
** Class C shares were first publicly offered on 12/01/93. The average
annual total returns reflect reinvestment of all dividends and capital
gains distributions. The 1-year return is shown net of the 1% contingent
deferred sales charge; no sales charge applies to the life of class data.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes 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. When 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, you will not pay an initial sales charge but if
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. Sales charges are described below, in "Class A
Shares."
- Class C Shares. When 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%. Please refer to "Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisors:
- How Much Do You Plan to Invest? If you plan to invest a
substantial amount over the long term, the reduced sales charges available
for larger purchases of Class A shares may be more beneficial to you than
purchasing Class C shares, because of the higher annual expenses Class C
shares will likely bear. For purchases over $1 million, the contingent
deferred sales charge on Class A shares will normally 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 the shorter
term (but more than a 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 higher 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. For example, not all
OppenheimerFunds offer Class C shares, limiting exchangeability from the
Fund. Share certificates are not available for Class C shares, and if you
are considering using your shares as collateral for a loan, that may be
a factor to consider. Additionally, the dividends payable to Class 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, such as a
broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class than for selling another class. It is important that investors
understand that the purpose of the 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: to compensate the
Distributor for concessions it pays to dealers and financial institutions
for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial
plans and military allotment plans, you can make initial and subsequent
investments of as little as $25; and subsequent purchases of at least $25
can be made by telephone through AccountLink.
Under pension and profit-sharing plans 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. However, we recommend that you
discuss your investment first with a financial advisor, to be sure it is
appropriate for you.
- 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 have the
Transfer Agent send redemption proceeds, or 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 should 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 (and any initial sales charge that
applies) that is next determined after the Distributor receives the
purchase order in Denver. In most cases, to enable you to receive that
day's offering price, the Distributor must receive your order by the time
of day The New York Stock Exchange closes, which is normally 4:00 P.M.,
New York time, but may be earlier on some days (all references to time in
this Prospectus mean "New York time"). The net asset value of each class
of shares is determined as of that time on each day The New York Stock
Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your order
by the close of The New York Stock Exchange on a regular business day and
transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
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. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer. The current sales charge rates
and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
Front-End Sales Charge Commission as
As a Percentage of: Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
<S> <C> <C> <C>
Less than $25,000 5.75% 6.10% 4.75%
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
</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 (shares of any OppenheimerFunds that offer
only one class of shares that has no class designation are considered
"Class A" shares for this purpose). 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. 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. 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.
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. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can
add together Class A shares you purchase for your individual 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 add together current purchases of Class A shares
of the Fund and other OppenheimerFunds. To reduce the sales charge rate
for current purchases of Class A shares, you can also include 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; and (7) dealers, brokers or
registered investment advisers that have entered into an agreement with
the Distributor to sell shares of defined contribution employee retirement
plans for which the dealer, broker or investment adviser provides
administrative services.
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, (c) purchased by the
reinvestment of dividends or other distributions reinvested from the Fund
or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or unit
investment trusts for which reinvestment arrangements have been made with
the Distributor, or (d) purchased and paid for with the proceeds of shares
redeemed in the prior 12 months from a mutual fund on which an initial
sales charge or contingent deferred sales charge was paid (other than a
fund managed by the Manager or any of its affiliates); this waiver must
be requested when the purchase order is placed for your shares of the
Fund, and the Distributor may require evidence of your qualification for
this waiver. 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 does not apply to purchases
of Class A shares at net asset value as described above and 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, (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, and (5) if, at the time an order was placed for Class
A shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agreed to accept the dealer's portion
of the commission payable on the sale in installments of 1/18th of the
commission per month (with no further commission payable if the shares are
redeemed within 18 months of purchase).
- - 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. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the 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 (the disability must have occurred after the account was
established and you must provide evidence of a determination of disability
by the Social Security Administration), (3) returns of excess
contributions to Retirement Plans, and (4) distributions from IRAs
(including SEP-IRAs and SAR/SEP accounts) before the participant is age
59 1/2, and distributions from 403(b)(7) custodial plans or pension or
profit-sharing plans before the participant is 59 1/2 but only after the
participant has separated from service if the distributions are made in
substantially equal periodic payments over the life (or life expectancy)
of the participant or the joint lives (or joint and last survivor
expectancy) of the participant and the participant's designated
beneficiary (and the distributions must comply with other requirements for
such distributions under the Internal Revenue Code and may not exceed 10%
of the account value annually, measured from the date the Transfer Agent
receives the request.
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. These include 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 Class A 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 sales charge. This privilege applies only to Class A shares that
you sell. 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 (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SAR/SEP IRAs
- 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 account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling,
- The signatures of all registered owners exactly as the account is
registered, 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 the close of The New York Stock Exchange that day, which is
normally 4:00 P.M. but may be earlier on some days. Shares held in an
OppenheimerFunds retirement plan or under a share certificate may not be
redeemed 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 statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
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.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. 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. 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. In some cases, sales charges may be imposed on exchange
transactions. Please refer to "How to Exchange Shares" in the Statement
of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
- 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 find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative 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 that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M. but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into 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.
The Distributor has entered into agreements with certain dealers and
investment advisers permitting them to exchange their clients' shares by
telephone. These privileges are limited under those agreements and the
Distributor has the right to reject or suspend those privileges. As a
result, those exchanges may be subject to notice requirements, delays and
other limitations that do not apply to shareholders who exchange their
shares directly by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange, which is normally 4:00 P.M.
but may be earlier on some days, on each day the Exchange is open by
dividing the value of the Fund's net assets attributable to a class by the
number of shares of that class that are outstanding. The Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities, 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 neither the Transfer Agent nor the Fund will
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. Effective June 7, 1995,
for accounts registered in the name of a broker-dealer, payment will be
forwarded within 3 business days. The Transfer Agent may delay forwarding
a check or processing a payment via AccountLink for recently purchased
shares, but only until the purchase payment has cleared. That delay may
be as much as 10 days from the date the shares were purchased. That delay
may be avoided if you purchase shares by certified check or arrange with
your bank to provide telephone or written assurance to the Transfer Agent
that your purchase payment has cleared.
- 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 last name and address
on the Fund's records. However, each shareholder may call the Transfer
Agent at 1-800-525-7048 to ask that copies of those materials be sent
personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
C shares quarterly, payable on or about the 29th of March, June, September
and December. Another date may be selected by the Fund's Board of
Trustees. Normally, distributions paid on Class A shares generally are
expected to 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.
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 assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. 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. It does not matter how long you held your
shares. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Distributions are subject to
federal income tax and may be subject to state or local taxes. Your
distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of 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. A non-
taxable return of capital may reduce your tax basis in your Fund shares.
This information is only a summary of certain federal tax
information about your investment. More information is contained in the
Statement of Additional Information, and in addition you should consult
with your tax adviser about the effect of an investment in the Fund on
your particular tax situation.
<PAGE>
Appendix: Description of Ratings Categories of Rating Services
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds 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 rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds
because margins of protection may not be as large as with "Aaa" securities
or fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than those of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa: Bonds rated "Baa" are considered medium grade obligations, that
is, they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and have speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of
interest and principal payments may be very moderate and not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing and may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in
a high degree and are often in default or have other marked shortcomings.
C: Bonds rated "C" 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.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded,
on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C."
Bonds rated "D" are in default and payment of interest and/or repayment
of principal is in arrears.
<PAGE>
APPENDIX A TO PROSPECTUS OF
OPPENHEIMER ASSET ALLOCATION FUND
Graphic material included in Prospectus of Oppenheimer Asset Allocation
Fund: "Comparison of Change in Value of $10,000 Investments in Oppenheimer
Asset Allocation Fund, the S&P 500 Index, and The Lehman Brothers
Aggregate Bond Index".
Linear graphs 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
graphs. 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?"
Oppenheimer Lehman
Fiscal Year Asset Allocation Brothers Aggregate
(Period) Ended Fund A Bond Index S&P 500 Index
04/24/87(1) $ 9,425 $10,000 $10,000
12/31/87 $ 8,667 $10,343 $8,751
12/31/88 $10,043 $11,159 $10,200
12/31/89 $11,871 $12,780 $13,426
12/31/90 $11,982 $13,926 $13,009
12/31/91 $13,739 $16,154 $16,964
12/31/92 $14,774 $17,349 $18,255
12/31/93 $17,182 $19,041 $20,091
12/31/94 $16,910 $18,485 $20,354
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 $10,219 $10,059 $10,121
12/31/94 $ 9,963 $ 9,765 $10,254
(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
Oppenheimer Funds Distributor, Inc. Asset Allocation Fund
Two World Trade Center Prospectus
New York, New York 10048 Effective May 1, 1995
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 LLP
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 Statement of
Additional Information, and if given or made, such information
and representations must not be relied upon as
having been authorized by the Fund, 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 (5/95) Printed on recycled paper.
<PAGE>
Prospectus and
New Account Application
OPPENHEIMER
Asset Allocation Fund
Effective May 1, 1995
(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 May 1, 1995
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 May 1, 1995. 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 22
How the Fund is Managed 23
Organization and History 23
Trustees and Officers of the Fund 23
The Manager and Its Affiliates 28
Brokerage Policies of the Fund 29
Performance of the Fund 31
Distribution and Service Plans 33
About Your Account 36
How To Buy Shares 36
How To Sell Shares 41
How To Exchange Shares 45
Dividends, Capital Gains and Taxes 47
Additional Information About the Fund 48
Financial Information About the Fund
Independent Auditors' Report 50
Financial Statements 51
Appendix A: Industry Classifications 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 strategies and about
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.
- Special Risks of Lower-Rated Securities. All fixed-income
securities are subject to two types of risks: credit risk and interest
rate risk; these are in addition to other investment risks that may affect
a particular security. Credit risk relates to the ability of the issuer
to meet interest or principal payments or both as they become due.
Generally, higher yielding, lower-rated bonds are subject to credit risk
to a greater extent than lower yielding, investment grade bonds.
As stated in the Prospectus, the Fund may invest in debt 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, debt 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.
- Interest Rate Risks. 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 after the Fund buys them will not affect
the interest payable on those securities, and thus the cash income from
such securities. However, those price fluctuations will be reflected in
the valuations of these securities and therefore in the Fund's net asset
values.
- Equity Securities.
- Small, Unseasoned Companies. The securities of small, unseasoned
companies may have a limited trading market, which may adversely affect
the Fund's ability to sell them when it wants to, at an acceptable price.
Their limited liquidity 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 stocks, unlike common stocks, offer
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.
Those can be 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.
- Convertible Securities. While convertible securities are a form
of debt security, in many cases their conversion feature (allowing
conversion into equity securities) causes them to be regarded more as
"equity equivalents." As a result, the rating assigned to the security
has less impact on the Manager's investment decision with respect to
convertible securities than in the case of non-convertible debt
securities. To determine whether convertible securities should be
regarded as "equity equivalents," the Manager examines the following
factors: (1) whether, at the option of the investor, the convertible
security can be exchanged for a fixed number of shares of common stock of
the issuer, (2) whether the issuer of the convertible securities has
restated its earnings per share of common stock on a fully diluted basis
(considering the effect of converting the convertible securities), and (3)
the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation in
the price of the issuer's common stock.
- Warrants and Rights. Warrants basically are options to purchase
equity securities at set prices valid for a specified period of time. The
prices of warrants do not necessarily move in a manner parallel to the
prices of the underlying securities. The price the Fund pays for a
warrant will be lost unless the warrant is exercised prior to its
expiration. Rights are similar to warrants, but normally have a short
duration and are distributed directly by the issuer to its shareholders.
Rights and warrants have no voting rights, receive no dividends and have
no rights with respect to the assets of the issuer.
- 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 the Appendix to the Prospectus for a
description of the factors considered by the rating agencies in rating
particular debt securities.
- 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 corporate 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. These notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and
the borrower, it is not generally contemplated that they will be traded.
There is no secondary market for these notes, although they are redeemable
(and thus immediately repayable by the borrower) at principal 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.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased; however, in connection with such purchases and on an
ongoing basis, the Manager will consider the earning power, cash flow, and
other liquidity ratios of the issuer and its ability to pay principal and
interest on demand, including the possibility where all holders of such
notes made demand simultaneously. Investments in master demand notes are
subject to the Fund's limitation on investments in illiquid securities
described in "Illiquid and Restricted Securities" in the Prospectus. 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 Fund's limitation on investments in illiquid
securities described in "Illiquid and Restricted Securities" in the
Prospectus. Participation interests are an undivided interest in a loan
made by the issuing financial institution in the proportion that the
purchaser's participation interest bears to the total principal amount of
the loan. The issuing financial institution may have no obligation to the
Fund as a purchaser other than to pay the Fund the proportionate amount
of the principal and interest payments the financial institution receives
from the borrower.
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. The Fund can buy
participation interests in loans to borrowers that 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 domestic and foreign
companies.
- Asset-Backed Securities. 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. The risks of investing in asset-backed securities are
ultimately dependent upon payment of the underlying 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 below for prepayments of a pool of mortgage loans underlying
mortgage-backed securities. However, asset-backed securities do not have
the benefit of the same type of 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 are
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
(for example, direct pass-through certificates of Government National
Mortgage Association ("GNMA"). Some are supported by the right of the
issuer to borrow from the U.S. Government (for example, obligations of
Federal Home Loan Mortgage Corporation ("FHLMC"). Some are backed by only
the credit of the issuer itself. Those 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 basis comparable 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.
The Fund may purchase mortgage-backed securities at par, at a premium
or at a discount. 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.
The Fund may invest in "stripped" mortgage backed securities, in
which the principal and interest portions of the security are separated
and sold. Stripped mortgage-backed securities usually have at least two
classes each of which receives different proportions of interest and
principal distributions on the underlying pool of mortgage assets. One
common variety of stripped mortgage-backed security has one class that
receives some of the interest and most of the principal, while the other
class receives most of the interest and remainder of the principal. In
some cases, one class will receive all of the interest (the "interest-
only" or "IO" class), while the other class will receive all of the
principal (the "principal-only" or "PO" class). Interest only securities
are extremely sensitive to interest rate changes, and prepayments of
principal on the underlying mortgage assets. An increase in principal
payments or prepayments will reduce the income available to the IO
security. In other types of CMOs, the underlying principal payments may
apply to various classes in a particular order, and therefore the value
of certain classes or "tranches" of such securities may be more volatile
than the value of the pool as a whole, and losses may be more severe than
on other classes.
Mortgage-backed securities may be less effective than debt
obligations having a similar maturity at maintaining yields during periods
of declining interest rates. As new types of mortgage-related securities
are developed and offered to investors, the Manager will, subject to the
direction of the Board of Trustees and consistent with the Fund's
investment objective and policies, consider making investments in such new
types of mortgage-related securities.
- GNMA Certificates. Certificates of Government National Mortgage
Association ("GNMA") are mortgage-backed securities that evidence an
undivided interest in a pool or pools of mortgages ("GNMA Certificates").
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. Federal National Mortgage Association ("FNMA")
was established to create a secondary market in mortgages insured by the
FHA. 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. Federal Home Loan Mortgage Association
("FHLMC") was created to promote development of a nationwide secondary
market for conventional residential mortgages. FHLMC issues two types of
mortgage pass-through certificates ("FHLMC Certificates"): mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). 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. 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. That means 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). Instead,
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.
The issuer's obligation to make interest and principal payments on
a mortgage-backed security is secured by the underlying portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities
created by private issuers (such as commercial banks, savings and loan
institutions, and private mortgage insurance companies) may be supported
by insurance or guarantees, such as letters of credit issued by
governmental entities, private insurers or the private issuer of the
mortgage pool. There can be no assurance that private insurers will be
able to meet their obligations.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or private issuers. Zero coupon
U.S. Treasury securities include: (1) U.S. Treasury bills without interest
coupons, (2) U.S. Treasury notes and bonds that have been stripped of
their unmatured interest coupons, and (3) receipts or certificates
representing 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, such as corporations.
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 dividends or redemption proceeds for its shares, which require the
payment of cash. This will depend on several factors: the proportion of
shareholders who elect to receive dividends in cash rather than
reinvesting dividends in additional shares of the Fund, the amount of cash
income the Fund receives from other investments, and the sale of shares.
The Fund might also sell portfolio securities to maintain portfolio
liquidity. In either case, cash distributed or held by the Fund and not
reinvested by investors in additional Fund shares will hinder the Fund
from seeking current income.
- Money Market Securities.
- 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 to
the Prospectus 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.
Other Investment Techniques and Strategies
Foreign Securities. Investments in foreign securities offer potential
benefits not available from investing solely in securities of domestic
issuers. These investments offer 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.
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.
- Risks of Foreign Securities. Investing 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. Settlement periods for securities transactions may be longer
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.
Securities of foreign issuers that are represented by American
depository receipts, or that are not listed on a U.S. securities exchange,
or are traded in the U.S. over-the-counter market are not considered
"foreign securities" because they are not subject to many of the special
considerations and risks (discussed below) that apply to foreign
securities traded and held abroad. If the Fund's securities are held
abroad, the countries in which such securities may be held and the sub-
custodians holding them must be in most cases approved by the Fund's Board
of Trustees under applicable SEC rules.
The Fund may invest in U.S. dollar-denominated foreign securities
referred to as "Brady Bonds." These debt obligations of foreign entities
may be fixed-rate par bonds or floating rate discount bonds. The payment
of the principal at maturity is generally collateralized in full 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) the 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 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.
The debt obligations of foreign governmental entities may or may not
be supported by the "full faith and credit" of a foreign government. The
Fund may invest in obligations of supranational entities, which include
those international organizations designated or supported by governmental
entities to promote economic reconstruction or development and of
international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development
(the "World Bank"), the European Coal and Steel Community, the Asian
Development Bank and the Inter-American Development Bank. The
governmental members, or "stockholders," of these entities usually make
initial capital contributions to the supranational entity and in many
cases are committed to make additional capital contributions if the
supranational entity is unable to repay its borrowings. Each
supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by members at
the entity's call), reserves and net income. There is no assurance that
foreign governments will be able or willing to honor their commitments.
Although the Fund will invest only in securities denominated in
foreign currencies that at the time of investment do not have significant
government-imposed restrictions on conversion into U.S. dollars, there can
be no assurance against subsequent imposition of currency controls. From
time to time, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be
reimposed.
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities, subject to the restrictions stated in the Prospectus, if the
loan is collateralized in accordance with applicable regulatory
requirements. Under those 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 the 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. "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. 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 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. These securities are subject to market
fluctuation; the value at delivery may be less than the purchase price.
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.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 it
enters 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.
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. In a repurchase transaction, the Fund
purchases a security from, and simultaneously resells it to, an approved
vendor for delivery on an agreed-upon future date. An "approved vendor"
is a U.S. commercial bank, the U.S. branch of a foreign bank, or a broker-
dealer which has been designated a primary dealer in government securities
which must meet the audit requirements met by the Fund's Board of Trustees
from time to time. The resale price exceeds the purchase price by an
amount that reflects an agreed-upon interest rate effective for the period
during which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to the resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act,
collateralized by the underlying security. The Fund's repurchase
agreements require 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 has percentage
limitations that apply to purchases of illiquid and restricted securities.
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 those
percentage restrictions do not limit purchases of restricted securities
eligible for resale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees or by the Manager
under Board-approved guidelines. Those 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.
To enable the Fund to sell restricted securities not registered under
the Securities Act of 1933, the Fund may have to cause those securities
to be registered. The expenses of registration of restricted securities
may be negotiated at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuations during that period. 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.
- Hedging. As described in the Prospectus, the Fund may employ one
or more types of Hedging Instruments. Hedging Instruments may be used to
attempt to do the following: (1) protect against possible declines in the
market value of the Fund's portfolio resulting from down trends in the
securities markets, (2) protect unrealized gains in the value of the
Fund's securities which have appreciated, (3) facilitate selling
securities for investment reasons, (4) establish a position in the
securities markets as a temporary substitute for purchasing particular
securities, or (5) reduce the risk of adverse currency fluctuations.
The Fund may use hedging to attempt to protect against declines in
the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons.
To do so, the Fund 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 establish a position in the equities market as
a temporary substitute for purchasing individual equity securities 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.
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.
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.
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 Covered Call Options. 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 on the same investment
during the call period (usually not more than 9 months) at a fixed
exercise price (which may differ from the market price of the underlying
investment), regardless of market price changes during the call period.
The Fund retains the risk of loss if the price of the underlying security
declines during the call period, which may be offset to some extent by the
premium.
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 the option transaction costs and the premium received on the
call the Fund has written is more or less than the price of the call the
Fund subsequently purchases. A profit may also be realized if the call
lapses unexercised, because the Fund retains the underlying investment and
the premium received. Those profits are considered short-term capital
gains for Federal income tax purposes, 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 option 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 lack of a
market, it would have to hold the callable investments until the call
lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of deliverable securities or liquid assets. The Fund will
segregate additional liquid assets if the value of the escrowed assets
drops below 100% of the obligation under the Future. In no circumstances
would an exercise notice require the Fund to deliver a futures contract;
it would simply put the Fund in a short futures position, which is
permitted by the Fund's hedging policies.
- Writing Put Options. A put option on an investment 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 the underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration date,
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).
Buying a put on an index or 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 an index or 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
(that is, the value on the Fund's books is changed to reflect changes in
its market value) subsequent margin payments, called variation margin,
will be paid to or by the futures broker on a daily basis.
At any time prior to expiration of the Future, the Fund may elect to
close out its position by taking an opposite position, at which time a
final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund. Any gain or loss is then
realized. 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. An option
position may be closed out only on a market which provides secondary
trading for options of the same series, and there is no assurance that a
liquid secondary market will exist for any particular option.
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 is required
to operate within certain guidelines and restrictions with respect to its
use of Futures and options on Futures established by the Commodity Futures
Trading Commission ("CFTC"). In particular, the Fund is exempted from
registration with the CFTC as a "commodity pool operator" if the Fund
complies with the requirements of the Rule adopted by the CFTC. 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 requirements under the Investment Company Act, when the Fund
purchases a Future, the Fund will maintain in a segregated account or
accounts with its Custodian, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the
market value of the securities underlying such Future, less the margin
deposit applicable to it.
- 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. An option position may
be closed out only on a market that provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
associated with hedging discussed in the Prospectus and above, there is
a risk in using short hedging by selling Futures to attempt to protect
against decline in the value of the Fund's portfolio securities (due to
an increase in interest rates) that the prices of such Futures 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 if 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 that 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 the
securities purchased.
- Short Sales Against-the-Box. In a short sale, the seller does not
own the security that is sold, but normally borrows it to fulfill the
delivery obligation. The seller later buys the security to repay the
loan, in the expectation that the price of the security will be lower when
the purchase is made, resulting in a gain. While any such 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 most 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) buy or sell
real estate or commodities or commodity contracts, including futures
contracts; however, the Fund may invest in debt securities secured by real
estate or interests therein, and the Fund may buy and sell any of the
hedging instruments which it may use as approved by the Fund's Board of
Trustees, whether or not such hedging instrument is considered to be a
commodity or commodity contract; (2) buy securities on margin, except that
the Fund may make margin deposits in connection with any of the hedging
instruments which it may use; (3) underwrite securities issued by other
persons except to the extent that in connection with the disposition of
its portfolio investments, it may be deemed to be an underwriter for
purposes of the Securities Act of 1933; (4) buy the securities of any
company for the purpose of acquiring control or management thereof, except
in connection with a merger, consolidation, reorganization or acquisition
of assets; (5) buy and retain securities of any issuer if officers and
Trustees or Directors of the Fund and the Manager individually owning more
than 0.5% 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.
For purposes of the Fund's policy not to concentrate its investments,
described under investment restriction number two in the Prospectus, the
Fund has adopted the Industry Classifications set forth in Appendix A to
this Statement of Additional Information. This is not a fundamental
policy.
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 set forth 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 Growth
Fund, Oppenheimer Discovery Fund, Oppenheimer Global Growth & Income Fund,
Oppenheimer Global Emerging Growth 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-based
OppenheimerFunds as with the Fund. As of April 3, 1995, the Trustees and
officers of the Fund as a group owned less than 1% of the outstanding
shares of the Fund, not including shares held of record by an employee
benefit plan for employees of the Manager for which an officer of the Fund
(Andrew J. Donohue) is a Trustee, other than the shares beneficially owned
under that plan by the officers of the Fund listed below.
Leon Levy, Chairman of the Board of Trustees; Age 69
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership); and
Chairman of Avatar Holdings, Inc. (real estate development).
Leo Cherne, Trustee; Age 82
122 East 42nd Street, New York, New York 10168
Chairman Emeritus of the International Rescue Committee (philanthropic
organization); formerly Executive Director of The Research Institute of
America.
Robert G. Galli, Trustee;* Age 61
Vice Chairman of the Manager and Vice President and Counsel of Oppenheimer
Acquisition Corp., 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 and General Counsel of the Manager and the
Distributor.
Benjamin Lipstein, Trustee; Age 72
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; a director of Sussex Publications,
Inc. (publishers of Psychology Today and Mother Earth News) and a director
of Spy Magazine, L.P.
Elizabeth B. Moynihan, Trustee; Age 65
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institution), the Institute of Fine Arts (New York
University), and the National Building Museum; a member of the Indo-U.S.
Sub-Commission on Education and Culture; and a member of the Trustees
Council, Preservation League of New York State.
Kenneth A. Randall, Trustee; Age 67
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), Enron-
Dominion Cogen Corp. (cogeneration company), Kemper Corporation (insurance
and financial services company) and Fidelity Life Association (mutual life
insurance company); formerly Chairman of the Board of ICL Inc.
(information systems) and President and Chief Executive Officer of The
Conference Board, Inc. (international economic and business research).
Edward V. Regan, Trustee; Age 64
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 of the New York
State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age 63
200 Park Avenue, New York, New York 10166
Founder 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; Age 83
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*; Age 69
Chairman Emeritus and a director of the Manager; formerly Chairman of the
Manager and the Distributor.
Pauline Trigere, Trustee; Age 82
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; Age 64
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), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery),
Lindsay Manufacturing Co. (irrigation equipment), Texas Instruments, Inc.
(electronics) and The Vigoro Corporation (fertilizer manufacturer);
formerly (in descending chronological order) 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.
Richard H. Rubinstein, Vice President and Portfolio Manager; Age 46
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; Age 44
Executive Vice President and General Counsel of the Manager and OFDI; an
officer of other OppenheimerFunds; formerly Senior Vice President and
Associate General Counsel of the Manager and OFDI; 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), and a director and an officer of
First Investors Family of Funds and First Investors Life Insurance
Company.
George C. Bowen, Treasurer; Age 58
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.
Robert G. Zack, Assistant Secretary; Age 46
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; Age 36
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 Yale & Seffinger, P.C., an
accounting firm, and previously an Accountant and Commissions Supervisor
for Stuart James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age 29
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.
__________________
* A Trustee who is an "interested person" of the Fund, as defined in the
Investment Company Act.
- 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 (Messrs. Galli and Spiro, who is also an officer of the
Fund) receive no salary or fee from the Fund. The Trustees of the Fund
(including Mr. Delaney, a former Trustee, but excluding Messrs. Galli and
Spiro) received the total amounts shown below (i) from the Fund, during
its fiscal year ended December 31, 1994, and (ii) from all of the New
York-based OppenheimerFunds (including the Fund) listed in the first
paragraph of this section (and from Oppenheimer Global Environment Fund,
a former New York-based OppenheimerFund), for services in the positions
shown:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation New York-based
Name and Position From Fund OppenheimerFunds1
<S> <C> <C>
Leon Levy, Chairman and Trustee $4,610 $141,000.00
Leo Cherne, Audit Committee $2,251 $ 68,800.00
Member and Trustee
Edmund T. Delaney, Former Study $2,819 $ 86,200.00
Committee Member
and Trustee 2
Benjamin Lipstein, $2,819 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan, $1,982 $ 60,625.00
Study Committee
Member and 3 Trustee
Kenneth A. Randall, $2,564 $ 78,400.00
Audit Committee Member
and Trustee
Edward V. Regan, $1,839 $ 56,275.00
Audit Committee
Member 3 and Trustee
Russell S. Reynolds, Jr., Trustee $1,705 $ 52,100.00
Sidney M. Robbins, Study $3,994 $122,100.00
Committee Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere, Trustee $1,705 $ 52,100.00
Clayton K. Yeutter, Trustee $1,705 $ 52,100.00
</TABLE>
1 For the 1994 calendar year.
2 Board and committee positions held during a portion of the period shown.
3 Committee position held during a portion of the period shown.
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-
based OppenheimerFunds for at least 15 years to be eligible for the
maximum payment. Because each Trustee's retirement benefits will depend
on the amount of the Trustee's future compensation and length of service,
the amount of those benefits cannot be determined at this time, nor can
we estimate the number of years of credited service that will be used to
determine these benefits. No payments have been made by the Fund under
the plan as of December 31, 1994. No provision was made during the fiscal
year ended December 31, 1994, for the Fund's projected retirement benefit
obligations. The total accrued liability for the New York-based
OppenheimerFunds referred to in the preceding paragraph for their
collective projected benefit obligations under the plan as of December 31,
1994 was $1,714,000.
- Major Shareholders. As of April 3, 1995, 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
1,209,337.963 Class A shares (5.95% 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
Oppenheimer Acquisition Corp. ("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, 1992,
1993 and 1994, the management fees paid by the Fund to the Manager were
$2,110,846, $2,130,917 and $1,869,498, respectively.
The advisory agreement contains no provisions limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has voluntarily 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 General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A 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, 1992, 1993, and 1994, the aggregate amount of sales charges
on sales of the Fund's Class A shares was $39,326,104, $413,077 and
$446,064 in those respective years, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $9,834,389, $165,368
and $160,107, respectively. During the Fund's fiscal year ended December
31, 1994, the contingent deferred sales charges collected on the Fund's
Class C shares totaled $2,135, all of which the Distributor retained. 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 such 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 the Manager's
portfolio traders based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place
trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers.
Transactions in securities other than those for which an exchange is
the primary market are generally done with principals or market makers.
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.
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, 1992, 1993 and 1994,
total brokerage commissions paid by the Fund (not including spreads or
concessions on principal transactions on a net trade basis) amounted to
$359,816, $2,914,950 and $227,996, respectively. During the fiscal year
ended December 31, 1994, $86,396 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 $38,599,918.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to
time the "average annual total return", "cumulative total return," and
"total return at net asset value" of an investment in each class of Fund
shares may be advertised. An explanation of how these total returns are
calculated for each class and the components of those calculations is set
forth below.
The Fund's 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") of that investment, 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, 1994, and for the period from
April 24, 1987 (commencement of operations) to December 31, 1994, were -
7.24%, 6.07% and 7.07%, respectively. The "cumulative total return" on
Class A shares for the latter period from April 24, 1987, to December 31,
1994 was 69.10%. For the periods from December 1, 1993, and the 1-year
period ended December 31, 1994, the average total returns on an investment
in Class C shares of the Fund were -0.34% and -3.39%, respectively.
- - 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 period from April 24, 1987
(commencement of operations) to December 31, 1994 was 79.41%. For Class
C shares, the "cumulative total return at net asset value" for the one-
year period ended December 31, 1994, was -2.50%.
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
returns that include the reinvestment of capital gains distributions and
income dividends but do not take sales charges or taxes into
consideration.
From time to time the Fund may publish the ranking of the performance
of its Class A 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 on risk-adjusted investment return. Investment
return measures a fund's (or class's) three, five and ten-year average
annual total returns (when available) in excess of 90-day U.S. Treasury
bill monthly returns after considering sales charges and expenses. Risk
and return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next 22.5%),
three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the Class
A and Class C shares of the Fund in relation to other rated "hybrid"
funds, including all other asset allocation funds. The current ranking
is a weighted average of the 3 and 5 year rankings, if available.
Rankings are subject to change.
From time to time, the Fund may include in its advertisements and
sales literature performance information about the Fund cited in
newspapers and other periodicals, such as The New York Times, which may
include performance quotations from other sources, including Lipper.
The total return on an investment in the Fund's Class A or Class C
shares 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 take 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 returns on fixed income investments available from banks and
thrift institutions, such as certificates of deposit, ordinary interest-
paying checking and savings accounts, and other forms of fixed or variable
time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed nor insured
by the FDIC, 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 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. All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which 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 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.
The Fund's shareholders approved a new Service Plan for Class A
shares on June 20, 1994. Under the old plan, payments were made to
Recipients only as to Class A shares acquired on or after April 1, 1988.
Under the current Plan, payments are based on the value of all Class A
shares, whenever acquired.
For the fiscal year ended December 31, 1994, payments under the Class
A Plan totaled $386,300, all of which was paid by the Distributor to
Recipients, including $103,221 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. Payments made under the Class C Plan during the fiscal
year ended December 31, 1994, totaled $55,806, of which $55,744 was
retained by the Distributor, including $150 paid to an affiliate of 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
availability of two classes of shares permits 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 Values Per Share. The net asset values per
share of Class A and Class C shares of the Fund are determined as of the
close of business of The New York Stock Exchange (the "NYSE") on each day
that the Exchange is open by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class
outstanding. The Exchange normally closes at 4:00 P.M. but may close
earlier on some other days (for example, in case of weather emergencies
or days falling before a holiday). The NYSE's most recent annual
announcement (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. Because the Fund's price and
net asset value will not be calculated at such times, the net asset values
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.
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 shares
purchased by the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for such purchase through the ACH system before the
close of the New York Stock Exchange. The Exchange normally closes at
4:00 P.M. but may close earlier on certain days. If the Federal Funds are
received on a business day after the close of the Exchange, dividends will
begin to accrue on the next regular business day. The proceeds of ACH
transfers are normally received by the Fund 3 days after transfers are
initiated. The Distributor and the Fund are not responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor 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 Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer 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 Emerging Growth 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
and, the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
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. This
enables the investor to count the shares to be purchased under the Letter
of Intent 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 of Class A shares under the Letter will
be made at the public offering price (including the sales charge)
applicable to a single lump-sum purchase of shares intended to be
purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended 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) include any Class
A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge and Class A shares acquired in exchange
for shares of one of the OppenheimerFunds that were acquired subject to
a Class A initial sales charge or contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in
the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
OppenheimerFunds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) (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 Class A shares.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other OppenheimerFunds into which shares of the
Fund are exchangeable as described in "How To Exchange Shares" below, at
the net asset value next computed after the Transfer Agent receives the
reinvestment order. The shareholder must ask the Distributor for that
privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter
any capital gains tax payable on that gain. If there has been a capital
loss on the redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on which
a sales charge was paid are reinvested in shares of the Fund or another
of the 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.
Transfers 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 per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order after the close of The New York Stock Exchange on a
regular business day, it will be processed at that day's net asset value
if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes (normally, that is 4:00 P.M., but may be
earlier on some days) and the order was transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
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.
- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
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. Shares of
OppenheimerFunds that have a single class without a class designation are
deemed "Class A" shares for this purpose, and all of the OppenheimerFunds
offer Class A shares (except for Oppenheimer Strategic Diversified Income
Fund), but only the following other OppenheimerFunds 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 (Class C and B shares are available only
by exchange)
Oppenheimer Strategic Diversified Income Fund
Oppenheimer Limited-Term Government 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).
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). 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. 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. The Fund's cash
balances with the Custodian in excess of $100,000 are not protected by
Federal deposit insurance. Those uninsured balances at times may be
substantial.
Independent Auditors. 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.
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, 1994,
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 seven-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. Our procedures included
confirmation of securities owned as of December 31, 1994, 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, 1994, 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 seven-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 LLP
Denver, Colorado
January 23, 1995
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Statement of Investments December 31, 1994
------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
=====================================================
=====================================================
=========================
<S> <C> <C> <C>
Repurchase Agreements--3.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago
Capital Markets, 6%, dated 12/30/94, to
be repurchased at $9,006,000 on 1/3/95,
collateralized by U.S. Treasury Nts.,
3.875%--8.875%, 5/31/95--8/31/05,
with a value of $8,558,896 and U.S. Treasury
Bonds, 10.75%--14.25%, 2/15/02--8/15/05,
with a value of $628,741 (Cost $9,000,000) $ 9,000,000 $
9,000,000
=====================================================
=====================================================
=========================
Mortgage-Backed Obligations--0.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Government Agency--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored--0.3% Federal National Mortgage Assn.:
11%, 11/1/14 17,241 18,582
11.50%, 7/1/11 257,614 278,373
11.75%, 1/1/16 282,817 309,855
------------
606,810
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed--0.3% Government National Mortgage Assn.:
9%, 11/15/08 208,785 211,988
9%, 11/15/08 84,086 85,377
9%, 2/15/09 311,750 316,660
9%, 5/15/09 90,475 91,900
------------
705,925
- -----------------------------------------------------------------------------------------------------------------------------------
Private--0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Family--0.1% Resolution Trust Corp. Commercial Mtg. Pass-Through Certificates,
8%, Series 1994-C2, Cl. E, 4/25/25 415,508
332,147
------------
Total Mortgage-Backed Obligations (Cost $1,605,042)
1,644,882
=====================================================
=====================================================
=========================
U.S. Government Obligations--18.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury--18.1% U.S. Treasury Nts.:
6.75%, 5/31/97 3,000,000 2,933,439
7.875%, 1/15/98 1,600,000 1,602,499
7.875%, 6/30/96 8,500,000 8,545,151
8.25%, 7/15/98 16,000,000 16,194,990
8.75%, 10/15/97 350,000 358,094
8.875%, 11/15/98 950,000 982,656
9.25%, 1/15/96 825,000 839,953
9.25%, 8/15/98 9,450,000 9,863,438
STRIPS, 0%, 8/15/02 6,100,000 3,385,823
------------
Total U.S. Government Obligations (Cost $44,682,711)
44,706,043
=====================================================
=====================================================
=========================
Foreign Government Obligations--9.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of) Bonds, Bonos de Consolidacion de
Deudas, Series I, 5.625%, 4/1/01(4)(6) 3,490,713
2,236,057
------------------------------------------------------------------------------------------------------
Canada (Government of) Bonds, 9.75%, 12/1/01(CAD) 6,000,000
4,425,085
------------------------------------------------------------------------------------------------------
Canada (Government of) Bonds, 9.75%, 6/1/01(CAD) 2,000,000
1,474,315
------------------------------------------------------------------------------------------------------
Queensland (Government of) Development Authority Global
Transferable Registered Nts., 10.50%, 5/15/03(AUD) 5,000,000
3,920,014
6 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Government Spain (Kingdom of) Bonds, 11.45%, 8/30/98(ESP) $125,000,000
$ 943,174
Obligations ------------------------------------------------------------------------------------------------------
(continued) Spain (Kingdom of) Bonds, 13.45%, 4/15/96(ESP) 435,000,000
3,422,034
------------------------------------------------------------------------------------------------------
Sweden (Kingdom of) Bonds, 11%, 1/21/99(SEK) 7,500,000
1,031,972
------------------------------------------------------------------------------------------------------
Treasury Corp. of Victoria Gtd. Bonds,
8.25%, 10/15/03(AUD) 3,000,000 2,030,148
------------------------------------------------------------------------------------------------------
United Mexican States Gtd. Cv. Bonds, Series B,
6.25%, 12/31/19 4,000,000 2,130,000
------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Collateralized Par Bonds, Series W-A,
6.75%, 3/31/20 1,500,000 690,000
------------------------------------------------------------------------------------------------------
Venezuela (Republic of) Collateralized Par Bonds, Series W-B,
6.75%, 3/31/20 3,500,000 1,610,000
------------
Total Foreign Government Obligations (Cost $28,425,565)
23,912,799
=====================================================
=====================================================
=========================
Non-Convertible Corporate Bonds and Notes--13.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Materials--1.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--0.5% Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 500,000
542,017
------------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 900,000
796,500
------------
1,338,517
- -----------------------------------------------------------------------------------------------------------------------------------
Metals--0.5% Horsehead Industries, Inc., 14% Sub. Nts., 6/1/99 400,000
398,000
------------------------------------------------------------------------------------------------------
Inland Steel Industries, Inc., 12.75% Nts., 12/15/02 400,000
432,000
------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 12.75% Sr. Sub. Nts., 2/1/03 500,000
503,750
------------
1,333,750
- -----------------------------------------------------------------------------------------------------------------------------------
Paper and Forest Gaylord Container Corp., 0%/12.75% Sr. Sub. Disc. Debs., 5/15/05(3) 600,000
532,500
Products--0.4% ------------------------------------------------------------------------------------------------------
Riverwood International Corp., 10.75% Sr. Nts., 6/15/00 500,000
507,500
------------
1,040,000
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--2.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Construction Supplies and Hovnanian K. Enterprises, Inc., 11.25% Gtd. Sub. Nts., 4/15/02 725,000
610,813
Development--0.5% ------------------------------------------------------------------------------------------------------
USG Corp., 10.25% Sr. Sec. Nts., 12/15/02 500,000
511,250
------------
1,122,063
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Goods and Amstar Corp., 11.375% Sr. Sub. Nts., 2/15/97 900,000
895,500
Services--0.7% ------------------------------------------------------------------------------------------------------
MacAndrews & Forbes Group, Inc., 12.25% Sub. Nts., 7/1/96 500,000
498,750
------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 9.375% Sr. Nts., 4/1/01 250,000
225,000
------------
1,619,250
- -----------------------------------------------------------------------------------------------------------------------------------
Entertainment--0.2% Gillett Holdings, Inc., 12.25% Sr. Sub. Nts., 6/30/02 400,000
425,000
- -----------------------------------------------------------------------------------------------------------------------------------
Hotels/Lodging--0.3% Host Marriott Hospitality, Inc., 9.125% Sr. Nts., Series C, 12/1/00 624,000
609,180
- -----------------------------------------------------------------------------------------------------------------------------------
Media--0.6% News America Holdings, Inc., 8.50% Sr. Nts., 2/15/05 1,000,000
956,283
------------------------------------------------------------------------------------------------------
SCI Television, Inc., 11% Sr. Nts., Series 1, 6/30/05 500,000
500,000
------------
1,456,283
7 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--3.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Food--0.7% Family Restaurants, Inc., 9.75% Sr. Nts., 2/1/02 $ 1,000,000 $
787,500
------------------------------------------------------------------------------------------------------
Foodmaker, Inc., 14.25% Sr. Sub. Nts., 5/15/98 1,000,000
1,035,000
------------
1,822,500
- -----------------------------------------------------------------------------------------------------------------------------------
Food and Drug Di Giorgio Corp., 12% Sr. Nts., 2/15/03 750,000
705,000
Distribution--1.5% ------------------------------------------------------------------------------------------------------
Grand Union Co., 11.25% Sr. Nts., 7/15/00 1,000,000
890,000
------------------------------------------------------------------------------------------------------
Ralph's Grocery Co., 10.25% Sr. Sub. Nts., 7/15/02 500,000
491,250
------------------------------------------------------------------------------------------------------
Revco D.S., Inc., 9.125% Sr. Nts., 1/15/00 500,000
501,250
------------------------------------------------------------------------------------------------------
Southland Corp., 4.50% 2nd Priority Sr. Sub. Debs., Series A, 6/15/04 1,700,000
1,054,000
------------
3,641,500
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare--0.9% American Medical International, Inc., 13.50% Sr. Sub. Nts., 8/15/01 500,000
548,750
------------------------------------------------------------------------------------------------------
Mediq, Inc., 7.50% Exch. Sub. Debs., 7/15/03 1,650,000
1,334,438
------------------------------------------------------------------------------------------------------
Multicare Cos., Inc. (The), 12.50% Sr. Sub. Nts., 7/1/02 345,000
401,925
------------
2,285,113
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--1.3% Global Marine, Inc., 12.75% Sr. Sec. Nts., 12/15/99 400,000
430,000
------------------------------------------------------------------------------------------------------
Maxus Energy Corp., 11.50% Debs., 11/15/15 1,000,000
947,500
------------------------------------------------------------------------------------------------------
OPI International, Inc., 12.875% Gtd. Sr. Nts., 7/15/02 750,000
836,250
------------------------------------------------------------------------------------------------------
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 1,000,000
1,045,000
------------
3,258,750
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--0.8% Card Establishment Services, Inc., 10% Sr. Sub. Nts., Series B, 10/1/03 1,000,000
1,045,000
------------------------------------------------------------------------------------------------------
Conseco, Inc., 8.125% Sr. Nts., 2/15/03 1,000,000
881,282
------------
1,926,282
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial--0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Containers--0.2% Owens-Illinois, Inc., 10% Sr. Sub. Nts., 8/1/02 500,000
490,000
- -----------------------------------------------------------------------------------------------------------------------------------
General Industrial--0.5% EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 1,000,000
862,500
------------------------------------------------------------------------------------------------------
Terex Corp., 13% Sr. Nts., 8/1/96(5) 450,000
426,375
------------
1,288,875
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation--0.1% Tiphook Financial Corp., 7.125% Gtd. Nts., 5/1/98 418,000
308,275
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--3.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--0.6% GPA Delaware, Inc., 8.75% Gtd. Nts., 12/15/98 750,000
577,500
------------------------------------------------------------------------------------------------------
GPA Holland, 9.75%, 6/10/96 1,000,000
940,000
------------
1,517,500
8 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Cable Television--2.0% Adelphia Communications Corp., 12.50% Sr. Nts., 5/15/02 $ 1,000,000
$ 960,000
------------------------------------------------------------------------------------------------------
Auburn Hills Trust, 12.375% Gtd. Exch. Certificates, 5/1/20 800,000
1,042,947
------------------------------------------------------------------------------------------------------
Cablevision Industries Corp., 9.25% Sr. Debs., Series B, 4/1/08 1,000,000
900,000
------------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 10.75% Sr. Sub. Debs., 4/1/04 500,000
502,500
------------------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 9.50% Sr. Debs., 8/1/13 500,000
461,250
------------------------------------------------------------------------------------------------------
Time Warner, Inc., 7.95% Nts., 2/1/00 1,000,000
955,215
------------
4,821,912
- -----------------------------------------------------------------------------------------------------------------------------------
Communications--0.4% Centennial Cellular Corp., 8.875% Sr. Nts., 11/1/01 500,000
440,000
------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(3) 1,000,000
620,000
------------
1,060,000
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--0.6% TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,100,000
1,141,250
------------------------------------------------------------------------------------------------------
Unisys Corp., 13.50% Credit Sensitive Nts., 7/1/97 400,000
434,000
------------
1,575,250
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--0.4% First PV Funding Corp., 10.15% Lease Obligation Bonds,
Series 1986B, 1/15/16 1,000,000 906,814
------------
Total Non-Convertible Corporate Bonds and Notes
(Cost $35,699,985) 33,846,814
Shares
=====================================================
=====================================================
=========================
Common Stocks--50.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Materials--4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--1.1% IMC Global, Inc.(7) 24,000
1,038,000
------------------------------------------------------------------------------------------------------
Praxair, Inc. 47,300 969,650
------------------------------------------------------------------------------------------------------
Sybron Chemical Industries, Inc.(2) 42,800 663,400
------------
2,671,050
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals: Diversified--1.2% ARCO Chemical Co. 21,000
924,000
------------------------------------------------------------------------------------------------------
Bayer AG, Sponsored ADR(2) 90,000
2,084,490
------------
3,008,490
- -----------------------------------------------------------------------------------------------------------------------------------
Metal: Miscellaneous--0.8% Brush Wellman, Inc. 103,300
1,794,838
- -----------------------------------------------------------------------------------------------------------------------------------
Paper and Forest Georgia-Pacific Corp. 13,200 943,800
Products--0.8% ------------------------------------------------------------------------------------------------------
Indah Kiat 79,800 90,764
------------------------------------------------------------------------------------------------------
Louisiana-Pacific Corp. 27,900 760,275
------------------------------------------------------------------------------------------------------
PT Pabrik Kertas Tjiwi Kimia 30,000 55,960
------------
1,850,799
- -----------------------------------------------------------------------------------------------------------------------------------
Steel--0.6% Inland Steel Industries, Inc.(2)(7) 41,000 1,440,125
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--6.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Airlines--0.3% AMR Corp.(2) 14,000 745,500
- -----------------------------------------------------------------------------------------------------------------------------------
Automobiles--0.5% Fiat SpA(2) 320,000 1,187,486
------------------------------------------------------------------------------------------------------
Mahindra & Mahindra Ltd., GDR 8,000
89,260
------------
1,276,746
9 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
------------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Broadcast Media--0.6% Comcast Corp., Cl. A Special 100,000
$1,568,750
- -----------------------------------------------------------------------------------------------------------------------------------
Entertainment--0.9% King World Productions, Inc.(2) 45,100
1,555,950
------------------------------------------------------------------------------------------------------
Sega Enterprises 13,500 778,039
------------
2,333,989
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure Time--0.9% Caesar's World, Inc.(2) (7) 18,000
1,201,500
------------------------------------------------------------------------------------------------------
Eastman Kodak Co. 21,900 1,045,725
------------
2,247,225
- -----------------------------------------------------------------------------------------------------------------------------------
Publishing--0.9% Time Warner, Inc. 40,000
1,405,000
------------------------------------------------------------------------------------------------------
Wolters Kluwer NV 10,167 752,280
------------
2,157,280
- -----------------------------------------------------------------------------------------------------------------------------------
Retail Stores: Dillard Department Stores, Inc., Cl. A 25,000
668,750
Department Stores--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Retail: Specialty--0.7% CML Group, Inc.(7) 69,000
698,625
------------------------------------------------------------------------------------------------------
Venture Stores, Inc. 88,000 1,023,000
------------
1,721,625
- -----------------------------------------------------------------------------------------------------------------------------------
Textiles: Apparel Authentic Fitness Corp.(2) 77,300
1,072,538
Manufacturers--0.8% ------------------------------------------------------------------------------------------------------
Warnaco Group, Inc. (The), Cl. A(2) 56,400 972,900
------------
2,045,438
- -----------------------------------------------------------------------------------------------------------------------------------
Toys--1.0% Mattel, Inc.(7) 63,000 1,582,875
------------------------------------------------------------------------------------------------------
Nintendo Co. 15,000 810,364
------------
2,393,239
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--9.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages: Alcoholic--0.4% Guinness PLC 160,000
1,126,440
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages: Soft Drinks--0.7% Whitman Corp. 104,300
1,799,175
- -----------------------------------------------------------------------------------------------------------------------------------
Cosmetics--0.2% Maybelline, Inc. 22,800 410,400
- -----------------------------------------------------------------------------------------------------------------------------------
Drugs--1.5% Agouron Pharmaceuticals, Inc.(2) 24,000
270,000
------------------------------------------------------------------------------------------------------
Astra AB Free, Series A 37,250 962,057
------------------------------------------------------------------------------------------------------
Ciba-Geigy AG 1,825 1,089,148
------------------------------------------------------------------------------------------------------
Lilly (Eli) & Co.(7) 9,000 590,625
------------------------------------------------------------------------------------------------------
Medeva PLC 342,715 873,969
------------
3,785,799
- -----------------------------------------------------------------------------------------------------------------------------------
Food Processing--1.0% Chiquita Brands International, Inc. 2
27
------------------------------------------------------------------------------------------------------
Nestle SA, Sponsored ADR 30,000 1,429,323
------------------------------------------------------------------------------------------------------
Sara Lee Corp. 40,000 1,010,000
------------
2,439,350
10 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare: Abbott Laboratories 26,200 $ 854,775
Diversified--1.6% ------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 33,000 1,909,875
------------------------------------------------------------------------------------------------------
Schering AG 1,825 1,195,068
------------
3,959,718
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare: Amgen, Inc.(2)(7) 12,900 761,100
Miscellaneous--2.3% ------------------------------------------------------------------------------------------------------
Biosys, Inc.(2) 74,400 167,400
------------------------------------------------------------------------------------------------------
Chiron Corp.(2)(7) 8,100 651,038
------------------------------------------------------------------------------------------------------
Genzyme Corp.(2)(7) 28,100 885,150
------------------------------------------------------------------------------------------------------
Manor Care, Inc. 40,000 1,095,000
------------------------------------------------------------------------------------------------------
U.S. Healthcare, Inc.(7) 50,000 2,062,500
------------
5,622,188
- -----------------------------------------------------------------------------------------------------------------------------------
Hospital Management--0.2% Novacare, Inc.(2) 72,500
525,625
- -----------------------------------------------------------------------------------------------------------------------------------
Medical Products--1.1% Medtronic, Inc. 19,200
1,068,000
------------------------------------------------------------------------------------------------------
Mitek Surgical Products, Inc.(2) 26,400 653,400
------------------------------------------------------------------------------------------------------
Nellcor, Inc.(2) 28,000 924,000
------------
2,645,400
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco--0.5% Philip Morris Cos., Inc. 22,000
1,265,000
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--2.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Coal--0.5% Ashland Coal, Inc. 42,400 1,208,400
- -----------------------------------------------------------------------------------------------------------------------------------
Oil: Integrated Atlantic Richfield Co. 9,400 956,450
Domestic--1.1% ------------------------------------------------------------------------------------------------------
Unocal Corp. 62,000 1,689,500
------------
2,645,950
- -----------------------------------------------------------------------------------------------------------------------------------
Oil: Integrated Royal Dutch Petroleum Co. 7,000
752,500
International--0.6% ------------------------------------------------------------------------------------------------------
Saga Petroleum AS, Cl. B 70,000 724,422
------------
1,476,922
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial--7.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Building Materials Owens-Corning Fiberglass Corp.(2) 68,000
2,176,000
Group--0.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Conglomerates--1.1% Jardine Matheson Holdings Ltd. 70,936
506,552
------------------------------------------------------------------------------------------------------
Tenneco, Inc. 33,000 1,402,500
------------------------------------------------------------------------------------------------------
Wharf Holdings 205,000 691,543
------------
2,600,595
11 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
------------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Containers: Metal Corning, Inc. 27,200 $ 812,600
And Glass--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--0.5% General Electric Co. 26,400
1,346,400
- -----------------------------------------------------------------------------------------------------------------------------------
Engineering Empresas ICA Sociedad Controladora SA de C.V.(7) 40,600
629,300
And Construction--0.6% ------------------------------------------------------------------------------------------------------
Huarte SA 88,350 825,575
------------
1,454,875
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing: Mannesmann AG 7,412
2,008,392
Diversified ------------------------------------------------------------------------------------------------------
Industrials--1.3% Siemens AG, ADR 14,200
1,189,124
------------
3,197,516
- -----------------------------------------------------------------------------------------------------------------------------------
Pollution Control--0.3% Waste Management International PLC, Sponsored ADR(2) 55,000
625,625
- -----------------------------------------------------------------------------------------------------------------------------------
Railroads--0.9% Burlington Northern, Inc. 33,900
1,631,438
------------------------------------------------------------------------------------------------------
Chicago & North Western Holdings Corp.(2) 34,700
667,975
------------
2,299,413
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation: Consolidated Freightways, Inc. 52,000
1,163,500
Miscellaneous--1.1% ------------------------------------------------------------------------------------------------------
Lisnave-Estaleiros Navais de Lisbona SA(2) 15,000
73,492
------------------------------------------------------------------------------------------------------
OMI Corp.(2) 25,900 171,588
------------------------------------------------------------------------------------------------------
Stolt-Nielsen SA(2) 65,000 1,340,625
------------------------------------------------------------------------------------------------------
Westmont Berhad 11,000 68,493
------------
2,817,698
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--6.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Finance--0.3% SG Warburg & Co., Inc. Ords 76,500
827,018
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services: American Express Co.(7) 28,000
826,000
Miscellaneous--1.3% ------------------------------------------------------------------------------------------------------
CMAC Investment Corp. 41,300 1,192,538
------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 37,000 1,322,750
------------
3,341,288
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance: Life--0.4% Bankers Life Holding Corp. 45,800
870,200
------------------------------------------------------------------------------------------------------
National Mutual Asia Ltd.(2) 120,000 79,100
------------
949,300
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance: Multi-Line--1.3% Aetna Life & Casualty Co. 16,800
791,700
------------------------------------------------------------------------------------------------------
American International Group, Inc. 10,400 1,019,200
------------------------------------------------------------------------------------------------------
AmericanRe Corp.(2) 40,000 1,290,000
------------
3,100,900
- -----------------------------------------------------------------------------------------------------------------------------------
Major Banks: Other--0.5% Banco Frances del Rio Plata 9,000
64,125
------------------------------------------------------------------------------------------------------
Deutsche Bank AG, ADR 2,250 1,045,151
------------------------------------------------------------------------------------------------------
Korea First Bank 12,357 172,387
------------------------------------------------------------------------------------------------------
Turkiye Garanti Bankasi AS, Sponsored ADR(5) 8,000
20,258
------------
1,301,921
12 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Major Banks: Regional--1.0% NationsBank Corp. 53,200 $
2,400,650
- -----------------------------------------------------------------------------------------------------------------------------------
Money Center Banks--1.3% Bankers Trust New York Corp.(7) 26,000
1,439,750
------------------------------------------------------------------------------------------------------
Chemical Banking Corp. 52,400 1,879,850
------------
3,319,600
- -----------------------------------------------------------------------------------------------------------------------------------
Savings and Loans/ Golden West Financial Corp. 25,000
881,250
Holding Cos.--0.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--11.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--1.1% General Dynamics Corp.(7) 24,300
1,057,050
------------------------------------------------------------------------------------------------------
McDonnell Douglas Corp.(7) 11,000 1,562,000
------------
2,619,050
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Software Bay Networks, Inc.(2)(7) 42,920
1,266,140
And Services--4.7% ------------------------------------------------------------------------------------------------------
BMC Software, Inc.(2)(7) 25,700 1,461,688
------------------------------------------------------------------------------------------------------
Computer Associates International, Inc.(7) 28,700 1,391,950
------------------------------------------------------------------------------------------------------
Delrina Corp.(2) 52,000 643,500
------------------------------------------------------------------------------------------------------
Electronic Arts, Inc.(2) 63,000 1,212,750
------------------------------------------------------------------------------------------------------
Landmark Graphics Corp.(2) 36,900 664,200
------------------------------------------------------------------------------------------------------
Lotus Development Corp.(2)(7) 18,000 738,000
------------------------------------------------------------------------------------------------------
Marcam Corp.(2) 69,300 701,663
------------------------------------------------------------------------------------------------------
Microsoft Corp.(2)(7) 18,600 1,136,925
------------------------------------------------------------------------------------------------------
Novell, Inc.(2) 52,500 899,063
------------------------------------------------------------------------------------------------------
Pyxis Corp.(2)(7) 34,000 646,000
------------------------------------------------------------------------------------------------------
Symantec Corp.(2) 55,000 962,500
------------
11,724,379
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Systems--1.2% Sun Microsystems, Inc.(2)(7) 41,500
1,473,250
------------------------------------------------------------------------------------------------------
Tandem Computers, Inc.(2)(7) 87,800 1,503,575
------------
2,976,825
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics: Hewlett-Packard Co.(7) 14,300 1,428,213
Instrumentation--0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics: Intel Corp. 40,000 2,555,000
Semiconductors--1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Office Equipment and Xerox Corp. 11,100
1,098,900
Supplies--0.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Telecommunications--2.8% AirTouch Communications, Inc.(2)(7) 36,500
1,063,060
------------------------------------------------------------------------------------------------------
AT&T Corp. 22,700 1,140,675
------------------------------------------------------------------------------------------------------
ECI Telecommunications Ltd. 62,000 844,750
------------------------------------------------------------------------------------------------------
MCI Communications Corp. 116,800
2,146,200
------------------------------------------------------------------------------------------------------
Rogers Cantel Mobile Communications, Inc., Sub. Cl. B(2) 54,000
1,574,440
------------------------------------------------------------------------------------------------------
Technology Resources Industries(2) 20,000 63,833
------------
6,832,958
13 Oppenheimer Asset Allocation Fund
<PAGE>
------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
------------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--2.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Companies--0.8% Central Puerto SA, ADR(5) 2,000 $
49,497
------------------------------------------------------------------------------------------------------
Korea Electric Power Co. 25,000 862,397
------------------------------------------------------------------------------------------------------
Verbund Oest Electriz 19,000 1,097,409
------------
2,009,303
- -----------------------------------------------------------------------------------------------------------------------------------
Natural Gas--0.4% Hong Kong & China Gas 619,200
1,000,382
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone--1.3% BCE, Inc. 34,000 1,092,250
------------------------------------------------------------------------------------------------------
US West, Inc. 54,800 1,952,250
------------
3,044,500
------------
Total Common Stocks (Cost $106,384,302)
125,576,370
=====================================================
=====================================================
=========================
Preferred Stocks--3.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Advanced Micro Devices, Inc., Depositary Cv. Exchangeable
Preferred Shares Each Representing 1/10th Share of $30 Cv
Exchangeable Preferred Shares 13,700 719,250
------------------------------------------------------------------------------------------------------
Alumax, Inc., $19.50 Cv., Series A 7,333 885,460
------------------------------------------------------------------------------------------------------
Chiquita Brands International, Inc., $1.32 Depositary Shares 50,000
687,500
------------------------------------------------------------------------------------------------------
Cyprus Amax Minerals Co., $4.00 Cv., Series A 17,666
1,031,251
------------------------------------------------------------------------------------------------------
Delta Airlines, Inc., $3.50 Cv. Depositary Shares, Series C 29,000
1,268,750
------------------------------------------------------------------------------------------------------
First Chicago Corp., Debt Exchangeable for Common Stock
of Nextel Communications, Inc., 5.50%, 2/15/97 25,000
437,500
------------------------------------------------------------------------------------------------------
FHP International Corp., Series A 71,500 1,751,750
------------------------------------------------------------------------------------------------------
Sap AG 1,180 672,974
------------
Total Preferred Stocks (Cost $6,793,340) 7,454,435
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $232,590,945) 99.7%
246,141,343
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.3 811,529
------------ ------------
Net Assets 100.0% $246,952,872
============
============
1. Face amount is reported in local currency. Foreign currency
abbreviations are as follows:
AUD--Australian Dollar
CAD--Canadian Dollar
ESP--Spanish Peseta
SEK--Swedish Krona
2. Non-income producing security.
3. Represents a zero coupon bond that converts to a fixed rate of interest
at a designated future date.
4. Represents the current interest rate for a variable rate security.
5. Restricted security--See Note 6 of Notes to Financial Statements.
6. Interest or dividend is paid in kind.
7. Securities with an aggregate market value of $8,769,900 are held in
escrow to cover outstanding call options, as follows:
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Market
Shares Subject Expiration Exercise Premium Value
to Call Date Price Received See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
Airtouch Communications, Inc. 9,000 1/95 $ 30.00 $ 9,292 $
3,375
American Express Co. 5,600 4/95 35.00 8,932
1,400
Amgen, Inc. 4,000 4/95 60.00 19,880 16,000
BMC Software, Inc. 7,500 4/95 60.00 28,874
37,500
Bankers Trust New York Corp. 5,200 1/95 70.00 23,243
325
Bay Networks, Inc. 8,400 3/95 30.00 18,647 23,625
CML Group, Inc. 14,000 1/95 12.50 15,329
1,750
Caesar's World, Inc. 4,200 2/95 50.00 14,574 73,500
Chiron Corp. 2,000 1/95 75.00 7,690 10,500
Chiron Corp. 3,000 4/95 80.00 20,159 3,375
Computer Associates
International, Inc. 5,500 4/95 50.00 27,472 19,938
Empresas ICA Sociedad Controladora
SA de C.V 14,000 1/95 35.00 31,954 875
General Dynamics Corp. 5,000 2/95 45.00 12,037
6,250
General Dynamics Corp. 5,000 5/95 50.00 8,705
5,313
Genzyme Corp. 5,400 1/95 40.00 7,792 338
Hewlett-Packard Co. 3,000 5/95 105.00 18,659
15,000
Hewlett-Packard Co. 3,000 5/95 95.00 23,534
34,125
IMC Global, Inc. 4,800 4/95 45.00 14,256 13,200
Inland Steel Industries, Inc. 7,600 3/95 45.00 11,172 1,425
Lilly (Eli) & Co. 4,500 4/95 60.00 19,552 34,875
Lotus Development Corp. 4,400 1/95 50.00 15,817
1,375
Lotus Development Corp. 6,600 1/95 50.00 21,251
413
Lotus Development Corp. 7,000 4/95 50.00 31,289
12,250
Mattel, Inc. 16,000 1/95 30.00 28,519 2,000
McDonnell Douglas Corp. 3,000 5/95 140.00 31,409
34,122
Microsoft Corp. 2,200 4/95 65.00 5,434 5,225
Pyxis Corp. 9,600 4/95 30.00 34,511 9,000
Sun Microsystems, Inc. 7,000 1/95 30.00 10,727
41,125
Sun Microsystems, Inc. 7,000 4/95 35.00 12,040
24,500
Sun Microsystems, Inc. 7,000 7/95 40.00 13,352
16,625
Tandem Computers, Inc. 15,800 4/95 17.50 19,275
23,700
U.S. Healthcare, Inc. 10,000 1/95 45.00 29,074 2,500
U.S. Healthcare, Inc. 10,000 4/95 50.00 38,449 8,750
Upjohn Co.(8) 4,500 1/95 40.00 7,177 564
-------- --------
$640,077 $484,838
========
========
<FN>
8. The Fund owns U.S. Treasury Nts., 6.75%, 5/31/97, that are acceptable for the escrow arrangements
required for written call options. See accompanying Notes to Financial Statements.
</FN>
</TABLE>
15 Oppenheimer Asset Allocation Fund
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1994
------------------------------------------------------------------------------------------------------
=====================================================
=====================================================
=========================
<S> <C> <C>
Assets Investments, at value (cost $232,590,945)--see accompanying statement $
246,141,343
------------------------------------------------------------------------------------------------------
Receivables:
Interest and dividends 3,340,358
Investments sold 890,847
Shares of beneficial interest sold 246,818
------------------------------------------------------------------------------------------------------
Other 83,508
--------------
Total assets 250,702,874
=====================================================
=====================================================
=========================
Liabilities Bank overdraft 449,157
------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $640,077)--
see accompanying statement--Note 4 484,838
------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Dividends and distributions 1,253,245
Shares of beneficial interest redeemed 853,673
Investments purchased 264,058
Distribution and service plan fees--Note 5 118,238
Other 326,793
--------------
Total liabilities 3,750,002
=====================================================
=====================================================
=========================
Net Assets $ 246,952,872
==============
=====================================================
=====================================================
=========================
Composition of Paid-in capital $234,046,423
Net Assets ------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income
(610,110)
------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) from investment,
written option and foreign currency transactions (189,381)
------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments, options written and
translation of assets and liabilities denominated in foreign currencies--Note 3
13,705,940
--------------
Net assets $ 246,952,872
==============
=====================================================
=====================================================
=========================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets of $237,771,276 and
20,632,622 shares of beneficial interest outstanding) $11.52
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $12.22
------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $9,181,596 and 798,980 shares of beneficial interest outstanding)
.$11.49
See accompanying Notes to Financial Statements.
</TABLE>
16 Oppenheimer Asset Allocation Fund
<PAGE>
<TABLE>
------------------------------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1994
------------------------------------------------------------------------------------------------------
=====================================================
=====================================================
=========================
<S> <C> <C>
Investment Income Interest (net of withholding taxes of $17,780) $
11,314,536
------------------------------------------------------------------------------------------------------
Dividends (net of withholding taxes of $78,254) 2,533,954
------------
Total income 13,848,490
=====================================================
=====================================================
=========================
Expenses Management fees--Note 5 1,869,498
------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 5 386,300
Class C--Note 5 55,806
------------------------------------------------------------------------------------------------------
Shareholder reports 241,215
------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 5 213,430
------------------------------------------------------------------------------------------------------
Legal and auditing fees 56,127
------------------------------------------------------------------------------------------------------
Custodian fees and expenses 55,003
------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 27,993
------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 341
Class C 3,112
------------------------------------------------------------------------------------------------------
Other 51,749
------------
Total expenses 2,960,574
=====================================================
=====================================================
=========================
Net Investment Income (Loss) 10,887,916
=====================================================
=====================================================
=========================
Realized and Unrealized Net realized gain (loss) on:
Gain (Loss) on Investments, Investments 15,341,281
Options Written and Closing and expiration of option contracts written--Note 4
1,326,659
Foreign Currency Foreign currency transactions 315,662
Transactions ------------
Net realized gain (loss) 16,983,602
------------
------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written (33,297,605)
Translation of assets and liabilities denominated in foreign currencies
946,267
------------
Net change (32,351,338)
------------
Net realized and unrealized gain (loss) on investments, options written
and foreign currency transactions (15,367,736)
=====================================================
=====================================================
=========================
Net Increase (Decrease) in Net Assets Resulting From Operations $
(4,479,820)
============
See accompanying Notes to Financial Statements
</TABLE>
17 Oppenheimer Asset Allocation Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
------------------------------------------------------------------------------------------------------
Year Ended December 31,
1994 1993
=====================================================
=====================================================
=========================
<S> <C> <C> <C>
Operations Net investment income (loss) $ 10,887,916 $
9,755,468
------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments, options written
and foreign currency transactions 16,983,602 8,616,993
------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments, options written and translation of
assets and liabilities denominated in foreign currencies (32,351,338)
22,617,333
------------ ------------
Net increase (decrease) in net assets resulting
from operations (4,479,820) 40,989,794
=====================================================
=====================================================
=========================
Dividends and Dividends from net investment income:
Distributions to Class A ($.532 and $.438 per share, respectively) (10,574,115)
(9,529,080)
Shareholders Class C ($.443 and $.12 per share, respectively) (258,031)
(2,987)
------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments,
options written and foreign currency transactions:
Class A ($.787 and $.012 per share, respectively) (15,027,395)
(254,071)
Class C ($.787 and $.012 per share, respectively) (578,336)
(298)
=====================================================
=====================================================
=========================
Beneficial Interest Net increase (decrease) in net assets resulting from
Transactions Class A beneficial interest transactions--Note 2 (10,144,316)
(20,002,391)
------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
Class C beneficial interest transactions--Note 2 9,705,207 395,601
=====================================================
=====================================================
=========================
Net Assets Total increase (decrease) (31,356,806) 11,596,568
------------------------------------------------------------------------------------------------------
Beginning of period 278,309,678 266,713,110
------------ ------------
End of period (including overdistributed net investment
income of $610,110 and $340,955, respectively) $246,952,872
$278,309,678
============
============
See accompanying Notes to Financial Statements.
</TABLE>
18 Oppenheimer Asset Allocation Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------------------------
Class A Class C
------------------------------------------------------------------------------- ------------------
Year Period
Year Ended Ended Ended
December 31, Dec.31, Dec.31,
1994 1993 1992 1991(3) 1990 1989 1988 1987(2) 1994
1993(1)
=====================================================
=====================================================
=========================
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Per Share Operating Data:
Net asset value,
beginning of period $ 13.05 $ 11.63 $ 11.22 $ 10.19 $ 10.67 $ 9.78 $ 8.89 $ 10.00 $ 13.05
$ 12.86
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income (loss) .54 .44 .39 .40 .53 .49 .39 .27 .44
(.97)
Net realized and unrealized
gain (loss) on investments,
options written and
foreign currency transactions (.75) 1.43 .44 1.06 (.43) 1.17 1.09 (1.11) (.77)
1.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations (.21) 1.87 .83 1.46 .10 1.66 1.48 (.84) (.33)
.32
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.53) (.44) (.42) (.43) (.52) (.48) (.40) (.26) (.44) (.12)
Distributions from net
realized gain on investments,
options written, and
foreign currency transactions (.79) (.01) -- -- (.06) (.29) (.19) (.01) (.79) (.01)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (1.32) (.45) (.42) (.43) (.58) (.77) (.59) (.27) (1.23)
(.13)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.52 $ 13.05 $11.63 $11.22 $ 10.19 $ 10.67 $ 9.78 $ 8.89 $
11.49 $ 13.05
======= ======= ====== ====== =======
======= ======= ======= ======= =======
=====================================================
=====================================================
=========================
Total Return,
at Net Asset Value(4) (1.59)% 16.30% 7.54% 14.67% .93% 18.21% 15.88% (8.60)%
(2.50)% 2.51%
=====================================================
=====================================================
=========================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $237,771 $277,914 $266,713 $276,800 $83,292 $81,194 $51,602 $32,718
$9,182 $ 396
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)$260,767 $272,303 $269,096 $192,870 $82,490 $68,134 $40,662 $31,407
$5,601 $ 194
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 20,633 21,302 22,938 24,666 8,171 7,611 5,275 3,679 799
30
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.10% 3.58% 3.41% 3.78% 5.14% 4.71% 4.30% 3.84%(5)
3.30% 2.19%(5)
Expenses 1.09% 1.14% 1.17% 1.27% 1.36% 1.47% 1.50% 1.60%(5)
2.00% 2.50%(5)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 31.5% 32.7% 60.3% 102.0% 71.3% 60.2% 185.5% 83.7%
31.5% 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, 1994 were $80,945,381 and $94,867,765, respectively.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
19 Oppenheimer Asset Allocation Fund
<PAGE>
Notes to Financial Statements
1. Significant
Accounting Policies
Oppenheimer Asset Allocation Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment 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 using dealer-supplied valuations provided the
Manager is satisfied that the firm rendering the quotes is reliable and
that the quotes reflect current market value, or under consistently
applied procedures established by the Board of Trustees to determine fair
value in good faith. 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.
Options are valued based upon the last sale price on the principal
exchange on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last sale 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 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. The market value of the underlying
securities is required to be at least 102% of the resale price at the time
of purchase. If the seller of the agreement defaults and the value of the
collateral declines, or if the seller enters an insolvency proceeding,
realization of the value of the collateral by the Fund may be delayed or
limited.
Allocation of Income, Expenses and Gains and Losses. Income, expenses
(other than those attributable to a specific class) and gains and losses
are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the
operations of that class.
Federal Income Taxes. The Fund intends to continue to comply with
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income tax provision is required. At
December 31, 1994, the Fund had available for federal income tax purposes
an unused capital loss carryover of approximately $1,781,000, $891,000 of
which will expire in 1996, $445,000 in 1997 and $445,000 in 1998, 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, 1994, the Fund's projected benefit obligations
were reduced by $38,525, resulting in an accumulated liability of $110,974
at December 31, 1994. No payments have been made under the plan.
Distributions to Shareholders. Dividends and distributions to shareholders
are recorded on the ex-dividend date.
Change in Accounting Classification of Distributions to Shareholders. Net
investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes primarily because of paydown gains
and losses and the recognition of certain foreign currency gains (losses)
as ordinary income (loss) for tax purposes. The character of the
distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that
the income or realized gain (loss) was recorded by the Fund. Effective
January 1, 1994, the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
As a result, the Fund changed the classification of distributions to
shareholders to better disclose the differences between financial
statement amounts and distributions determined in accordance with income
tax regulations. Accordingly, subsequent to December 31, 1993, amounts
have been reclassified to reflect an increase in paid-in capital of
$2,394,578, a decrease in undistributed net investment income of $235,825,
and a decrease in accumulated net realized gain on investments of
$2,158,753. During the year ended December 31, 1994, in accordance with
Statement of Position 93-2, undistributed net investment income was
decreased by $89,100, accumulated net realized gain on investments was
decreased by $356,108, and paid-in capital was increased by $445,208.
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 Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest. Transactions in shares of beneficial interest were
as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993 (1)
----------------------------- ---------------------------
Shares Amount Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,464,805 $ 18,650,064 1,309,237 $ 16,208,603
Dividends and distributions
reinvested 1,895,898 22,211,167 593,184 7,426,650
Redeemed (4,030,121) (51,005,547) (3,538,545) (43,637,644)
--------- ------------ ---------- ------------
Net decrease (669,418) $(10,144,316) (1,636,124) $(20,002,391)
========= ============
========== ============
------------------------------------------------------------------------------------------------------
Class C:
Sold 757,806 $ 9,618,332 30,068 $ 392,326
Dividends and distributions
reinvested 62,679 725,448 251 3,275
Redeemed (51,824) (638,573) -- --
--------- ------------ ---------- ------------
Net increase 768,661 $ 9,705,207 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.
</FN>
</TABLE>
3. Unrealized Gains and
Losses on Investments
At December 31, 1994, net unrealized appreciation on investments and
options written of $13,705,940 was composed of gross appreciation of
$27,640,976, and gross depreciation of $13,935,036. And Options Written
4. Option Activity
The Fund may buy and sell put and call options, or write covered call
options on portfolio securities in order to produce incremental earnings
or protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Fund receives a premium and becomes
obligated to sell or purchase the underlying security at a fixed price,
upon exercise of the option. The Fund segregates assets to cover its
obligations under option contracts.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sales for a written call option, the purchase
cost for a written put option, or the cost of the security for a purchased
put or call option is adjusted by the amount of premium received or paid.
In this report, securities segregated to cover outstanding call options
are noted in the Statement of Investments. Shares subject to call,
expiration date, exercise price, premium received and market value are
detailed in a footnote to the Statement of Investments. Options written
are reported as a liability in the Statement of Assets and Liabilities.
Gains and losses are reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and
the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the security decreases and the
option is exercised. The risk in buying an option is that the Fund pays
a premium whether or not the option is exercised. The Fund also has the
additional risk of not being able to enter into a closing transaction if
a liquid secondary market does not exist.
Call option activity for the year ended December 31, 1994 was as follows:
<TABLE>
<CAPTION>
Number Amount
of Options of Premiums
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1993 4,564 $ 1,222,221
------------------------------------------------------------------------------------------------------
Options written 5,769 1,805,614
------------------------------------------------------------------------------------------------------
Options cancelled in closing purchase transactions (3,274) (1,055,031)
------------------------------------------------------------------------------------------------------
Options exercised (1,744) (561,301)
------------------------------------------------------------------------------------------------------
Options expired prior to exercise (3,007) (771,426)
----- -----------
Options outstanding at December 31, 1994 2,308 $ 640,077
===== ===========
</TABLE>
5. Management Fees and Other Transactions With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provided 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. Effective June 27, 1994, management fees were
reduced 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, 1994, commissions (sales charges paid by
investors) on sales of Class A shares totaled $446,064, of which $160,107
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary
of the Manager, as general distributor, and by an affiliated
broker/dealer. During the year ended December 31, 1994, OFDI received
contingent deferred sales charges of $2,135 upon redemption of Class C
shares, as reimbursement for sales commissions advanced by OFDI at the
time of sale of such shares.
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, each class may expend up to .25% of
its net assets annually to reimburse OFDI for costs incurred in connection
with the personal service and maintenance of accounts that hold shares of
the Fund (prior to July 1, 1994, Class A reimbursement were made with
respect to shares sold subsequent to April 1, 1988), 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, the Board of
Trustees may allow the Fund to continue payment of the asset-based sales
charge to OFDI for distribution expenses incurred on Class C shares sold
prior to termination or discontinuance of the plan. During the year ended
December 31, 1994, OFDI With Affiliates paid $103,221 to an affiliated
broker/dealer as reimbursement for Class A personal service and
maintenance expenses and retained $55,744 as reimbursement for Class C
sales commissions and service fee advances, as well as financing costs.
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. Illiquid and/or restricted
securities, including those restricted securities that are transferable
under Rule 144A of the Act are listed below.
<TABLE>
<CAPTION>
Valuation Per Unit as of
Security Acquisition Date Cost Per Unit December 31, 1994
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Central Puerto SA, ADR(1) 7/21/94--7/25/94 $ 31.81 $ 24.75
------------------------------------------------------------------------------------------------------
Terex Corp., 13% Sr. Nts., 8/1/96(1) 11/16/94 $ 0.98 $ 0.95
------------------------------------------------------------------------------------------------------
Turkiye Garanti Bankasi AS,
Sponsored ADR(1) 7/21/94--10/26/94 $ 2.16 $ 2.53
<FN>
1. Transferable under Rule 144A of the Act.
</FN>
</TABLE>
Appendix A
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
<PAGE>
Food
Gas Transmission
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
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 LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
<PAGE>
OPPENHEIMER ASSET ALLOCATION FUND
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Condensed Financial Information*
(2) Independent Auditors' Report*
(3) Statement of Investments*
(4) Statement of Assets and Liabilities*
(5) Statement of Operations*
(6) Statements of Changes in Net Assets*
(7) Per Share Data and Ratios*
(8) Notes to Financial Statements*
(9) Independent Auditors' Consent*
- ------------------
* Filed herewith.
(b) Exhibits
--------
1. Amended and Restated Declaration of Trust dated June 1,
1992: Filed with Registrant's Post-Effective Amendment No.
17, 2/28/94, and incorporated herein by reference.
2. By-Laws, amended as of 8/6/87: Filed with Registrant's 12/31/87
Annual Report Form N-SAR, refiled with Registrant's Post-Effective
Amendment No. 20, 3/2/95, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
3. Inapplicable
4. (i) Specimen Class A Share Certificate of Registrant: Filed with
Registrant's Post-Effective Amendment No. 17, 2/28/94, and incorporated
herein by reference.
(ii) Specimen Class C Share Certificate of Registrant:
Filed with Registrant's Post-Effective Amendment No. 17, 2/28/94, and
incorporated herein by reference.
5. Investment Advisory Agreement dated 6/24/94: Filed with
Registrant's Post-Effective Amendment No. 20, 3/2/95,
pursuant to Item 102 of Regulation S-T, and incorporated
herein by reference.
6. (i) General Distributor's Agreement dated 12/10/92: Filed
with Registrant's Post-Effective Amendment No. 15,
4/19/93, refiled with Registrant's Post-Effective
Amendment No. 20, 3/2/95, pursuant to Item 102 of
Regulation S-T, and incorporated herein by reference.
(ii) Form of Oppenheimer Funds Distributor, Inc. Dealer
Agreement: Filed with Post-Effective Amendment No.
14 of Oppenheimer Main Street Funds, Inc. (Reg.
No. 33-17850), 9/30/94, and incorporated herein by
reference.
(iii) Form of Oppenheimer Funds Distributor, Inc. Broker
Agreement: Filed with Post-Effective Amendment No.
14 of Oppenheimer Main Street Funds, Inc. (Reg. No.
33-17850), 9/30/94, and incorporated herein by
reference.
(iv) Form of Oppenheimer Funds Distributor, Inc. Agency
Agreement: Filed with Post-Effective Amendment No.
14 of Oppenheimer Main Street Funds, Inc. (Reg. No.
33-17850), 9/30/94, and incorporated herein by
reference.
(v) Broker Agreement between Oppenheimer Fund Management,
Inc. and Newbridge Securities, Inc. dated 10/1/86:
Filed with Post-Effective Amendment No. 25 of
Oppenheimer Growth Fund (Reg. No. 2-45272), 11/1/86,
and refiled with Post-Effective Amendment No. 45 of
Oppenheimer Growth Fund (Reg. No. 2-45272), 8/22/94,
pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
7. Retirement Plan for Non-Interested Trustees or Directors
(dated 6/7/90): Filed with Post-Effective Amendment No. 97
of Oppenheimer Fund (File No. 2-14586), 8/30/90, refiled
with Post-Effective Amendment No. 45 of Oppenheimer Growth
Fund (Reg. No. 2-45272), 8/22/94, pursuant to Item 102 of
Regulation S-T, and incorporated herein by reference.
8. Custody Agreement with The Bank of New York dated 11/12/92:
Filed with Registrant's Post-Effective Amendment No. 15,
4/19/93, refiled with Registrant's Post-Effective Amendment
No. 20, 3/2/95, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
9. Inapplicable.
10. Opinion and Consent of Counsel dated 3/2/87: Filed with
Registrant's Post-Effective Amendment No.7, 4/24/87,
refiled with Registrant's Post-Effective Amendment No. 20,
3/2/95, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
11. Inapplicable.
12. Inapplicable.
13. Investment Letter dated 11/30/86 from Oppenheimer
Management Corporation to Registrant: Filed with
Registrant's Post-Effective Amendment No. 7, 4/24/87, and
incorporated herein by reference.
14. (i) Form of Individual Retirement Account (IRA) Trust
Agreement: Filed with Post-Effective Amendment No. 21
of Oppenheimer U.S. Government Trust (Reg. No. 2-
76645), 8/25/93, and incorporated herein by reference.
(ii) Form of prototype Standardized and Non-Standardized
Profit-Sharing Plan and Money Purchase Pension Plan for
self-employed persons and corporations: Filed with
Post Effective Amendment No. 7 of the Registration
Statement of Oppenheimer Global Growth & Income Fund
(Reg. No. 33-33799), 12/2/94, and incorporated herein
by reference.
(iii) Form of Tax-Sheltered Retirement Plan and Custody
Agreement for employees of public schools and tax-
exempt organizations: Filed with Post-Effective
Amendment No. 47 of Oppenheimer Growth Fund (File
No. 2-45272), 10/21/94, and incorporated herein by
reference.
(iv) Form of Simplified Employee Pension IRA: Filed with
Post-Effective Amendment No. 36 of Oppenheimer Equity
Income Fund (Reg. No. 2-33043), 10/23/91 and
incorporated herein by reference.
(v) Form of SAR-SEP Employee Pension IRA: Filed with Post-
Effective Amendment No. 19 of Oppenheimer Integrity
Funds (File No. 2-76547), 3/1/94, and incorporated
herein by reference.
15. (i) Service Plan and Agreement dated 7/1/94 for Class A
Shares pursuant to Rule 12b-1: Filed with Registrant's
Post-Effective Amendment No. 20, 3/2/95, pursuant to
Item 102 of Regulation S-T, and incorporated herein by
reference.
(ii) Distribution and Service Plan and Agreement dated
December 1, 1993 for Class C Shares pursuant to Rule
12b-1: Filed with Registrant's Post-Effective
Amendment No. 17, 2/28/94, and incorporated herein by
reference.
16. Performance Data Calculation Schedule: Filed herewith.
17. (i) Financial Data Schedule for Class A Shares: Filed
herewith.
(ii) Financial Data Schedule for Class C Shares: Filed
herewith.
-- Powers of Attorney and Certified Board Resolutions: Filed
with Registrant's Post-Effective Amendment No. 17, 2/28/94,
and incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with
Registrant
---------------------------------------------------
None
Item 26. Number of Holders of Securities
-------------------------------
Number of Record Holders
Title of Class as of April 11, 1995
- -------------- ------------------------
Class A Shares of Beneficial Interest 22,767
Class C Shares of Beneficial Interest 902
Item 27. Indemnification
---------------
Reference is made to paragraphs (c) through (g) of Section 12 of
Article SEVENTH of Registrant's Declaration of Trust filed as Exhibit
24(b)(1) to this Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Oppenheimer Management Corporation is the investment adviser of the
Registrant; it and certain subsidiaries and affiliates act in the same
capacity to other registered investment companies as described in Parts
A and B hereof and listed in Item 28(b) below.
(b) There is set forth below information as to any other business,
profession, vocation or employment of a substantial nature in which each
officer and director of Oppenheimer Management Corporation is, or at any
time during the past two fiscal years has been, engaged for his/her own
account or in the capacity of director, officer, employee, partner or
trustee.
<TABLE>
<CAPTION>
Name & Current Position
with Oppenheimer Other Business and Connections
Management Corporation During the Past Two Years
- ----------------------- ------------------------------
<S> <C>
Lawrence Apolito, None.
Vice President
James C. Ayer, Jr., Vice President and Portfolio Manager of
Assistant Vice President Oppenheimer Gold & Special Minerals Fund and
Oppenheimer Global Emerging Growth Fund.
Victor Babin, None.
Senior Vice President
Robert J. Bishop Assistant Treasurer of the OppenheimerFunds
Assistant Vice President (listed below); previously a Fund Controller
for Oppenheimer Management Corporation (the
"Manager").
George Bowen Treasurer of the New York-based
Senior Vice President OppenheimerFunds; Vice President, Secretary
and Treasurer and Treasurer of the Denver-based
OppenheimerFunds. Vice President and
Treasurer of Oppenheimer Funds Distributor,
Inc. (the "Distributor") and HarbourView
Asset Management Corporation
("HarbourView"), an investment adviser
subsidiary of OMC; Senior Vice President,
Treasurer, Assistant Secretary and a
director of Centennial Asset Management
Corporation ("Centennial"), an investment
adviser subsidiary of the Manager; Vice
President, Treasurer and Secretary of
Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc.
("SFSI"), transfer agent subsidiaries of
OMC; President, Treasurer and Director of
Centennial Capital Corporation; Vice
President and Treasurer of Main Street
Advisers; formerly Senior Vice President/
Comptroller and Secretary of Oppenheimer
Asset Management Corporation ("OAMC"), an
investment adviser which was a subsidiary of
the OMC.
Michael A. Carbuto, Vice President and Portfolio Manager of
Vice President Oppenheimer Tax-Exempt Cash Reserves,
Centennial California Tax Exempt Trust,
Centennial New York Tax Exempt Trust and
Centennial Tax Exempt Trust; Vice President
of Centennial.
William Colbourne, Formerly, Director of Alternative Staffing
Assistant Vice President Resources, and Vice President of Human
Resources, American Cancer Society.
Lynn Coluccy, Vice President Formerly Vice President/Director of Internal
Audit of the Manager.
O. Leonard Darling, Formerly Co-Director of Fixed Income for
Executive Vice President State Street Research & Management Co.
Robert A. Densen, None.
Vice President
Robert Doll, Jr., Vice President and Portfolio Manager of
Executive Vice President Oppenheimer Growth Fund and Oppenheimer
Target Fund; Senior Vice President and
Portfolio Manager of Strategic Income &
Growth Fund.
John Doney, Vice President Vice President and Portfolio Manager of
Oppenheimer Equity Income Fund.
Andrew J. Donohue, Secretary of the New York-based
Executive Vice President OppenheimerFunds; Vice President of the
& General Counsel Denver-based OppenheimerFunds; Executive
Vice President, Director and General Counsel
of the Distributor; formerly Senior Vice
President and Associate General Counsel of
the Manager and the Distributor.
Kenneth C. Eich, Treasurer of Oppenheimer Acquisition
Executive Vice President/ Corporation
Chief Financial Officer
George Evans, Vice President Vice President and Portfolio Manager of
Oppenheimer Global Securities Fund.
Scott Farrar, Assistant Treasurer of the OppenheimerFunds;
Assistant Vice President previously a Fund Controller for the
Manager.
Katherine P.Feld Vice President and Secretary of Oppenheimer
Vice President and Funds Distributor, Inc.; Secretary of
Secretary HarbourView, Main Street Advisers, Inc. and
Centennial; Secretary, Vice President and
Director of Centennial Capital Corp.
Jon S. Fossel, President and director of Oppenheimer
Chairman of the Board, Acquisition Corp. ("OAC"), the Manager's
Chief Executive Officer parent holding company; President, CEO and
and Director a director of HarbourView; a director of SSI
and SFSI; President, Director, Trustee, and
Managing General Partner of the Denver-based
OppenheimerFunds; formerly President of the
Manager. President and Chairman of the Board
of Main Street Advisers, Inc.
Robert G. Galli, Trustee of the New York-based
Vice Chairman OppenheimerFunds; Vice President and Counsel
of OAC; formerly he held the following
positions: a director of the Distributor,
Vice President and a director of HarbourView
and Centennial, a director of SFSI and SSI,
an officer of other OppenheimerFunds and
Executive Vice President & General Counsel
of the Manager and the Distributor.
Linda Gardner, None.
Assistant Vice President
Ginger Gonzalez, Formerly 1st Vice President/Director of
Vice President Creative Services for Shearson Lehman
Brothers.
Dorothy Grunwager, None.
Assistant Vice President
Caryn Halbrecht, Vice President and Portfolio Manager of
Vice President Oppenheimer Insured Tax-Exempt Bond Fund and
Oppenheimer Intermediate Tax Exempt Bond
Fund; an officer of other OppenheimerFunds;
formerly Vice President of Fixed Income
Portfolio Management at Bankers Trust.
Barbara Hennigar, President and Director of Shareholder
President and Chief Financial Service, Inc.
Executive Officer of
Oppenheimer Shareholder
Services, a division of OMC.
Alan Hoden, Vice President None.
Merryl Hoffman, None.
Vice President
Scott T. Huebl, None.
Assistant Vice President
Jane Ingalls, Formerly a Senior Associate with Robinson,
Assistant Vice President Lake/Sawyer Miller.
Stephen Jobe, None.
Vice President
Avram Kornberg, Formerly a Vice President with Bankers
Vice President Trust.
Paul LaRocco, Portfolio Manager of Oppenheimer Capital
Assistant Vice President Appreciation Fund; Associate Portfolio
Manager of Oppenheimer Discovery Fund and
Oppenheimer Time Fund. Formerly a
Securities Analyst for Columbus Circle
Investors.
Mitchell J. Lindauer, None.
Vice President
Loretta McCarthy, None.
Senior Vice President
Bridget Macaskill, Director of HarbourView; Director of Main
President and Director Street Advisers, Inc.; and Chairman of
Shareholder Services, Inc.
Sally Marzouk, None.
Vice President
Denis R. Molleur, None.
Vice President
Kenneth Nadler, None.
Vice President
David Negri, Vice President and Portfolio Manager of
Vice President Oppenheimer Strategic Bond Fund, Oppenheimer
Multiple Strategies Fund, Oppenheimer
Strategic Investment Grade Bond Fund,
Oppenheimer Asset Allocation Fund,
Oppenheimer Strategic Diversified Income
Fund, Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Strategic Short-Term Income
Fund, Oppenheimer High Income Fund and
Oppenheimer Bond Fund; an officer of other
OppenheimerFunds.
Barbara Niederbrach, None.
Assistant Vice President
Stuart Novek, Formerly a Director Account Supervisor for
Vice President J. Walter Thompson.
Robert A. Nowaczyk, None.
Vice President
Robert E. Patterson, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Main Street California Tax-
Exempt Fund, Oppenheimer Insured Tax-Exempt
Bond Fund, Oppenheimer Intermediate Tax-
Exempt Bond Fund, Oppenheimer Florida Tax-
Exempt Fund, Oppenheimer New Jersey Tax-
Exempt Fund, Oppenheimer Pennsylvania Tax-
Exempt Fund, Oppenheimer California Tax-
Exempt Fund, Oppenheimer New York Tax-Exempt
Fund and Oppenheimer Tax-Free Bond Fund;
Vice President of the New York Tax-Exempt
Income Fund, Inc.; Vice President of
Oppenheimer Multi-Sector Income Trust.
Tilghman G. Pitts III, Chairman and Director of the Distributor.
Executive Vice President
and Director
Jane Putnam, Associate Portfolio Manager of Oppenheimer
Assistant Vice President Growth Fund and Oppenheimer Target Fund and
Portfolio Manager for Oppenheimer Variable
Account Funds-Growth Fund; Senior Investment
Officer and Portfolio Manager with Chemical
Bank.
Russell Read, Formerly an International Finance Consultant
Assistant Vice President for Dow Chemical.
Thomas Reedy, Vice President of Oppenheimer Multi-Sector
Vice President Income Trust and Oppenheimer Multi-
Government Trust; an officer of other
OppenheimerFunds; formerly a Securities
Analyst for the Manager.
David Rosenberg, Vice President and Portfolio Manager of
Vice President Oppenheimer Limited-Term Government Fund and
Oppenheimer U.S. Government Trust. Formerly
Vice President and Senior Portfolio Manager
for Delaware Investment Advisors.
Richard H. Rubinstein, Vice President and Portfolio Manager of
Vice President Oppenheimer Asset Allocation Fund,
Oppenheimer Fund and Oppenheimer Multiple
Strategies Fund; an officer of other
OppenheimerFunds; formerly Vice President
and Portfolio Manager/Security Analyst for
Oppenheimer Capital Corp., an investment
adviser.
Lawrence Rudnick, Formerly Vice President of Dollar Dry Dock
Assistant Vice President Bank.
Ellen Schoenfeld, None.
Assistant Vice President
Nancy Sperte, None.
Senior Vice President
Donald W. Spiro, President and Trustee of the New York-based
Chairman Emeritus OppenheimerFunds; formerly Chairman of the
and Director Manager and the Distributor.
Arthur Steinmetz, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Strategic Diversified Income
Fund, Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Strategic Investment Grade Bond
Fund, Oppenheimer Strategic Short-Term
Income Fund; an officer of other
OppenheimerFunds.
Ralph Stellmacher, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Champion High Yield Fund and
Oppenheimer High Yield Fund; an officer of
other OppenheimerFunds.
John Stoma, Vice President Formerly Vice President of Pension Marketing
with Manulife Financial.
James C. Swain, Chairman, CEO and Trustee, Director or
Vice Chairman of the Managing Partner of the Denver-based
Board of Directors OppenheimerFunds; President and a Director
and Director of Centennial; formerly President and
Director of OAMC, and Chairman of the Board
of SSI.
James Tobin, Vice President None.
Jay Tracey, Vice President Vice President of the Manager; Vice
President and Portfolio Manager of
Oppenheimer Time Fund and Oppenheimer
Discovery Fund. Formerly Managing Director
of Buckingham Capital Management.
Gary Tyc, Vice President, Assistant Treasurer of the Distributor and
Assistant Secretary SFSI.
and Assistant Treasurer
Ashwin Vasan, Vice President of Oppenheimer Multi-Sector
Vice President Income Trust and Oppenheimer Multi-
Government Trust: an officer of other
OppenheimerFunds.
Valerie Victorson, None.
Vice President
John Wallace, Vice President and Portfolio Manager of
Vice President Oppenheimer Total Return Fund, and
Oppenheimer Main Street Income and Growth
Fund; an officer of other OppenheimerFunds;
formerly a Securities Analyst and Assistant
Portfolio Manager for the Manager.
Dorothy Warmack, Vice President and Portfolio Manager of
Vice President Daily Cash Accumulation Fund, Inc.,
Oppenheimer Cash Reserves, Centennial
America Fund, L.P., Centennial Government
Trust and Centennial Money Market Trust;
Vice President of Centennial.
Christine Wells, None.
Vice President
William L. Wilby, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Global Fund and Oppenheimer
Global Growth & Income Fund; Vice President
of HarbourView; an officer of other
OppenheimerFunds.
Susan Wilson-Perez, None.
Vice President
Carol Wolf, Vice President and Portfolio Manager of
Vice President Oppenheimer Money Market Fund, Inc.,
Centennial America Fund, L.P., Centennial
Government Trust, Centennial Money Market
Trust and Daily Cash Accumulation Fund,
Inc.; Vice President of Oppenheimer Multi-
Sector Income Trust; Vice President of
Centennial.
Robert G. Zack, Associate General Counsel of the Manager;
Senior Vice President Assistant Secretary of the OppenheimerFunds;
and Assistant Secretary Assistant Secretary of SSI, SFSI; an officer
of other OppenheimerFunds.
Eva A. Zeff, Vice President and Portfolio Manager of
Assistant Vice President Oppenheimer Mortgage Income Fund; an officer
of other OppenheimerFunds; formerly a
Securities Analyst for the Manager.
Arthur J. Zimmer, Vice President and Portfolio Manager of
Vice President Centennial America Fund, L.P., Oppenheimer
Money Fund, Centennial Government Trust,
Centennial Money Market Trust and Daily Cash
Accumulation Fund, Inc.; Vice President of
Oppenheimer Multi-Sector Income Trust; Vice
President of Centennial; an officer of other
OppenheimerFunds.
</TABLE>
The OppenheimerFunds include the New York-based OppenheimerFunds
and the Denver-based OppenheimerFunds set forth below:
New York-based OppenheimerFunds
Oppenheimer Asset Allocation Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Discovery Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer Money Market Fund, Inc.
Oppenheimer Mortgage Income Fund
Oppenheimer Multi-Government Trust
Oppenheimer Multi-Sector Income Trust
Oppenheimer Multi-State Tax-Exempt Trust
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Target Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Time Fund
Oppenheimer U.S. Government Trust
Denver-based OppenheimerFunds
Oppenheimer Cash Reserves
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
Centennial Government Trust
Centennial Money Market Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Daily Cash Accumulation Fund, Inc.
The New York Tax-Exempt Income Fund, Inc.
Oppenheimer Champion High Yield Fund
Oppenheimer Equity Income Fund
Oppenheimer High Yield Fund
Oppenheimer Integrity Funds
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc.
Oppenheimer Strategic Funds Trust
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Tax-Exempt Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Variable Account Funds
The address of Oppenheimer Management Corporation, the New York-based
OppenheimerFunds, Oppenheimer Funds Distributor, Inc., Harbourview Asset
Management Corp., Oppenheimer Partnership Holdings, Inc., and Oppenheimer
Acquisition Corp. is Two World Trade Center, New York, New York 10048-
0203.
The address of the Denver-based OppenheimerFunds, Shareholder Financial
Services, Inc., Shareholder Services, Inc., Oppenheimer Shareholder
Services, Centennial Asset Management Corporation, Centennial Capital
Corp., and Main Street Advisers, Inc. is 3410 South Galena Street, Denver,
Colorado 80231.
Item 29. Principal Underwriter
(a) Oppenheimer Funds Distributor, Inc. is the Distributor of
Registrant's shares. It is also the Distributor of each of the other
registered open-end investment companies for which Oppenheimer Management
Corporation is the investment adviser, as described in Part A and B of
this Registration Statement and listed in Item 28(b) above.
(b) The directors and officers of the Registrant's principal underwriter
are:
<TABLE>
<CAPTION>
Positions and
Name & Principal Positions & Offices Offices with
Business Address with Underwriter Registrant
- ---------------- ------------------- -------------
<S> <C> <C>
George Clarence Bowen+ Vice President & Treasurer Treasurer
Christopher Blunt Vice President None
6 Baker Avenue
Westport, CT 06880
Julie Bowers Vice President None
21 Dreamwold Road
Scituate, MA 02066
Peter W. Brennan Vice President None
1940 Cotswold Drive
Orlando, FL 32825
Mary Ann Bruce* Senior Vice President - None
Financial Institution Div.
Robert Coli Vice President None
12 Whitetail Lane
Bedminster, NJ 07921
Ronald T. Collins Vice President None
710-3 E. Ponce DeLeon Ave.
Decatur, GA 30030
Ronald Corlew Vice President None
1020 Montecito Drive
Los Angeles, CA 90031
Mary Crooks+ Vice President None
Paul Della Bovi Vice President None
750 West Broadway
Apt. 5M
Long Beach, NY 11561
Andrew John Donohue* Executive Vice Secretary
President & Director
Wendy H. Ehrlich Vice President None
4 Craig Street
Jericho, NY 11753
Kent Elwell Vice President None
41 Craig Place
Cranford, NJ 07016
John Ewalt Vice President None
2301 Overview Dr. NE
Tacoma, WA 98422
Gregory Farley Vice President - None
1116 Westbury Circle Financial Institution Div.
Eagan, MN 55123
Katherine P. Feld* Vice President & Secretary None
Mark Ferro Vice President None
43 Market Street
Breezy Point, NY 11697
Wayne Flanagan Vice President - None
36 West Hill Road Financial Institution Div.
Brookline, NH 03033
Ronald R. Foster Vice President - None
11339 Avant Lane Eastern Division Manager
Cincinnati, OH 45249
Patricia Gadecki Vice President None
6026 First Ave. South,
Apt. 10
St. Petersburg, FL 33707
Luiggino Galleto Vice President None
10239 Rougemont Lane
Charlotte, NC 28277
Mark Giles Vice President - None
5506 Bryn Mawr Financial Institution Div.
Dallas, TX 75209
Ralph Grant* Vice President/National None
Sales Manager - Financial
Institution Div.
Sharon Hamilton Vice President None
720 N. Juanita Ave. - #1
Redondo Beach, CA 90277
Carla Jiminez Vice President None
609 Chimney Bluff Drive
Mt. Pleasant, SC 29464
Terry Lee Kelley Vice President - None
1431 Woodview Lane Financial Institution Div.
Commerce Township, MI 48382
Michael Keogh* Vice President None
Richard Klein Vice President None
4011 Queen Avenue South
Minneapolis, MN 55410
Hans Klehmet II Vice President None
26542 Love Lane
Ramona, CA 92065
Ilene Kutno* Assistant Vice President None
Wayne A. LeBlang Vice President - None
23 Fox Trail Director Eastern Div.
Lincolnshire, IL 60069
Dawn Lind Vice President - None
7 Maize Court Financial Institution Div.
Melville, NY 11747
James Loehle Vice President None
30 John Street
Cranford, NJ 07016
Laura Mulhall* Vice President - None
Director of Key Accounts
Charles Murray Vice President None
50 Deerwood Drive
Littleton, CO 80127
Patrick Palmer Vice President None
958 Blue Mountain Cr.
West Lake Village, CA 91362
Randall Payne Vice President - None
1307 Wandering Way Dr. Financial Institution Div.
Charlotte, NC 28226
Gayle Pereira Vice President None
2707 Via Arboleda
San Clemente, CA 92672
Charles K. Pettit Vice President None
1900 Eight Avenue
San Francisco, CA 94116
Tilghman G. Pitts, III* Chairman & Director None
Elaine Puleo* Vice President - None
Financial Institution Div.
Minnie Ra Vice President - None
109 Peach Street Financial Institution Div.
Avenel, NJ 07001
David Robertson Vice President None
9 Hawks View
Hoeoye Falls, NY 14472
Ian Robertson Vice President None
4204 Summit Wa
Marietta, GA 30066
Robert Romano Vice President None
1512 Fallingbrook Drive
Fishers, IN 46038
James Ruff* President None
Timothy Schoeffler Vice President None
3118 N. Military Road
Arlington, VA 22207
Mark Schon Vice President None
10483 E. Corrine Dr.
Scottsdale, AZ 85259
Michael Sciortino Vice President None
785 Beau Chene Dr.
Mandeville, LA 70448
James A. Shaw Vice President - None
5155 West Fair Place Financial Institution Div.
Littleton, CO 80123
Robert Shore Vice President - None
26 Baroness Lane Financial Institution Div.
Laguna Niguel, CA 92677
Peggy Spilker Vice President - None
2017 N. Cleveland, #2 Financial Institution Div.
Chicago, IL 60614
Michael Stenger Vice President None
C/O America Building
30 East Central Pkwy
Suite 1008
Cincinnati, OH 45202
Paul Stickney Vice President None
1314 Log Cabin Lane
St. Louis, MO 63124
George Sweeney Vice President None
1855 O'Hara Lane
Middletown, PA 17057
Scott McGregor Tatum Vice President None
7123 Cornelia Lane
Dallas, TX 75214
Philip St. John Trimble Vice President None
2213 West Homer
Chicago, IL 60647
Gary Paul Tyc+ Assistant Treasurer None
Mark Stephen Vandehey+ Vice President None
Gregory K. Wilson Vice President None
2 Side Hill Road
Westport, CT 06880
Bernard J. Wolocko Vice President None
33915 Grand River
Farmington, MI 48335
William Harvey Young+ Vice President None
* Two World Trade Center, New York, NY 10048-0203
+ 3410 South Galena St., Denver, CO 80231
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are in possession of Oppenheimer Management
Corporation at its offices at 3410 South Galena Street, Denver, Colorado
80231.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all
the requirements for effectiveness of this Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York
on the 28th day of April, 1995.
OPPENHEIMER ASSET ALLOCATION FUND
By: /s/ Donald W. Spiro*
----------------------------------------
Donald W. Spiro, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Leon Levy* Chairman of the
- -------------- Board of Trustees April 28, 1995
Leon Levy
/s/ Donald W. Spiro* Chief Executive
- -------------------- Officer and
Donald W. Spiro Trustee April 28, 1995
/s/ George Bowen* Chief Financial
- ----------------- and Accounting
George Bowen Officer April 28, 1995
/s/ Leo Cherne* Trustee April 28, 1995
- ---------------
Leo Cherne
/s/ Robert G. Galli* Trustee April 28, 1995
- -------------------
Robert G. Galli
/s/ Benjamin Lipstein* Trustee April 28, 1995
- ----------------------
Benjamin Lipstein
/s/ Elizabeth B. Moynihan* Trustee April 28, 1995
- --------------------------
Elizabeth B. Moynihan
/s/ Kenneth A. Randall* Trustee April 28, 1995
- -----------------------
Kenneth A. Randall
/s/ Edward V. Regan* Trustee April 28, 1995
- --------------------
Edward V. Regan
/s/ Russell S. Reynolds, Jr.* Trustee April 28, 1995
- -----------------------------
Russell S. Reynolds, Jr.
/s/ Sidney M. Robbins* Trustee April 28, 1995
- ----------------------
Sidney M. Robbins
/s/ Pauline Trigere* Trustee April 28, 1995
- --------------------
Pauline Trigere
/s/ Clayton K. Yeutter* Trustee April 28, 1995
- -----------------------
Clayton K. Yeutter
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER ASSET ALLOCATION FUND
EXHIBIT INDEX
24(b)(10) Independent Auditor's Consent
24(b)(16) Performance Data Computation Schedule
24(b)(17)(i) Financial Data Schedule for Class A Shares
24(b)(17)(ii) Financial Data Schedule for Class C Shares
</TABLE>
Independent Auditors' Consent
The Board of Trustees
Oppenheimer Asset Allocation Fund:
We consent to the use of our report dated January 23, 1995 included herein
and the reference to our Firm under the heading "Financial Highlights" in
Part A of the registration statement.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Denver, Colorado
April 26, 1995
Oppenheimer Asset Allocation Fund
Exhibit 24(b)(16) to Form N-1A
Performance Data Computation Schedule
The Fund's average annual total returns and total returns are calculated
as described below, on the basis of the Fund's distributions, for the
past 10 years which are as follows:
Distribution Amount From Amount From
Reinvestment Investment Long or Short-Term Reinvestment
(Ex)Date Income Capital Gains Price
Class A Shares
07/31/87 0.1200 0.0000 10.620
10/23/87 0.0900 0.0000 8.590
12/24/87 0.0500 0.0050 8.960
03/25/88 0.0700 0.0000 9.550
06/24/88 0.0750 0.0000 9.870
09/23/88 0.1350 0.0000 9.800
12/23/88 0.1200 0.1900 9.660
03/23/89 0.1200 0.0000 10.130
06/23/89 0.1200 0.0000 10.670
09/22/89 0.1200 0.0000 10.930
12/22/89 0.1200 0.2900 10.560
03/23/90 0.1100 0.0000 10.380
06/22/90 0.1200 0.0550 10.340
09/21/90 0.1200 0.0000 10.120
12/21/90 0.1650 0.0000 10.130
03/22/91 0.1200 0.0000 10.440
06/19/91 0.1200 0.0000 10.430
09/20/91 0.1000 0.0000 10.680
12/20/91 0.0900 0.0000 10.710
03/27/92 0.0900 0.0000 11.130
06/26/92 0.0900 0.0000 11.120
09/25/92 0.0900 0.0000 11.300
12/30/92 0.1490 0.0000 11.620
03/26/93 0.0700 0.0000 11.990
06/25/93 0.1400 0.0000 12.230
09/24/93 0.1000 0.0000 12.650
12/28/93 0.1280 0.0120 13.030
03/25/94 0.0880 0.0000 12.920
06/24/94 0.1000 0.0000 12.300
09/23/94 0.1200 0.0000 12.750
12/28/94 0.2240 0.7870 11.470
Class C Shares
12/28/93 0.1200 0.0120 13.030
03/25/94 0.0700 0.0000 12.900
06/24/94 0.0790 0.0000 12.270
09/23/94 0.0960 0.0000 12.720
12/28/94 0.1980 0.7870 11.440
Oppenheimer Asset Allocation Fund
Page 2
April 28, 1995
1. Average Annual Total Returns for the Periods Ended 12/31/94:
The formula for calculating average annual total return is as follows:
1 ERV n
--------------- = n (---) - 1 = average annual total return
number of years P
Where: ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period
P = hypothetical initial investment of $1,000
Class A Shares
Examples, assuming a maximum sales charge of 5.75%:
One Year Five Year
$ 927.56 1 $1,342.50 .2
(---------) - 1 = -7.24% (---------) - 1 = 6.07%
$1,000 $1,000
Inception
$1,690.96 .1301
(---------) - 1 = 7.07%
$1,000
Class C Shares
Example assuming a maximum contingent deferred sales charge of 1.00%
for the first year, and 0.00% for the inception year:
One Year Inception
$ 966.15 1 $ 996.28 .9217
(---------) - 1 = -3.39% (---------) - 1 = -0.34%
$1,000 $1,000
Oppenheimer Asset Allocation Fund
Page 3
April 28, 1995
1. Average Annual Total Returns for the Periods Ended 12/31/94 (Continued):
Examples at NAV:
Class A Shares
One Year Five Year
$ 984.15 1 $1,424.40 .2
(---------) - 1 = -1.59% (---------) - 1 = 7.33%
$1,000 $1,000
Inception
$1,794.12 .1301
(---------) - 1 = 7.90%
$1,000
Class C Shares
One Year Inception
$ 974.95 1 $ 996.28 .9217
(---------) - 1 = -2.50% (---------) - 1 = -0.34%
$1,000 $1,000
2. Cumulative Total Returns for the Periods Ended 12/31/94:
The formula for calculating cumulative total return is as follows:
ERV - P
------- = Cumulative Total Return
P
Class A Shares
Examples, assuming a maximum sales charge of 5.75%:
One Year Five Year
$ 927.56 - $1,000 $1,342.50 - $1,000
------------------ = -7.24% ------------------ = 34.25%
$1,000 $1,000
Inception
$1,690.96 - $1,000
------------------ = 69.10%
$1,000
Oppenheimer Asset Allocation Fund
Page 4
April 28, 1995
2. Cumulative Total Returns for the Periods Ended 12/31/94 (Continued):
Class C Shares
Example assuming a maximum contingent deferred sales charge of 1.00% for
the first year, and 0.00% for the inception year:
One Year Inception Year
$ 966.15 - $1,000 $ 996.28 - $1,000
------------------ = -3.39% ------------------ = -0.37%
$1,000 $1,000
Examples at NAV:
Class A Shares
One Year Five Year
$ 984.15 - $1,000 $1,424.40 - $1,000
------------------ = -1.59% ------------------ = 42.44%
$1,000 $1,000
Inception
$1,794.12 - $1,000
------------------ = 79.41%
$1,000
Class C Shares
One Year Inception Year
$ 974.95 - $1,000 $ 996.28 - $1,000
------------------ = -2.50% ------------------ = -0.37%
$1,000 $1,000
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000729968
<NAME> OPPENHEIMER ASSET ALLOCATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 232590945
<INVESTMENTS-AT-VALUE> 246141343
<RECEIVABLES> 4478023
<ASSETS-OTHER> 83508
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 250702874
<PAYABLE-FOR-SECURITIES> 264058
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3485944
<TOTAL-LIABILITIES> 3750002
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 234046423
<SHARES-COMMON-STOCK> 20632622
<SHARES-COMMON-PRIOR> 21302040
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 610110
<ACCUMULATED-NET-GAINS> (189381)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13705940
<NET-ASSETS> 237771276
<DIVIDEND-INCOME> 2533954
<INTEREST-INCOME> 11314536
<OTHER-INCOME> 0
<EXPENSES-NET> 2960574
<NET-INVESTMENT-INCOME> 10887916
<REALIZED-GAINS-CURRENT> 16983602
<APPREC-INCREASE-CURRENT> (32351338)
<NET-CHANGE-FROM-OPS> (4479820)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10574115
<DISTRIBUTIONS-OF-GAINS> 15027395
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1464805
<NUMBER-OF-SHARES-REDEEMED> 4030121
<SHARES-REINVESTED> 1895898
<NET-CHANGE-IN-ASSETS> (31356806)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 947609
<OVERDISTRIB-NII-PRIOR> 340955
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1869498
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2960574
<AVERAGE-NET-ASSETS> 260767000
<PER-SHARE-NAV-BEGIN> 13.05
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> (.75)
<PER-SHARE-DIVIDEND> .53
<PER-SHARE-DISTRIBUTIONS> .79
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.52
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
[ARTICLE] 6
[CIK] 0000729968
[NAME] OPPENHEIMER ASSET ALLOCATION FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-START] JAN-01-1994
[PERIOD-END] DEC-31-1994
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 0
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 0
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 798980
[SHARES-COMMON-PRIOR] 30319
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 9181596
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 258031
[DISTRIBUTIONS-OF-GAINS] 578336
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 757806
[NUMBER-OF-SHARES-REDEEMED] 51824
[SHARES-REINVESTED] 62679
[NET-CHANGE-IN-ASSETS] 0
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 5601000
[PER-SHARE-NAV-BEGIN] 13.05
[PER-SHARE-NII] .44
[PER-SHARE-GAIN-APPREC] (.77)
[PER-SHARE-DIVIDEND] .44
[PER-SHARE-DISTRIBUTIONS] .79
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.49
[EXPENSE-RATIO] 2.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
