Oppenheimer Discovery Fund
Prospectus dated January 17, 1995
Oppenheimer Discovery Fund (the "Fund") is a mutual fund with the
investment objective of capital appreciation. Current income is not an
objective. In seeking its objective, the Fund emphasizes investments in
securities of "growth-type" companies, including common stocks, preferred
stocks, convertible securities, rights, warrants and options, in
proportions which may vary from time to time. The selection of securities
for their appreciation possibilities will use the methods described in
this Prospectus under "Other Investment Techniques and Strategies," some
of which involve speculative techniques. The Fund may also use certain
hedging instruments. In an uncertain environment, temporary defensive
investment methods may be stressed. The securities the Fund invests in
are described more completely in "The Fund and Its Investment Policies."
That section of the Prospectus explains some of the risks of those
investments.
The Fund offers the investing public two classes of shares: (1) Class
A shares, which are sold at a public offering price that includes a front-
end sales charge, and (2) Class B shares, which are sold without a front-
end sales charge, although you may pay a sales charge when you redeem your
shares, depending on how long you hold them. Class B shares are also
subject to an annual "asset-based sales charge." Each class of shares
bears different expenses. In deciding which class of shares to buy, you
should consider how much you plan to purchase, how long you plan to keep
your shares, and other factors discussed in "How to Buy Shares" starting
on page 15. A third class of shares of the Fund may only be purchased at
net asset value per share (the "Class Y" shares) by certain institutional
investors.
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 January 17, 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 ("SEC") and is incorporated
into this Prospectus by reference (which means that it is legally part of
this Prospectus).
Investors are advised to read and retain this Prospectus for future
reference. Some investment techniques the Fund uses may be considered to
be speculative investment methods that may increase the risks of investing
in the Fund and may also increase the Fund's operating costs. You should
carefully review the risks associated with an investment in the Fund.
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
2 Expenses
5 Overview of the Fund
6 Financial Highlights
7 Investment Objective and Policies
12 How the Fund is Managed
13 Performance of the Fund
About Your Account
15 How to Buy Shares
Class A Shares
Class B Shares
Class Y Shares
22 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
23 How to Sell Shares
By Mail
By Telephone
24 How to Exchange Shares
25 Shareholder Account Rules and Policies
26 Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are 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 business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 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 15 through 26, for an explanation of how and when these charges
apply.
Class A Class B Class Y
Shares Shares Shares
-------- -------- --------
Maximum Sales Charge on Purchases
(as a % of offering price) 5.75% None None
Sales Charge on Reinvested Dividends None None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds) None(1) 5% in the None
first year,
declining to
1% in the
sixth year
and
eliminated
thereafter
Exchange Fee $5.00(2) $5.00(2) $5.00(2)
(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) The fee is waived for automated exchanges on PhoneLink, as described
in "How to Exchange Shares."
- 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 (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 its
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 Distribution Plan Fees for
Class A shares are Service Plan Fees; for Class B shares the 12b-1 Fees
are the Service Plan Fee (maximum of 0.25% of average annual net assets
of the class) and the asset-based sales charge of 0.75%. These plans are
described in greater detail in "How to Buy Shares."
The actual expenses for each class of shares in future years may be
more or less than the numbers in the chart, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares. Class B shares were not publicly sold before April
1, 1994, and Class Y shares did not become available until June 1, 1994.
Therefore the Fund Operating Expenses shown for Class A and Class Y shares
are based on expenses on the periods from these dates until September 30,
1994.
Class A Shares Class B Shares Class Y Shares
-------------- -------------- --------------
Management Fees 0.72% 0.72% 0.72%
12b-1 Service and/or
Distribution Plan Fees 0.24% 1.00% None
Other Expenses 0.35% 0.64% 0.69%
Total Fund Operating
Expenses 1.32% 2.36% 1.41%
- 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 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. 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 $70 $97 $126 $207
Class B Shares $74 $104 $146 $220
Class Y Shares $14 $45 $77 $169
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $70 $97 $126 $207
Class B Shares $24 $74 $126 $220
Class Y Shares $14 $45 $77 $169
*The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Long term Class B
shareholders could pay the economic equivalent of more than the maximum
front-end sales charge allowed under applicable regulations, because of
the effect of the asset-based sales charge and contingent deferred sales
charge. The automatic conversion of Class B shares to Class A Shares is
designed to minimize the likelihood that this will occur. Please refer
to "How to Buy Shares - Class B Shares" for more information.
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.
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. 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 capital appreciation; current income is not an objective.
- What Does the Fund Invest In? The Fund primarily invests in
common and convertible stocks considered to have appreciation
possibilities, traded on both domestic and foreign markets. The Fund
emphasizes investment in "growth type" issuers. These investments are
more fully explained in "Investment Objective and Policies," starting on
page 7.
- Who Manages the Fund? The Fund's investment advisor is
Oppenheimer Management Corporation (the "Manager"), which (including a
subsidiary) advises investment company portfolios having over $28 billion
in assets. The Fund's portfolio manager, who is primarily responsible for
the selection of the Fund's securities, is Jay W. Tracey, III. The
Manager is paid an advisory fee by the Fund, based on its assets. The
Fund's Board of Trustees, elected by shareholders, oversees the investment
advisor and the portfolio manager. Please refer to "How the Fund is
Managed," starting on page 12 for more information about the Manager and
its fees.
- How Risky is the Fund? All investments carry risks to some
degree. The Fund is designed for investors who are willing to accept
greater risks of loss in the hopes of greater gains, and is not intended
for those who desire assured income and preservation of capital. 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
because of 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 price per share. In the OppenheimerFunds spectrum,
the Fund may be viewed as an aggressive growth fund, considerably more so
than money market or investment grade bond funds. 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 objectives and your shares may be worth more or less than their
original cost when you redeem them. Please refer to "Investment
Objectives and Policies" starting on page 7 for a more complete
discussion.
- 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 15 for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund offers the
individual investor two classes of shares. Class A shares are offered
with a front-end sales charge, starting at 5.75%, and reduced for larger
purchases. Class B shares are offered without a front-end sales charge,
but may be subject to a contingent deferred sales charge (starting at 5%
and declining as shares are held longer) if redeemed within 6 years of
purchase. There is also an annual asset-based sales charge on Class B
shares. Please review "How To Buy Shares" starting on page 15 for more
details, including a discussion about 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 23.
- 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 pages 14-15. Please remember that past performance does not
guarantee future results.
<PAGE>
Financial Highlights
Selected Data for a Class A, a Class B, and a Class Y share of the Fund
outstanding throughout each period
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
KPMG Peat Marwick LLP, the Fund's independent auditors, whose report on
the Fund's financial statements for the fiscal year ended September 30,
1994, is included in the Statement of Additional Information. Class B and
Class Y shares were offered only during portions of that period,
commencing April 1, 1994 and June 1, 1994, respectively.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 39.90 $ 27.62 $ 26.03 $ 17.97 $ 24.51 $ 17.62
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .26 (.13) (.17) .06 .16 .29
Net realized and unrealized gain (loss)
on investments and options written (3.35) 12.41 3.05 8.87 (4.84) 6.74
-------- -------- -------- -------- ------- --------
Total income (loss) from
investment operations (3.09) 12.28 2.88 8.93 (4.68) 7.03
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income -- -- -- (.19) (.30) (.14)
Distributions from net realized gain
on investments and options written (1.00) -- (1.29) (.68) (1.56) --
-------- -------- -------- -------- ------- --------
Total dividends and
distributions to shareholders (1.00) -- (1.29) (.87) (1.86) (.14)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 35.81 $ 39.90 $ 27.62 $ 26.03 $ 17.97 $ 24.51
======== ======== ======== ========
======= ========
==========================================================
==========================================================
===========
TOTAL RETURN, AT NET ASSET VALUE(4) (7.91)% 44.46% 11.28% 51.88% (20.34)%
40.23%
==========================================================
==========================================================
===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $613,740 $587,057 $294,010 $117,110 $50,357 $ 53,793
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $588,642 $451,016 $218,065 $ 75,083 $54,454 $ 40,641
- -------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 17,139 14,713 10,647 4,499 2,802 2,195
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (.34)% (.54)% (.62)% .22% .83% 1.52%
Expenses 1.32% 1.27% 1.52% 1.42% 1.53% 1.46%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 83.3% 85.2% 67.9% 158.1% 234.6% 132.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
---------------------------------------- ---------------------------------
YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1988 1987 1986(3) 1994(2) 1994(1)
==========================================================
==========================================================
===========
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.49 $ 14.21 $14.29 $ 35.65 $34.89
Income (loss) from investment operations:
Net investment income (loss) .14 .02 .02 .03 .11
Net realized and unrealized gain (loss)
on investments and options written (1.98) 7.28 (.10) (.03) .81
------- ------- ------ ------- ------
Total income (loss) from
investment operations (1.84) 7.30 (.08) -- .92
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.05) (.02) -- -- --
Distributions from net realized gain
on investments and options written (1.98) -- -- -- --
------- ------- ------ ------- ------
Total dividends and
distributions to shareholders (2.03) (.02) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.62 $ 21.49 $14.21 $ 35.65 $35.81
======= ======= ====== =======
======
==========================================================
==========================================================
===========
TOTAL RETURN, AT NET ASSET VALUE(4) (7.11)% 51.08% (.56)% (1.93)%
3.20%
==========================================================
==========================================================
===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $33,361 $35,834 $1,353 $26,491 $ 194
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $32,089 $21,439 $1,173 $12,435 $ 39
- -------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 1,894 1,667 95 743 5
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) .80% .19% 3.55%(5) (1.06)%(5) (.13)%(5)
Expenses 1.52% 1.74% 1.50%(5) 2.36%(5) 1.41%(5)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 169.0% 145.4% 0.0% 83.3% 83.3%
</TABLE>
(1) For the period from June 1, 1994 (inception of offering) to September 30,
1994.
(2) For the period from April 1, 1994 (inception of offering) to September 30,
1994.
(3) For the period from September 11, 1986 (commencement of operations) to
September 30, 1986.
(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 September 30, 1994 were $428,361,291 and $431,915,878,
respectively.
See accompanying Notes to Financial Statements.
<PAGE>
Investment Objective and Policies
Objective. The Fund invests its assets to seek capital appreciation for
its shareholders; current income is not an objective.
Investment Policies and Strategies. In seeking its objective, the Fund
will emphasize investment in securities considered by the Manager to have
appreciation possibilities. Such securities may either be listed on
securities exchanges or traded in the over-the-counter markets in both the
United States and foreign countries. See "Over-the-Counter" Securities
in the Additional Statement for further information on securities traded
on the over-the-counter market, including a discussion of the possibility
of less liquidity in trading such securities and the possibility of
greater price volatility than for securities listed on exchanges.
The Fund emphasizes investment in securities of growth-type issuers,
including emerging growth companies, described below. It invests
primarily in common stocks of such issuers or securities having investment
characteristics of common stocks (for example, securities convertible into
common stocks). The Fund expects a substantial portion of its assets to
be invested in over-the-counter securities. The Fund is designed for
investors who are willing to accept greater risks of loss in the hopes of
greater gains, and is not intended for those who desire assured income and
conservation of capital.
- 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 techniques
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.
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. 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).
- What Are Growth-Type Issuers and Emerging Growth Companies?
Typically, growth-type issuers are those whose goods or services have
relatively favorable long-term prospects for increasing demand, or ones
which develop new products, services, or markets and normally retain a
relatively large part of their earnings for research, development and
investment in capital assets. They may also include companies in the
natural resources fields or those developing industrial applications for
new scientific knowledge having a potential for technological innovation,
such as nuclear energy, oceanography, business services and new consumer
products. The Fund may also invest from time to time in cyclical
industries such as insurance and forest products, when the Manager
believes that they present opportunities for capital growth.
Investment opportunities will be sought usually among smaller, less
well-known companies, but securities of large, well-known companies (not
generally included in the definition of growth-type companies) also may
be purchased, particularly at times when the Manager believes that the
amount of securities of smaller companies which may be expected to
appreciate are insufficient to contribute substantially to the performance
of the Fund.
Growth-type issuers in which the Fund may invest include emerging
growth companies. These are beyond their initial start-up periods but
have not yet reached a state of established growth or maturity. The rate
of growth of such companies at times may be dramatic. However,
investments of this type generally involve greater risk than is
customarily associated with large, more seasoned companies. Emerging
growth companies often have products and management personnel that have
not been thoroughly tested by time or the marketplace; their financial
resources may not be as substantial as those of more established
companies. On the other hand, such companies often provide new products
or services that enable them to capture a dominant or important market
position, or have a special area of expertise, or are able to take
advantage of changes in demographic factors in a more profitable way than
other companies.
- Investment Risks. The fact that a security selected for possible
appreciation has little or no yield will not be an adverse factor in its
selection (unless such lack of yield might adversely affect appreciation
possibilities), nor will yield be a consideration in choosing defensive
investments, described below. The Fund's investment policies are
speculative and involve substantial risks. Since market risks are
inherent in all securities to varying degrees, assurance cannot be given
that the Fund's investment objective will be met.
- Foreign Securities. The Fund may purchase foreign securities that
are listed on a domestic or foreign securities exchange or are represented
by American Depository Receipts listed on a domestic securities exchange,
or traded in the U.S. over-the-counter market. The Fund has no
restrictions on the amount of its assets that may be invested in foreign
securities, and may purchase securities issued by issuers in any country,
developed or underdeveloped. The Fund will hold foreign currency only in
connection with the purchase or sale of foreign securities. If the Fund's
securities are held abroad, the countries in which such securities may be
held and the sub-custodians holding them in most cases must be approved
by the Fund's Board of Trustees under applicable SEC rules. See "Foreign
Securities" in the Statement of Additional Information for more
information about the possible rewards and risks of investing in foreign
securities.
Foreign securities have special risks. In summary, such risks may
include foreign taxation, changes in currency rates or currency blockage,
currency exchange costs, greater volatility and less liquidity than
investments in domestic securities, and differences between domestic and
foreign legal, auditing, brokerage and economic standards.
- Investing in Small, Unseasoned Companies. The Fund may invest in
securities of small, unseasoned companies. These are companies that have
been in operation less than three years, even including the operations of
any of their predecessors. In view of the volatility of price movements
of such securities, the Fund currently intends to invest no more than 10%
of its total assets in securities of small, unseasoned issuers, while
reserving the right to invest up to 20% of its assets in such issuers.
The securities of small, unseasoned companies may have limited liquidity
(which means that the Fund might have difficulty selling them at an
acceptable price when it wants to) and the prices of these securities may
be volatile.
- Temporary Defensive Investments. When stock market prices are
falling or in other unusual economic or business circumstances, the Fund
may invest all or a portion of its assets in defensive securities.
Securities selected for defensive purposes may include debt securities,
such as rated or unrated bonds and debentures, and preferred stocks, cash
or cash equivalents, such as U.S. Treasury Bills and other short-term
obligations of the U.S. Government, its agencies or instrumentalities, or
commercial paper rated "A-1" or better by Standard & Poor's Corporation
or "P-1" or better by Moody's Investors Service, Inc.
- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." The Fund ordinarily does not engage in
short-term trading to try to achieve its investment objective. As a
result, the Fund's portfolio turnover is not expected to be more than 100%
each year. The "Financial Highlights," above, show the Fund's portfolio
turnover rate during past fiscal years. Portfolio turnover affects
brokerage costs as well as a fund's ability 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.
Other Investment Techniques and Strategies
- Special Risks - Borrowing for Leverage. The Fund may borrow money
from banks to buy securities. The Fund will do so only if it can do so
without putting up assets as security for a loan. This is a speculative
investment method known as "leverage." This investing technique may
subject the Fund to greater risks and costs than funds that do not borrow.
These risks may include the possibility that the Fund's net asset value
per share will fluctuate more than the net asset value of funds that don't
borrow, since the Fund pays interest on borrowings and interest expense
affects the Fund's share price. Borrowing for leverage is subject to
limits under the Investment Company Act, described in more detail in
"Borrowing for Leverage" in the Statement of Additional Information.
- Warrants and Rights. Warrants basically are options to purchase
stock at set prices that are valid for a limited period of time. Rights
are similar to warrants but normally have a short duration and are
distributed directly by the issuer to its shareholders. The Fund may
invest up to 5% of its net assets in warrants. That 5% excludes warrants
the Fund has acquired in units or that are attached to other securities.
No more than 2% of the Fund's assets may be invested in warrants that are
not listed on the New York or American Stock Exchanges. For further
details, see "Warrants and Rights" in the Statement of Additional
Information.
- Special Situations. The Fund may invest without limit in
securities of companies that are in "special situations" that the Manager
believes may present opportunities for capital growth. A "special
situation" may be an event such as a proposed merger, reorganization, or
other unusual development that is expected to occur and which may result
in an increase in the value of a company's securities, regardless of
general business conditions or the movement of the market as a whole.
There is a risk that the price of the security may decline if the
anticipated development fails to occur.
- 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 and broadly-based stock indices, 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 "Other Investment Techniques and Strategies" 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. 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. Writing covered call options may also provide income
to the Fund for liquidity purposes or defensive reasons.
Futures. The Fund may buy and sell futures contracts that relate to
(1) broadly-based stock indices (these are referred to as Stock Index
Futures), and (2) other securities indices (these are referred to as
Financial Futures). These types of Futures are described in "Hedging With
Options and Futures Contracts" in the Statement of Additional Information.
Put and Call Options. The Fund may buy and sell certain kinds of put
options (puts) and call options (calls).
The Fund may buy calls only on securities, broadly-based stock
indices and Stock Index Futures, or to terminate its obligation on a call
the Fund previously wrote. The Fund may write (that is, sell) covered
call options. 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).
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 only those puts that relate
to (1) securities that the Fund owns, (2) Stock Index Futures, or (3)
broadly-based stock indices. The Fund can buy a put on a Stock Index
Future whether or not the Fund owns the particular Future in its
portfolio. The Fund may not sell a put other than a put that it
previously purchased.
The Fund may buy and sell puts and calls only if certain conditions
are met: (1) after the Fund writes a call, not more than 25% of the Fund's
total assets may be subject to calls; (2) calls the Fund buys or sells
must be listed on a securities or commodities exchange, or quoted on the
Automated Quotation System of the National Association of Securities
Dealers, Inc. (NASDAQ); (3) each call the Fund writes must be "covered"
while it is outstanding: that means the Fund must own the investment on
which the call was written or it must own other securities that are
acceptable for the escrow arrangements required for calls; (4) the Fund
may write calls on Futures contracts it owns, but these calls 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; and (5)
a call or put option may not be purchased if the value of all of the
Fund's put and call options would exceed 5% of the Fund's total assets.
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 bought or sold, or to protect against possible losses from
changes in the relative values of the U.S. dollar and foreign currency.
Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive interest or their obligation to pay
interest on a security. For example, they may swap a right to receive
floating rate 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 25% of its total assets. Also, the Fund will
segregate liquid assets (such as cash or U.S. government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
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. For example, 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
credit risks (if the other party fails to meet its obligations) and also
subject to 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. These risks are described in greater detail in the
Statement of Additional Information.
- Illiquid and Restricted Securities. Under the policies
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 a 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 that cannot be sold publicly until it is registered under the
Securities Act of 1933. The Fund currently intends to invest no more than
10% of its assets in illiquid or restricted securities (that limit may
increase to 15% if certain state laws are changed or the Fund's shares are
no longer sold in those states). Certain restricted securities, eligible
for resale to qualified institutional purchasers, are not subject to that
limit.
- Loans of Portfolio Securities. To raise cash for liquidity
purposes, the Fund may lend its portfolio securities to certain types of
eligible borrowers approved by the Board of Trustees. Each loan must be
collateralized in accordance with applicable regulatory requirements.
After any loan, the value of the securities loaned must not exceed 25% of
the value of the Fund's net assets. There are some risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loan
securities. The Fund presently does not intend to engage in loans of
securities that will exceed 5% of the value of its total assets in the
coming year.
- Repurchase Agreements. The Fund may enter into repurchase
agreements to generate income for liquidity purposes to meet anticipated
redemptions, or pending the investment of proceeds from sales of Fund
shares or settlement of purchases of portfolio investments. There is no
limit on the amount of the Fund's net assets that may be subject to
repurchase agreements of seven days or less. Repurchase agreements must
be fully collateralized. However, if the vendor of the securities fails
to pay the resale price on the delivery date, the Fund may incur costs in
disposing of the collateral, and losses if there is any delay in its
ability to do so. The Fund will not enter into a repurchase transaction
that causes more than 10% of its net assets to be subject to repurchase
agreements having a maturity of more than seven days.
Derivative Investments. The Fund can invest in a number of different
kinds of "derivative investments." The Fund may use some types of
derivatives for hedging purposes, and may invest in others because they
offer the potential for increased income and principal value. 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 or currency. In the broadest
sense, derivative investments include exchange-traded options and futures
contracts (please refer to "Hedging" above).
One risk of investing in derivative investments is that the company
issuing the instrument might not pay the amount due on the maturity of the
instrument. There is also the risk that the underlying investment or
security 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 these risks can mean
that the Fund will realize less income than expected from its investments,
that it can lose part of its investments which will affect the Fund's
share price. Certain derivative investments held by the Fund may trade
in the over-the-counter market and may be illiquid. If that is the case,
the Fund's investment in them will be limited, as discussed in "Illiquid
and Restricted Securities," above).
Another type of derivative the Fund may invest in is an "index-
linked" note. On the maturity of this type of debt security, payment is
made based on the performance of an underlying index, rather than based
on a set principal amount for a typical note. Another derivative
investment the Fund may invest in is a currency-indexed security. These
are typically short-term or intermediate-term debt securities. Their
value at maturity or the interest rate at which they pay income are
determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay
an amount at maturity based on a multiple of the amount of the relative
currency movements. This variety of index security offers the potential
for greater income but at a greater risk of loss.
Other derivative instruments the Fund may invest in include "debt-
exchangeable for common stock" of an issuer or "equity-linked debt
securities" of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the price
of the issuer's common stock 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 (because the price of the issuer's common
stock is not as high as was expected).
- 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 security sold short. This technique is used primarily for tax
purposes. No more than 15% of the Fund's net assets will be held as
collateral for such short sales at any one time.
- Other Investment Risks. Because of the types of securities the
Fund invests in and the investment techniques the Fund uses, some of which
may be speculative, the Fund is designed for investors who are investing
for the long-term and who are willing to accept greater risks of loss of
their capital in the hope of achieving capital appreciation. It is not
intended for investors seeking assured income and preservation of capital.
Investing for capital appreciation entails the risk of loss of all or part
of your principal. Because there is no assurance that the Fund will
achieve its investment objective, when you redeem your shares, they may
be worth more or less than what you paid for them.
Other Investment Restrictions
The Fund has other investment restrictions which, together with its
investment objective, are fundamental policies. Under some of these
restrictions the Fund cannot do any of the following: (1) invest in
securities of a single issuer (except the U.S. Government or its agencies
or instrumentalities) if immediately thereafter (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) make short sales of securities except "short sales against-the-box";
(3) concentrate more than 25% of its total assets in securities of
companies in any one industry; (4) deviate from the percentage
requirements listed under "Other Investment Techniques and Strategies"
(other than those applicable to illiquid securities), from the limitations
as to the type of calls the Fund may write in "Put and Call Options," or
from the restrictions as to what foreign securities may be purchased as
described in "Foreign Securities."
All the percentage restrictions described above and in the Statement
of Additional Information apply only at the time of investment, and
require no action by the Fund as a result of subsequent changes in value
of an investment or the size of the Fund. A supplementary list of
investment restrictions is contained in the Statement of Additional
Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1985 as a
Massachusetts business trust. 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 meet periodically 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 three or more classes. The
Board has done so, and the Fund currently has three classes of shares,
Class A, Class B and Class Y. 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 transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities. The Agreement sets forth the fees paid by the
Fund to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $28 billion as
of September 30, 1994, and with more than 1.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company, a mutual
life insurance company.
- Portfolio Manager. The portfolio manager of the Fund is Jay W.
Tracey, III, a Vice President of the Manager. He has been the person
principally responsible for the day-to-day management of the Fund's
portfolio since September, 1994 and from October, 1991 to February, 1994.
In his most recent previous position, Mr. Tracey was a managing director
of Buckingham Capital Management. Prior to initially joining the Manager,
he was a Senior Vice President of Founders Asset Management, Inc. (a
mutual fund adviser), prior to which he was a securities analyst and
portfolio manager for Berger Associates, Inc. (investment adviser).
During the past five years, Mr. Tracey has also served as an officer and
portfolio manager for other OppenheimerFunds.
- Fees and Expenses. Under the Investment Advisory Agreement, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 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, 0.60% of net assets in
excess of $800 million. The Fund's management fee for its last fiscal
year was 0.72% of average annual net assets for its Class A, Class B and
Class Y shares, which may be higher than the rate paid by some other
mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce 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 and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return" and "average annual total return" to illustrate its performance.
The performance of each class of shares is shown separately, because the
performance of each class will usually be different as a result of the
different kinds of expenses each class bears. This performance
information may be useful to help you see how well your investment has
done and to compare it to other funds or market indices, as we have done
below.
It is important to understand that the fund's total returns represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but
more detailed information about how total returns are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
- Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, they reflect the
payment of the current maximum initial sales charge. When total returns
are shown for Class B shares, they reflect the effect of the contingent
deferred sales charge that applies to the period for which total return
is shown. 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.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended September 30, 1994,
followed by graphical comparisons of the Fund's performance to two
appropriate broad-based market indices.
- Management's Discussion of Performance. During the past fiscal
year, the Fund's performance was affected by higher interest rates, which
increased the cost of capital needed by growth companies for expansion.
The Manager continued to focus on innovative companies in sectors with
high potential. Major areas of investment for the Fund included
technology, consumer cyclicals such as restaurants and specialty
retailing, and financial services.
- Comparing the Fund's Performance to the Market. The charts
below show the performance of a hypothetical $10,000 investment in each
class of shares of the Fund held until September 30, 1994; in the case of
Class A shares, from inception on September 11, 1986, in the case of Class
B shares, from the inception of the Class on April 1, 1994, and in the
case of Class Y shares, from the inception of the Class on June 1, 1994,
with all dividends and capital gains distributions reinvested in
additional shares. As a result, the performance for Class B and Class Y
shares is shown for relatively short periods of time, and investors should
realize that such time periods may not be as appropriate or useful as a
comparison for a longer period, such as a year or more. The graphs
reflect the deduction of the 5.75% maximum initial sales charge on Class
A shares and the maximum 5.0% contingent deferred sales charge on Class
B shares.
The Fund's performance is compared to the performance of the Standard
& Poor's ("S&P") 500 Index and the Russell 2000 Index. The S&P 500 Index
is a broad based index of equity securities widely regarded as the general
measure of the performance of the U.S. equity securities market. The
Russell 2000 Index is a capitalization-weighted index of 2,000 U.S.
issuers whose common stocks are traded on the New York and American Stock
Exchanges and NASDAQ, and is widely recognized as a measure of the
performance of "mid-capitalization" stocks. 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 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 securities in either Index.
Moreover, the index performance data does not reflect any assessment of
the risk of the investments included in the Index.
<PAGE>
Comparison of Change in Value
of $10,000 Hypothetical Investments
In: Oppenheimer Discovery Fund,
S&P 500 and Russell 2000 Index
(Graphs)
Past performance is not predictive of future performance.
The above graphs are not drawn to the same scale.
Average Annual Total Returns Cumulative Total Returns
of the Fund at 9/30/94 of the Fund at 9/30/94
- ---------------------------- ------------------------
A Shares 1-Year 5-Year Life(1) B Shares Life (2)
- -------- ------ ------ ------- -------- ----
(13.20)% 11.04% 16.03% (6.83)%
Y Shares Life (3)
-------- -----
3.20%
_____________________
(1) The inception date of the Fund (Class A shares) was 9/11/86.
(2) Class B shares of the Fund were first publicly offered on 4/1/94.
(3) Class Y shares of the Fund were first publicly offered on 6/1/94.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers two different classes, Class A and
Class B, of shares to individual investors. Only certain institutional
investors may purchase a third class of shares, Class Y shares. The
different classes of shares represent investments in the same portfolio
of securities but are subject to different expenses and will likely have
different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, you will not pay an initial sales charge but if
you sell any of those shares within 18 months after your purchase, you may
pay a contingent deferred sales charge, which will vary depending on the
amount you invested. Sales charges are described below.
- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares. It is described below.
- Class Y Shares. Class Y Shares are sold at net asset value per
share without the imposition of a sales charge at the time of purchase to
separate accounts of insurance companies and other institutional investors
("Class Y Sponsors") having an agreement ("Class Y Agreements") with the
Manager or the Distributor. The intent of Class Y Agreements is to allow
tax qualified institutional investors to invest indirectly (through
separate accounts of the Class Y Sponsor) in Class Y Shares of the Fund
and to allow institutional investors to invest directly in Class Y shares
of the Fund. Individual investors are not permitted to invest directly in
Class Y Shares. As of the date of this Prospectus, Massachusetts Mutual
Life Insurance Company (an affiliate of the Manager and the Distributor)
acts as Class Y Sponsor for all outstanding Class Y Shares of the Fund.
While Class Y shares are not subject to a contingent deferred sales
charge, asset-based sales charge or service fee, a Class Y sponsor may
impose charges on separate accounts investing in Class Y shares.
None of the instructions described elsewhere in this Prospectus or
the Statement of Additional Information for the purchase, redemption,
reinvestment, exchange or transfer of shares of the Fund, the selection
of classes of shares or the reinvestment of dividends apply to its Class
Y shares. Clients of Class Y Sponsors must request their Sponsor to
effect all transactions in Class Y shares on their behalf.
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 advisor. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors are how much you plan to
invest, how long you plan to hold your investment, and whether you
anticipate exchanging your shares for shares of other OppenheimerFunds
(not all of which currently offer Class B shares). If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We assumed you
are an individual investor, and therefore ineligible to purchase Class Y
shares. We used the sales charge rates that apply to Class A and B
considering the effect of the annual asset-based sales charge on Class B
expenses (which, like all expenses, will affect your investment return).
For the sake of comparison, we have assumed that there is a 10% rate of
appreciation in the investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary, based
on the Fund's actual investment returns and the operating expenses borne
by each class of shares, and which class you invest in. The factors
discussed below are not intended to be investment advice or
recommendations, because each investor's financial considerations are
different.
- How Long Do You Expect to Hold Your Investment? The Fund is
designed for long-term investment. While future financial needs cannot
be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares.
The effect of the sales charge over time, using our assumptions, will
generally depend on the amount invested. Because of the effect of class-
based expenses, your choice will also depend on how much you invest.
- 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 offset the effect of paying an
initial sales charge on your investment (which reduces the amount of your
investment dollars used to buy shares for your account), compared to the
effect over time of higher expenses on Class B, for which no initial sales
charge is paid. Additionally, dividends payable to Class B shareholders
will be reduced by the additional expenses borne solely by Class B, such
as the asset-based sales charge described below.
In general, if you plan to invest less than $100,000, Class B shares
may be more advantageous than Class A shares, using the assumptions in our
hypothetical example. However, if you plan to invest more than $100,000
(not only in the Fund, but possibly in other OppenheimerFunds as well),
then Class A shares generally will be more advantageous than Class B,
because of the effect of the reduction of initial sales charges on larger
purchases of Class A shares (described in "Reduced Sales Charges for Class
A Share Purchases," below). That is also the case because the annual
asset-based sales charge on Class B shares will have a greater impact on
larger investments than the initial sales charge on Class A shares because
of the reductions of initial sales charge available for larger purchases.
And for investors who invest $1 million or more, in most cases Class
A shares will be the most advantageous choice, no matter how long you
intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $1 million or more of Class B shares
from a single investor.
Of course, these examples are based on approximations of the effect
of current sales charges and expenses on a hypothetical investment over
time, using the assumptions stated above. Therefore, these examples
should not be relied on as rigid guidelines.
- Are There Differences in Account Features That Matter to You?
Because some account features may not be available to Class B
shareholders, or other features (such as Automatic Withdrawal Plans) might
not be advisable (because of the effect of the contingent deferred sales
charge) in non-retirement accounts for Class B shareholders, you should
carefully review how you plan to use your investment account before
deciding which class of shares to buy. Also, because not all
OppenheimerFunds currently offer Class B shares, and because exchanges are
permitted only to the same class of shares in other OppenheimerFunds, you
should consider how important the exchange privilege is likely to be for
you.
- 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 another class. It is important that investors understand that
the purpose of the Class B contingent deferred sales charge and asset-
based sales charge is the same as the purpose of the front-end sales
charge on sales of Class A shares: to compensate the Distributor for
commissions 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 through an Asset Builder Plan under the OppenheimerFunds
AccountLink service. When you buy shares, be sure to specify Class A or
Class B 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. You can then transmit funds electronically to purchase shares,
to send redemption proceeds, and to transmit dividends and distributions.
Shares are purchased for your account on AccountLink 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, purchases are not subject to an initial sales
charge, and the offering price will be the 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 as commission. The current sales
charge rates and commissions paid to dealers and brokers
are as follows:
<TABLE>
<CAPTION>
Front-End Front-End Commission
Sales Charge Sales Charge as Percentage
as Percentage of as Percentage of of Offering
Amount of Purchase Offering Price Amount Invested 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%
<FN>
____________________
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.
</TABLE>
- 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
OppenheimerFunds that offer only one class of shares 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 amount of the 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 count all shares purchased
for a trust, estate or other fiduciary account (including one or more
employee benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A
shares of the Fund and other OppenheimerFunds. 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 total amount
of the intended purchases. This can include 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 to defined contribution employee retirement
plans for which the dealer, broker or investment adviser provides
administration 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, or (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. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The contingent deferred sales charge does not apply to purchases of
Class A shares at net asset value 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 is placed for Class A shares that would otherwise be
subject to the Class A contingent deferred sales charge, the dealer agrees
in writing 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 B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. 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 B
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 B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge
Years Since Beginning of Month In on Redemptions in that Year
Which Purchase Order Was Accepted (As % of Amount Subject to Charge)
- --------------------------------- ----------------------------------
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- Waivers of Class B Sales Charge. The Class B 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 (the death or disability must have
occurred after the account was established); (2) redemptions from accounts
other than Retirement Plans following the death or disability of the
shareholder (the death or disability must have occurred after the account
was established, and for disability you must provide evidence of a
determination of disability by the Social Security Administration), (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 591/2, and distributions from 403(b)(7) custodial plans or pension
or profit sharing plans before the participant is age 591/2 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 life 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 B 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 below. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution Plan, described below. The conversion is based on the
relative net asset value of the two classes, and no sales load or other
charge is imposed. When Class B shares convert, any other Class B shares
that were acquired by the reinvestment of dividends and distributions on
the converted shares will also convert to Class A shares. The conversion
feature is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A and Class B Shares" in the
Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B 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 B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B 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 B 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 B 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 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
Because the Distributor's actual expenses in selling Class B 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 B shares, those expenses may be
carried over and paid in future years. At September 30, 1994, the end of
the Plan year, the Distributor had incurred unreimbursed expenses under
the Plan of $854,078 (equal to 3.2% of the Fund's net assets represented
by Class B shares on that date), which have been carried over into the
present Plan year. 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 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 worth $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
automatically to exchange an amount you establish in advance 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 OppenheimerFunds account is $25. These exchanges are subject to
the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying a
sales charge. This privilege applies to Fund shares that you purchased
with an initial sales charge or to Fund shares on which you paid a
contingent deferred sales charge when you redeemed them. You must be sure
to ask the Distributor for this privilege when you send your payment.
Please consult the Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (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
other employers
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
- A redemption check is not payable to all shareholders listed on
the account statement
- A redemption 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 on behalf of a corporation, partnership or other business, or
as a fiduciary, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by the close of the New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
- To redeem shares through a service representative, call 1-800-
852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account 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, in any 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. 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. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges made by brokers on Fund/SERV and
for automated exchanges between existing accounts on PhoneLink described
below. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. Certain
OppenheimerFunds offer Class A shares, Class B or Class C shares, and
Class Y shares; a list of these 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 portfolio securities at a time or price disadvantageous to
the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of the close of the New York Stock Exchange on each regular business
day 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 it 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 or improperly.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 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 $500 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 "How to Sell
Shares" in 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 Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of income.
- 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 B shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same surname and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for Class A,
Class B and Class Y shares from net investment income, if any, on an
annual basis and normally pays those dividends to shareholders in
December, but the Board of Trustees can change that date. The Board may
also cause the Fund to declare dividends after the close of the Fund's
fiscal year (which ends September 30th). Because the Fund does not have
an objective of seeking current income, the amounts of dividends it pays,
if any, will likely be small. Dividends paid on Class Y shares will
generally be higher than for Class A shares and dividends paid with
respect to Class A shares will generally be higher than for Class B shares
because expenses allocable to Class B shares will generally be higher than
for Class A shares, and expenses allocable to Class A shares will
generally be higher than for Class Y shares.
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 Long-Term 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 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 TO PROSPECTUS OF
OPPENHEIMER DISCOVERY FUND
Graphic material included in Prospectus of Oppenheimer Discovery
Fund: "Comparison of Change in Value of $10,000 Hypothetical Investments
In: Oppenheimer Discovery Fund, S&P 500 and Russell 2000 Index".
Linear graphs will be included in the Prospectus of Oppenheimer
Discovery Fund (the "Fund") depicting the initial account value and
subsequent account values of a hypothetical $10,000 investment in each
class of shares of the Fund. In the case of the Fund's Class A shares,
that graph will cover each of the Fund's last nine fiscal periods and
years from 9/11/86 through 9/30/94, in the case of the Fund's Class B
shares the graph will cover the period from the inception of the class
(4/1/94) through 9/30/94, and for Class Y shares will cover the 6/1/94
(inception date) through 9/30/94 period. Each graph will compare such
values with hypothetical $10,000 investments over the same time periods
in the S&P 500 Index and the Russell 2000 Index. Set forth below are the
relevant data points that will appear on the linear graphs. Additional
information with respect to the foregoing, including descriptions of the
S&P 500 Index and the Russell 2000 Index, is set forth in the Prospectus
under "Performance of the Fund - Comparing the Fund's Performance to the
Market."
<TABLE>
<CAPTION>
Fiscal Year Oppenheimer S&P 500 Russell 2000
(Period) Ended Discovery A Index Index
- -------------- ----------- ------- -------------
<S> <C> <C> <C>
9/11/86 $ 9,425 $10,000 $10,000
9/30/86 $ 9,372 $ 9,173 $ 9,383
9/30/87 $14,013 $13,156 $12,142
9/30/88 $13,183 $11,526 $10,829
9/30/89 $18,486 $15,324 $13,156
9/30/90 $14,726 $13,908 $ 9,584
9/30/91 $22,367 $18,232 $13,905
9/30/92 $24,889 $20,244 $15,148
9/30/93 $35,955 $22,870 $20,171
9/30/94 $33,112 $23,711 $20,712
Fiscal Year Oppenheimer S&P 500 Russell 2000
(Period) Ended Discovery B Index Index
- -------------- ----------- ------- -------------
4/1/94 $10,000 $10,000 $10,000
9/30/94 $ 9,317 $10,532 $10,278
Fiscal Year Oppenheimer S&P 500 Russell 2000
(Period) Ended Discovery Y Index Index
- -------------- ----------- ------- -------------
6/1/94 $10,000 $10,000 $10,000
9/30/94 $10,320 $10,231 $10,333
</TABLE>
<PAGE>
Oppenheimer Discovery Fund
Two World Trade Center
New York, New York 10048-0203
1-800-525-7048
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 O P P E N H E I M E R
Oppenheimer Shareholder Services
P.O. Box 5270 Discovery Fund
Denver, Colorado 80217
1-800-525-7048 Prospectus
Custodian of Portfolio Securities
The Bank of New York Effective January 17, 1995
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 W. 47th Street
New York, NY 10036
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Additional Statement, and if given or
made, such information and representation 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 offer in such state.
PR500.001.0195 Printed on recycled paper
OppenheimerFunds
<PAGE>
Oppenheimer Discovery Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated January 17, 1995
This Statement of Additional Information of Oppenheimer Discovery
Fund is not a Prospectus. This document contains additional information
about the Fund and supplements information in the Prospectus dated January
17, 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
Investment Objective and Policies 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 5
Other Investment Restrictions 14
How the Fund is Managed 15
Organization and History 15
Trustees and Officers of the Fund 16
The Manager and Its Affiliates 20
Brokerage Policies of the Fund 22
Performance of the Fund 23
Distribution and Service Plans 26
About Your Account 28
How To Buy Shares 28
How To Sell Shares 34
How To Exchange Shares 38
Dividends, Capital Gains and Taxes 40
Additional Information About the Fund 41
Independent Auditors' Report 43
Financial Statements 44
Appendix: 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. Capitalized terms used in
this Statement of Additional Information have the same meanings as those
terms have in the Prospectus. Investment policies that the Fund may use
to seek the Fund's objective encompass the selection of common stocks,
preferred stocks, convertible securities, rights, warrants, and puts and
calls in proportions which may vary from time to time. The selection of
such securities is enhanced by the methods described in the Prospectus
under "Other Investment Techniques and Strategies," and in this Statement
of Additional Information.
- Securities of "Growth-Type" Issuers and Emerging Growth
Companies. Many "growth-type" issuers, including emerging growth
companies, may be small and unseasoned. Their securities, which the Fund
may purchase when they are offered to the public for the first time, may
have a limited trading market, which may adversely affect the Fund's
ability to sell them when it wants to do so and can result in their shares
being priced lower than otherwise might be the case. While the Manager
will undertake to select promising emerging companies carefully for the
Fund's investments, there is no guarantee that such investments will
achieve their potential.
- "Over-the-Counter" Securities. The "over-the-counter" market is
generally defined as the market for securities that are not listed for
trading on a securities exchange. An exchange represents an auction
market consisting of competing buyers and competing sellers. There are
over-the-counter markets in the U.S. and in foreign countries. In
contrast to exchanges, the over-the-counter market is not a centralized
facility but is a negotiated market in which transactions are done by
telephone or computer link-ups among dealers and brokers. In the U.S.,
the over-the-counter market is regulated by the National Association of
Securities Dealers, which has created an Automated Quotation System
("NASDAQ"), an electronic quotation system for certain over-the-counter
securities, allowing subscribers to obtain data as to current bids and
offers for over-the-counter securities. A security must have at least two
market makers for initial listing on NASDAQ. Over-the-counter markets
exist apart from NASDAQ, as long as a dealer or broker is willing to make
a market in a particular security. The number of shares traded each day
may be smaller for over-the-counter securities than for securities listed
on the New York or American Stock Exchanges. As a result, the liquidity
of, or ability to sell, the over-the-counter securities which the Fund
owns may be relatively limited as compared to listed securities which it
owns. This may affect the price the Fund receives when it sells its over-
the-counter securities. Over-the-counter securities may also be subject
to greater price volatility than listed securities due to factors which
would not ordinarily affect large, well-established companies (such as
changes in key personnel, financing difficulties or problems with
products). On January 18, 1990, the Fund's shareholders approved the
change of the Fund's name from "Oppenheimer OTC Fund" to its current name,
and at the same time approved a proposal to change the Fund's fundamental
investment policies so that the Fund was no longer required to invest at
least 65% of its total assets in over-the-counter securities.
- Borrowing For Leverage. From time to time the Fund may increase
its ownership of securities by borrowing from banks on an unsecured basis
and investing the borrowed funds, subject to the restrictions in the
Prospectus. Any such borrowing will be made only from banks and, pursuant
to the requirements of the Investment Company Act, will be made only to
the extent that the value of the Fund's assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings, including
the proposed borrowing. If the value of the Fund's assets, when computed
in that manner, should fail to meet the 300% asset coverage requirement,
the Fund is required within three days to reduce its bank debt to the
extent necessary to meet that requirement. To do so, the Fund may have
to sell a portion of its investments at a time when it would not otherwise
want to sell the securities. Interest on money the Fund borrows is an
expense the Fund would not otherwise incur, so that during periods of
substantial borrowings, its expenses may increase more than expenses of
Funds that do not borrow. This speculative factor is known as "leverage."
- Foreign Securities. "Foreign securities" include equity and debt
securities of companies organized under the laws of countries other than
the United States and debt securities of foreign governments, that are
traded on foreign securities exchanges or in the foreign over-the-counter
markets. Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are not considered "foreign
securities" for the purpose of the Fund's investment allocations, because
they are not subject to many of the special considerations and risks,
discussed below, that apply to foreign securities traded and held abroad.
Investing in foreign securities offers the Fund potential benefits
not available from investing solely in securities of domestic issuers,
such as 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. If the
Fund's portfolio securities are held abroad, the countries in which such
securities may be held and the sub-custodians holding them must be
approved by the Fund's Board of Trustees under applicable rules of the
Securities and Exchange Commission. In buying foreign securities, the
Fund may convert U.S. dollars into foreign currency, but only to effect
securities transactions on foreign securities exchanges and not to hold
such currency as an investment.
- Risks of Foreign Investing. Investing in foreign securities
involves special additional risks and considerations not typically
associated with investing in securities of issuers traded in the U.S.
These include: reduction of income by foreign taxes; fluctuation in value
of foreign portfolio investments due to changes in currency rates and
control regulations (e.g., currency blockage); transaction charges for
currency exchange; lack of public information about foreign issuers; lack
of uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic issuers; less volume on foreign
exchanges than on U.S. exchanges; greater volatility and less liquidity
in foreign markets than in the U.S.; less regulation of foreign issuers,
stock exchanges and brokers than in the U.S.; greater difficulties in
commencing lawsuits against foreign issuers; higher brokerage commission
rates than in the U.S.; increased risks of delays in settlement of
portfolio transactions or loss of certificates for portfolio securities;
possibilities in some countries of expropriation or nationalization of
assets, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; and unfavorable differences between
the U.S. economy and foreign economies. In the past, U.S. Government
policies have discouraged certain investments abroad by U.S. investors,
through taxation or other restrictions, and it is possible that such
restrictions could be re-imposed.
- Restricted and Illiquid Securities. 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 by the Fund
with the issuer 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
fluctuation during that period. The Fund may also acquire, through private
placements, securities having contractual restrictions on their resale,
which might limit the Fund's ability to dispose of such securities and
might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers 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 of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
- Repurchase Agreements. The Fund may acquire securities subject
to repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of purchases of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to, an approved vendor. An "approved vendor"
is a U.S. commercial bank or the U.S. branch of a foreign bank, or a
broker-dealer which has been designated a primary dealer in government
securities and which must meet the credit requirements set by the Fund's
Board of Trustees from time to time. The repurchase 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 value of the collateral 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.
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus, if the
loan is collateralized under applicable regulatory guidelines. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the market value of
the loaned securities and must consist of cash, bank letters of credit,
U.S. Government securities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Fund pays in arranging the loan. In
connection with such lending, the Fund might experience risks of delay in
receiving additional collateral, or risks of delay in recovery of the
loaned securities, or loss of rights in the collateral should the borrower
fail financially. 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. 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 applicable
tests under the Internal Revenue Code and must permit the Fund to
reacquire loaned securities on five business days' notice or in time to
vote on any important matter.
Other Investment Techniques and Strategies
- Hedging With Options and Futures Contracts. The Fund may use
hedging instruments for the purposes described in the Prospectus. When
hedging to attempt to protect against declines in the market value of the
Fund's portfolio, or to permit the Fund to retain unrealized gains in the
value of portfolio securities which have appreciated, or to facilitate
selling securities for investment reasons, the Fund may: (i) sell Futures,
(ii) buy puts or such Futures or securities, or (iii) write covered calls
on securities or on Futures. When hedging to establish a position in the
equity securities markets as a temporary substitute for the purchase of
individual equity securities the Fund may: (i) buy Futures, or (ii) buy
calls on such Futures or securities held by it. Normally, the Fund would
then purchase the equity securities and terminate the hedging position.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's investment activities in the underlying
cash market. In the future, the Fund may employ hedging instruments and
strategies that are not presently contemplated but which may be developed,
to the extent such investment methods are consistent with the Fund's
investment objective, and are legally permissible and disclosed in the
Prospectus. Additional information about the hedging instruments the Fund
may use is provided below.
- Writing Covered Calls. As described in the Prospectus, the Fund
may write covered calls. When the Fund writes a call on an investment, it
receives a premium and agrees to sell the callable investment to a
purchaser of a corresponding call during the call period (usually not more
than 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. To terminate its obligation on a call it has
written, the Fund may purchase a corresponding call in a "closing
purchase transaction." A profit or loss will be realized, depending upon
whether the net of the amount of option transaction costs and the premium
received on the call the Fund has written is more or less than the price
of the call the Fund subsequently purchased. 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, as
are premiums on lapsed calls, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to the lack of a market, it would have to hold the
callable investment 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 value 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 current value of the Future. In no circumstances
would an exercise notice as to a Future put the Fund in a short futures
position.
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 that are traded on exchanges, or as to other
acceptable escrow securities, so that no margin will be required from the
Fund for such option transactions. OCC will release the securities
covering a call on the expiration of the call or when the Fund enters into
a closing purchase transaction. Call writing affects the Fund's turnover
rate and the brokerage commissions it pays. Commissions, normally higher
than on general securities transactions, are payable on writing or
purchasing a call.
- Stock Index Futures and Financial Futures. The Fund may buy and
sell futures contracts relating to a securities index ("Financial
Futures"), including "Stock Index Futures," a type of Financial Future for
which the index used as the basis for trading is a broadly-based stock
index (including stocks that are not limited to issuers in a particular
industry or group of industries). A stock index assigns relative values
to the common stocks included in the index and fluctuates with the changes
in the market value of those stocks. Stock indices cannot be purchased
or sold directly. Financial futures are contracts based on the future
value of the basket of securities that comprise the underlying index. The
contracts obligate 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 securities underlying the index is made on
settling the futures obligation. No monetary amount is paid or received
by the Fund on the purchase or sale of a Financial Future or Stock Index
Future.
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"). Initial margin
payments 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, its value on the Fund's books is
changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures
broker on a daily basis.
At any time prior to the 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 by the Fund on the Future for tax purposes. Although
Financial Futures and Stock Index Futures by their terms call for
settlement by the delivery of cash, in most cases the settlement
obligation is fulfilled without such delivery by entering into an
offsetting transaction. All Futures transactions are effected through a
clearing house associated with the exchange on which the contracts are
traded.
- Purchasing Puts and Calls. The Fund may purchase calls to protect
against the possibility that the Fund's portfolio will not participate in
an anticipated rise in the securities market. When the Fund purchases a
call, it pays a premium (other than in a closing purchase transaction)
and, except as to calls on stock indices, 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. In
purchasing a call, 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, 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 call on
a stock index, it pays a premium, but settlement is in cash rather than
by delivery of the underlying investment to the Fund.
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 (a "protective put") enables the Fund to attempt to protect itself
during the put period against a decline in the value of the underlying
investment below the exercise price by selling the underlying investment
at the exercise price to a seller of a corresponding put. If the market
price of the underlying investment is equal to or above the exercise price
and as a result the put is not exercised or resold, the put will become
worthless at its expiration and the Fund will lose the premium payment and
the right to sell the underlying investment. However, the put may be sold
prior to expiration (whether or not at a profit).
Puts and calls on broadly-based stock indices or Stock Index Futures
are similar to puts and calls on securities or futures contracts except
that all settlements are in cash and gain or loss depends on changes in
the index in question (and thus on price movements in the stock market
generally) rather than on price movements of individual securities or
futures contracts. When the Fund buys a call on a stock index or Stock
Index Future, it pays a premium. If the Fund exercises the call during
the call period, a seller of a corresponding call on the same investment
will pay the Fund an amount of cash to settle the call if the closing
level of the stock index or Future upon which the call is based is greater
than the exercise price of the call. That cash payment is equal to the
difference between the closing price of the call and the exercise price
of the call times a specified multiple (the "multiplier") which determines
the total dollar value for each point of difference. When the Fund buys
a put on a stock index or Stock Index Future, it pays a premium and has
the right during the put period to require a seller of a corresponding
put, upon the Fund's exercise of its put, to deliver cash to the Fund to
settle the put if the closing level of the stock index or Stock Index
Future upon which the put is based is less than the exercise price of the
put. That cash payment is determined by the multiplier, in the same
manner as described above as to calls.
When the Fund purchases a put on a stock index, or on a Stock Index
Future not owned by it, the put protects the Fund to the extent that the
index moves in a similar pattern to the securities the Fund holds. The
Fund can either resell the put or, in the case of a put on a Stock Index
Future, 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 the 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.
The Fund's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause
the sale of underlying investments, increasing portfolio turnover.
Although the decision whether to exercise a put it holds is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons that would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sells a
call, put or an underlying investment in connection with the exercise of
a put or call. Those commissions may be higher than the commissions for
direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value
of the underlying investments 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.
- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. 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 enter
into a Forward Contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold
but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S.
dollar and a foreign currency.
There is a risk that use of Forward Contracts may reduce the gain
that would otherwise result from a change in the relationship between the
U.S. dollar and a foreign currency. To attempt to limit its exposure to
loss under Forward Contracts in a particular foreign currency, the Fund
limits its use of these contracts to the amount of its net assets
denominated in that currency or denominated in a closely-correlated
foreign currency. Forward contracts include standardized foreign currency
futures contracts which are traded on exchanges and are subject to
procedures and regulations applicable to other Futures. The Fund may also
enter into a forward contract to sell a foreign currency denominated in
a currency other than that in which the underlying security is
denominated. This is done in the expectation that there is a greater
correlation between the foreign currency of the forward contract and the
foreign currency of the underlying investment than between the U.S. dollar
and the foreign currency of the underlying investment. This technique is
referred to as "cross hedging." The success of cross hedging is dependent
on many factors, including the ability of the Manager to correctly
identify and monitor the correlation between foreign currencies and the
U.S. dollar. To the extent that the correlation is not identical, the
Fund may experience losses or gains on both the underlying security and
the cross currency hedge.
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.
There is no limitation as to the percentage of the Fund's assets
that may be committed to foreign currency exchange contracts. The Fund
does not enter into such forward contracts or maintain a net exposure in
such contracts to the extent that the Fund would be obligated to deliver
an amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
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's Custodian will place cash or U.S. Government securities
or other liquid high-quality debt securities in a separate account of the
Fund having a value equal to the aggregate amount of the Fund's
commitments under forward contracts to cover its short positions. If the
value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. 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 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. Because 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,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer 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. 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 the 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 part, the measure of that part'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." The Fund will not invest more
than 25% of its assets in interest rate swap transactions.
- 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 Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its aggregate
initial futures margin and related option premiums to no more than 5% of
the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also
must use short Futures and Futures options positions solely for "bona fide
hedging purposes" within the meaning and intent of the applicable
provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of options
that 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 adviser as the Fund (or an adviser
that is an affiliate of the Fund's adviser). The exchanges also impose
position limits on Futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
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 Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without having to pay tax on them. This
avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive
from the Fund (unless the Fund's shares are held in a retirement account
or the shareholder is otherwise exempt from tax). One of the tests for
the Fund's qualification as a regulated investment company is that less
than 30% of its gross income must be derived from gains realized on the
sale of securities held for less than three months. To comply with this
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 Stock Index Futures, held for less than three
months, whether or not they were purchased on the exercise of a call held
by the Fund; (ii) purchasing options which expire in less than three
months; (iii) effecting closing transactions with respect to calls or puts
written or purchased less than three months previously; (iv) exercising
puts or calls held by the Fund for less than three months; or (v) writing
calls on investments held 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 Options and Futures. 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 that are discussed in the Prospectus and
above, there is a risk in using short hedging by (i) selling Stock Index
Futures or (ii) purchasing puts on stock indices or Stock Index Futures
to attempt to protect against declines in the value of the Fund's equity
securities. The risk is that the prices of Stock Index Futures will
correlate imperfectly with the behavior of the cash (i.e., market value)
prices of the Fund's equity 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 markets 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 markets 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 markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
deposit requirements in the futures markets are less onerous than margin
requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets 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 equity 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 equity
securities being hedged if the historical volatility of the prices of the
equity 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 equity 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 equity 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
equities markets as a temporary substitute for the purchase of individual
equity securities (long hedging) by buying Stock Index 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
equity securities at that time because of concerns as to a 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 equity securities purchased.
Other Investment Restrictions
The Fund's most significant investment restrictions are described in
the Prospectus. The following investment restrictions are also
fundamental policies of the Fund and, together with the fundamental
policies and investment objective described in the Prospectus, cannot be
changed without the vote of a "majority" of the Fund's outstanding shares.
Under the Investment Company Act, such a "majority" vote is defined as the
vote of the holders of the lesser of: (i) 67% or more of the shares
present or represented by proxy at such meeting, if the holders of more
than 50% of the outstanding shares are present, or (ii) more than 50% of
the outstanding shares. Under these additional restrictions, the Fund
cannot: (a) underwrite securities of other companies, except insofar as
the Fund might be deemed to be an underwriter in the resale of any
securities held in its portfolio; (b) invest in commodities or commodity
contracts other than the hedging instruments permitted by any of its other
fundamental policies, whether or not any such hedging instrument is
considered to be a commodity or a commodity contract; (c) purchase
securities on margin; however, the Fund may make margin deposits in
connection with any of the hedging instruments permitted by any of its
other fundamental policies; (d) purchase calls, unless (i) the investments
to which the call relates are securities, broadly-based stock indices or
Stock Index Futures on broadly-based stock indices or (ii) the calls are
purchased to effect "closing purchase transactions" to terminate an
obligation with respect to a call which the Fund has previously written;
the Fund may not write puts nor purchase puts except those which relate
to (1) securities held by it, (2) Stock Index Futures, or (3) broadly-
based stock indices, in each case only to protect against a decline in
value of the entire portfolio or of specific portfolio securities or Stock
Index Futures held by the Fund, and further provided that, after any such
purchase, the value of all options (puts and calls) held by the Fund would
not exceed 5% of the Fund's total assets (at the time of purchase); the
Fund may not write puts or purchase puts on securities not held by it; (e)
lend money except in connection with the acquisition of that portion of
publicly-distributed debt securities which the Fund's investment policies
and restrictions permit it to purchase (see "Investment Policies" and
"Special Investment Methods" in the Prospectus); the Fund may also make
loans of portfolio securities and enter into repurchase agreements (see
"Loans of Portfolio Securities" and "Repurchase Agreements" in the
Prospectus); (f) mortgage, hypothecate or pledge any of its assets;
however, this does not prohibit the escrow arrangements contemplated by
the put and call activities of the Fund or other collateral or margin
arrangements in connection with any of the hedging instruments permitted
by any of its other fundamental policies; (g) invest in or hold securities
of any issuer if officers and Trustees or Directors of the Fund or 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; (h)
invest in other open-end investment companies, or invest more than 5% of
the value of its net assets in closed-end investment companies, including
small business investment companies, nor make any such investments at
commission rates in excess of normal brokerage commissions; to the extent
the Fund does make investments in other investment companies, the Fund's
shareholders may be subject indirectly to that company's management fees
and costs; (i) invest in companies for the purpose of acquiring control
or management thereof; (j)invest in interests in oil, gas or other mineral
exploration or development programs; or (k) invest in real estate or in
interests in real estate, but may purchase readily marketable securities
of companies holding real estate or interests therein.
In connection with the qualification of its shares in certain
states, the Fund has undertaken as a non-fundamental policy that in
addition to the above, it will not: (a) invest in oil, gas or other
mineral leases, or (b) purchase or sell real property, including real
estate limited partnership interests. In the event that 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 restriction.
With regard to restriction (h) above, but not as a matter of
fundamental policy, the Fund will further restrict itself to open market
purchases of closed-end investment companies, except in connection with
mergers, and will not engage in arbitrage transactions.
For purposes of the Fund's policy not to concentrate its assets
described under investment restriction number (3) in the Prospectus, the
Fund has adopted the industry classifications set forth in the Appendix
to this Statement of Additional Information.
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 for 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 Time Fund, Oppenheimer Growth Fund,
Oppenheimer Tax-Free Bond Fund, Oppenheimer Money Market Fund, Inc.,
Oppenheimer Target Fund, Oppenheimer U.S. Government Trust, Oppenheimer
New York Tax-Exempt Fund, Oppenheimer California Tax-Exempt Fund,
Oppenheimer Multi-State Tax-Exempt Trust, Oppenheimer Asset Allocation
Fund, Oppenheimer Gold & Special Minerals Fund, Oppenheimer Global Fund,
Oppenheimer Mortgage Income Fund, Oppenheimer Global Growth & Income Fund,
Oppenheimer Global Emerging Growth Fund, Oppenheimer Multi-Sector Income
Trust and Oppenheimer Multi-Government Trust (collectively, the "New York-
based OppenheimerFunds"). As of December 31, 1994, the Trustees and
officers of the Fund as a group owned of record or beneficially less than
1% of each class of shares of the Fund. The foregoing does not include
shares held of record by an employee benefit plan for employees of the
Manager (for which plan one of the officers listed below, Mr. Donohue, is
a trustee), other than the shares beneficially owned under that plan by
officers of the Fund listed below.
Leon Levy, Chairman of the Board of Trustees; Age: 69
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. ("OAC"), the Manager's parent holding company; formerly
he held the following positions: a director of the Manager and Oppenheimer
Funds Distributor, Inc. (the "Distributor"), Vice President
and a director of HarbourView Asset Management Corporation ("HarbourView")
and Centennial Asset Management Corporation ("Centennial"), investment
adviser 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: 71
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 Publishers, Inc.
and 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), National Building Museum; a member of the Trustees Council,
Preservation League of New York State; a member of the Indo-U.S. Sub-
Commission on Education and Culture.
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 Federal Deposit
Insurance Corporation, 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 Institute, Bard College; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health care
provider); formerly New York State Comptroller and a trustee, 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, the
Greenwich Historical Society and Greenwich Hospital.
____________________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Sidney M. Robbins, Trustee; Age: 82
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.
Jay W. Tracey, III, Vice President and Portfolio Manager; Age: 41
Vice President of the Manager; portfolio manager of other OppenheimerFunds
since September 1994 and from October, 1991 to February 1994. In his most
recent previous position, he was a Managing Director of Buckingham Capital
Management. Before joining the Manager, he was Senior Vice President of
Founders Asset Management, Inc. (a mutual fund adviser), prior to which
he was a securities analyst and portfolio manager for Berger Associates,
Inc. (investment adviser).
Paul LaRocco, Associate Portfolio Manager; Age: 36
Assistant Vice President of the Manager; an Associate Portfolio Manager
of Oppenheimer Time Fund and Portfolio Manager of Oppenheimer Variable
Account Funds-Capital Appreciation Fund; formerly Acting Portfolio Manager
of the Fund; previously a Securities Analyst with Columbus Circle
Investors, prior to which he was an Investment Analyst for Chicago Title
& Trust Co.
____________________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Andrew J. Donohue, Secretary; Age: 44
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other OppenheimerFunds; formerly Senior Vice
President and Associate General Counsel of the Manager and the
Distributor, 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
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 and 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 J. 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 of 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 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 International Mutual Fund Supervisor for Brown
Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant
for State Street Bank & Trust Company, before which he was a sales
representative for Central Colorado Planning.
- Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Messrs. Galli and Spiro; Mr. Spiro is also
an officer) 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 from all 19 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 From
All New York-based
Name Position OppenheimerFunds1
- ---- -------- -----------------------
<S> <C> <C>
Leon Levy Chairman and Trustee $141,000.00
Leo Cherne Audit Committee Member and $ 68,800.00
Trustee
Edmund T. Delaney Study Committee Member and $ 86,200.00
Trustee2
Benjamin Lipstein Study Committee Member and $ 86,200.00
Trustee
Elizabeth B. Moynihan Study Committee Member3 $ 60,625.00
and Trustee
Kenneth A. Randall Audit Committee Member and $ 78,400.00
Trustee
Edward V. Regan Audit Committee Member3 $ 56,275.00
and Trustee
Russell S. Reynolds, Trustee $ 52,100.00
Jr.
Sidney M. Robbins Study Committee Chairman, $122,100.00
Audit Committee Vice-Chairman
and Trustee
Pauline Trigere Trustee $ 52,100.00
Clayton K. Yuetter Trustee $ 52,100.00
<FN>
______________________
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.
</TABLE>
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. No payments had been made by the Fund under the plan as
of September 30, 1994. In the fiscal year ended September 30, 1994, the
Fund accrued $117,741 for benefit obligations under the plan.
- Major Shareholders. As of December 31, 1994, no person owned of
record or was known by the Fund to own beneficially 5% or more of the
Fund's Class A or Class B shares. As of that date, the only shareholder
which owned of record or was known by the Fund to own beneficially 5% or
more of the Fund's Class Y shares was Massachusetts Mutual Life Insurance
Company, 1295 State Street, Springfield, Massachusetts 01111, which owned
27,471.558 Class Y shares (representing 100% of the Class Y shares then
outstanding). Massachusetts Mutual Life Insurance Company's affiliation
with the Manager is described in the following paragraph.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. 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. Spiro and Galli)
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 effective
corporate 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 General Distributor's 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 September 30, 1992,
1993, and 1994, the management fees paid by the Fund to the Manager were
$1,624,055, $3,286,982, and $4,280,597, respectively.
The Agreement contains no expense limitation. However,
independently of the Agreement, the Manager has undertaken that the total
expenses of the Fund in any fiscal year, exclusive of taxes, interest,
brokerage commissions, distribution assistance payments and any
extraordinary non-recurring expenses, including litigation shall not
exceed the most stringent state regulatory limitation on fund expenses
applicable to the Fund. At present, the most stringent limitation is
imposed by California and limits expenses (with specified exclusions) to
2.5% of the first $30 million of average annual net assets, 2.0% of the
next $70 million of average net assets and 1.5% of average net assets in
excess of $100 million. The payment of the management fee will be reduced
so that at no time will there be accrued but unpaid liability under the
above expense limitation. Any assumption of the Fund's expenses under
this limitation would lower the Fund's overall expense ratio and increase
its total return during any period during which expenses are limited. The
Manager reserves the right to amend or terminate this expense undertaking
at any time.
The Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence in the performance of its duties, or reckless
disregard for its obligations and duties thereunder, the Manager is not
liable for any loss sustained by reason of good faith errors or omissions
in connection with any matters to which the Agreement relates. The
Agreement permits the Manager to act as investment adviser for any other
person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer
act as investment adviser to the Fund, the 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, Class B and Class Y
shares but is not obligated to sell a specific number of shares. Expenses
normally attributable to sales, (excluding payments under the Distribution
and Service Plans but 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 September 30, 1992, 1993, and 1994, the aggregate sales
charges on sales of the Fund's Class A shares were $6,058,199, $6,534,429,
and $5,199,808, respectively, of which the Distributor and an affiliated
broker-dealer retained in the aggregate $1,723,084, $1,751,688, and
$1,699,406 in those respective years. During the Fund's fiscal year ended
September 30, 1994, the contingent deferred sales charges collected on the
Fund's Class B shares totalled $6,595, 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. No sales charges are assessed
by OFDI on Class Y shares.
- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its 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. Purchases of 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.
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 that 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, and the procedures and rules
described above, allocations of brokerage are generally 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.
Regardless, 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 are otherwise paid only if it
appears likely that a better price or execution can be obtained. 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 transaction 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.
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 in
commission dollars. 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.
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 by 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 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.
During the Fund's fiscal years ended September 30, 1992, 1993, and
1994, total brokerage commissions paid by the Fund (not including spreads
or concessions on principal transactions on a net trade basis) were
$347,317, $5,701,355, and $5,964,989, respectively. During the fiscal
year ended September 30, 1994, $115,965 was paid to brokers as commissions
in return for research services; the aggregate dollar amount of those
transactions was $38,001,952. The transactions giving
rise to those commissions were allocated in accordance with the Manager's
internal allocation procedures.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to
time the "average annual total return," "cumulative total return,"
"average annual total return at net asset value" and "total return at net
asset value" of an investment in a class of shares of the Fund 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 advertisements of its performance data 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 periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of
the advertisement. 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; its returns 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. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A,
Class B and Class Y shares of the Fund are affected by portfolio quality,
the type of investments the Fund holds and its operating expenses
allocated to the 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 described below). For Class B shares, the payment of the
applicable contingent deferred sales charge (5.0% for the first year, 4.0%
for the second year, 3.0% for the third and fourth years, 2.0% in the
fifth year, 1.0% in the sixth year and none thereafter) is applied to the
investment result for the period shown (unless the total return is shown
at net asset value, as described below). 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 return" on an investment in Class A shares of the Fund for the one-
year and five-year periods ending September 30, 1994, and from the Fund's
inception (September 11, 1986) to September 30, 1994 were (13.20)%, 11.04%
and 16.03%, respectively. The cumulative "total return" on Class A shares
from September 11, 1986 to September 30, 1994 was 231.12%. The cumulative
total return on Class B shares for the period from April 1, 1994 (the
commencement of the offering of the shares) through September 30, 1994 was
(6.83)%. The Fund's Class Y shares are not subject to a sales charge.
The cumulative total return on Class Y shares for the period from June 1,
1994 (the commencement of the offering of the shares) through September
30, 1994 was 3.20%.
- 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 B 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 return at net asset
value of the Fund's Class A shares for the period from September 11, 1986
to September 30, 1994 was 251.32%. The average annual total returns at
net asset value for Class A shares for the one and five-year periods ended
September 30, 1994 and from September 11, 1986 to September 30, 1994, were
(7.91)%, 12.36% and 16.89%, respectively. The cumulative total return at
net asset value for the Fund's Class B shares for the period from April
1, 1994 through September 30, 1994 was (1.93)%.
Total return information may be useful to investors in reviewing the
Fund's performance. However, when comparing total return of an investment
in 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 and
volatility 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, Class B or Class Y shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund is ranked against (i) all other funds, (ii)
all other growth funds and (iii) all other growth funds in a specific size
category. The Lipper performance rankings are based on total returns that
include the reinvestment of capital gain distributions and income
dividends but do not take sales charges or taxes into consideration.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class Y 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, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charges and expenses. Risk
measures fund performance below 90-day U.S. Treasury bill monthly returns.
Risk and investment return are combined to produce star rankings
reflecting performance relative to the average fund in a fund's category.
Five stars is the "highest" ranking (top 10%), 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 Fund in relation to other equity funds. Rankings
are subject to change.
The total return on an investment in the Fund's Class A or Class B
shares may be compared with performance for the same period of either the
Standard & Poor's 500 ("S&P 500") Index or the Russell 2000 Index, both
of which are widely recognized indices of stock market performance. Both
indices consist of unmanaged groups of common stocks. The performance of
each index includes a factor for the reinvestment of income dividends, but
does not reflect reinvestment of capital gains, expenses or taxes.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or Transfer Agent) or the investor services
provided by them to shareholders of the OppenheimerFunds, other than
performance rankings of the OppenheimerFunds themselves. Those ratings
or rankings of shareholder/investor services by third parties may compare
the OppenheimerFunds' services to those of other mutual fund families
selected by the rating or ranking services and may be based upon the
opinions of the rating or ranking service itself, based on its research
or judgment, or based upon surveys of investors, brokers, shareholders or
others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and a
Distribution and Service Plan for Class B 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. No such Plan has been adopted for
Class Y shares. 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 B shares, that vote was cast by the Manager as the sole initial
holder of Class B 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, in the case of the Manager, may include profits 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 from their own resources to Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its 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 each payment was made and the identity of each Recipient
that received any payment. The report for the Class B Plan shall also
include the distribution costs for that quarter, and such costs for
previous fiscal periods that have been 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 selection or nomination is approved by a majority of the
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
fees at the maximum rate and set no requirement for a minimum amount of
the assets.
For the fiscal year ended September 30, 1994, payments under the
Class A Plan totalled $1,429,769, of which $92,569 was paid to an
affiliate of the Distributor. Any unreimbursed expenses incurred by the
Distributor with respect to Class A shares for any fiscal year may not be
recovered in subsequent years. Payments received by the Distributor under
the Plan for Class A shares will not be used to pay any interest expense,
carrying charge, or other financial costs, or allocation of overhead by
the Distributor.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. Service fee payments by the Distributor to Recipients will
be made (i) in advance for the first year Class B shares are outstanding,
following the purchase of shares, in an amount equal to 0.25% of the net
asset value of the shares purchased by the Recipient or its customers and
(ii) thereafter, on a quarterly basis, computed as of the close of
business each day at an annual rate of .25% of the average daily net asset
value of Class B shares held in accounts of the Recipient or its
customers. An exchange of shares does not entitle the Recipient to an
advance service fee payment. In the event Class B shares are redeemed
during the first year that the shares are outstanding, the Recipient will
be obligated to repay a pro rata portion of the advance payment for those
shares to the Distributor. Payments made under the Class B Plan during the
fiscal period ended September 30, 1994 totalled $61,551, all paid by the
Distributor to Recipients, including $16 paid to a dealer affiliated with
the Distributor.
Although the Class B Plan permits the Distributor to retain both the
asset-based sales charges and the service fee on Class B 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 B Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B
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 Distributor anticipates
that it will take a number of years for it to recoup (from the Fund's
payments to the Distributor under the Class B Plan and recoveries of the
contingent deferred sales charge) the sales commissions paid to authorized
brokers or dealers.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of Class B shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Class B Plan and from
contingent deferred sales charges, and such expenses will be carried
forward and paid in future years. The Fund will be charged only for
interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of $4
million in a given fiscal year, of which $2,000,000 was recovered in the
form of contingent deferred sales charges paid by investors and $1,600,000
was reimbursed in the form of payments made by the Fund to the Distributor
under the Class B Plan, the balance of $400,000 (plus interest) would be
subject to recovery in future fiscal years from such sources.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. The asset-based sales
charge paid to the Distributor by the Fund under the Class B 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 B shares: (i) financing the advance of the service fee payment to
Recipients under the Class B Plan, (ii) compensation and expenses of
personnel employed by the Distributor to support distribution of Class B
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 B Shares. The
availability of two classes of shares permits the individual 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 B 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 B 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. A third class of shares
may be purchased only by certain institutional investors at net asset
value per share (the "Class Y shares").
The three 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
B shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of B shares does not constitute a taxable
event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature
may be suspended, in which event no further conversions of Class B shares
would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the
holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
Multi-Class Methodology. The methodology for calculating the net
asset value, dividends and distributions of the Fund's Class A, Class B
and Class Y 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 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 Independent 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 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, Class B and Class Y 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 NYSE is open by dividing the Fund's net assets
attributable to a class by the number of shares of that class that are
outstanding. The NYSE normally closes at 4:00 P.M. New York time, but may
close earlier on some days (for example, in case of weather emergencies
or on days falling before a holiday). The NYSE's most recent annual
announcement (which is subject to change) states that it will close on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days. The Fund may invest a substantial portion of its assets in foreign
securities primarily listed on foreign exchanges which may trade on
Saturdays or customary U.S. business holidays on which the NYSE is closed.
Because the Fund's net asset value will not be calculated on those days,
the Fund's net asset values per share of Class A, Class B and Class Y
shares may be significantly affected on such days when shareholders may
not purchase or redeem shares.
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 price 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) debt securities having a maturity
in excess of 60 days are valued at the mean between the bid and asked
prices determined by a portfolio pricing service approved by the Board or
obtained from active market makers on the basis of reasonable inquiry;
(iv) 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; (v) securities (including restricted securities)
not having readily-available market quotations are valued at fair value
under the Board's procedures; and (vi) securities traded on foreign
exchanges are valued at the closing or last sales prices reported on a
principal exchange, 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 on 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 stock 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 are 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 "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
("ACH") 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 the purchase through the ACH system before
the close of The New York Stock Exchange. The Exchange normally closes
at 4:00 P.M., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the shares
will be purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received by the
Fund 3 days after the transfers are initiated. The Distributor and the
Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse
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 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 obtain the reduced sales charge rate
(as set forth in the Prospectus) applicable to purchases of shares in that
amount (the "intended purchase amount"). Each purchase under the Letter
will be made at the public offering price applicable to a single lump-sum
purchase of shares in the intended purchase amount, as described in the
Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase 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 purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for 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 purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the 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 purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the 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 intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of the Letter) do not
include any shares sold without a front-end sales charge or without being
subject to a Class A contingent deferred sales charge unless (for the
purpose of determining completion of the obligation to purchase shares
under the Letter) the shares were acquired in exchange for shares of one
of the OppenheimerFunds whose shares were acquired by payment of a sales
charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
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) should be obtained from the Distributor or your
financial advisor 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.
- 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 $500
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 the
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a shareholder
of Class A or Class B shares may reinvest all or part of the redemption
proceeds of (i) Class A shares, or (ii) Class B shares that were subject
to the Class B contingent deferred sales charge when redeemed. The
reinvestment may be made without sales charge only in Class A shares of
the Fund or any of the other OppenheimerFunds into which shares of the
Fund are exchangeable as described 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 B 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 or on the back cover of this Statement
of Additional Information. 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 from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customer prior to the time the Exchange closes (normally that is
4:00 P.M., but may be earlier 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 redemption 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 to be made
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 a 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 share purchases while participating in an Automatic
Withdrawal Plan. Class B shareholders should not establish withdrawal
plans that would require the redemption of shares purchased subject to a
contingent deferred sales charge and held less than 6 years, because of
the imposition of the Class B contingent deferred sales charge on such
withdrawals (except where the Class B contingent deferred sales charge is
waived as described in the Prospectus under "Class B 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 "How
to Exchange Shares" in the Prospectus and 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 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 withdrawal 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 ACH transfer payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
the OppenheimerFunds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All OppenheimerFunds offer
Class A shares (except for Oppenheimer Strategic Diversified Income Fund),
but only certain funds offer Class B and/or Class Y shares. The following
other OppenheimerFunds currently offer Class B shares:
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Equity Income Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only available by
exchange)
Oppenheimer Growth Fund
Oppenheimer Global Fund
The following OppenheimerFunds currently offer Class Y shares:
Oppenheimer Growth Fund
Oppenheimer Total Return Fund, Inc.
Class A shares of OppenheimerFunds may be exchanged at net asset
value 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 this 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 of
other OppenheimerFunds 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
B contingent deferred sales charge is imposed on Class B shares acquired
by exchange if they are redeemed within 6 years of the initial purchase
of the exchanged Class B shares.
When Class B shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B 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 B 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 would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain and 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, Checkwriting, if
available, 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
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The 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 income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
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 that 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 Fund shares held for 45 days or less. To the extent the
Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or
dividends from foreign corporations, those dividends will not qualify for
the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, 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 of Trustees and the Manager might
determine in a particular year that it would 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.
If the Fund has more than 50% of its total assets invested in
foreign securities at the end of its fiscal year, it may elect the
application of Section 853 of the Internal Revenue Code to permit
shareholders to take a credit (or, at their option, a deduction) for
foreign taxes paid by the Fund. Under Section 853, shareholders would be
entitled to treat the foreign taxes withheld from interest and dividends
paid to the Fund from its foreign investments as a credit on their federal
income taxes. As an alternative, shareholders could, if to their
advantage, treat the foreign tax withheld as a deduction from gross income
in computing taxable income rather than as a tax credit. In substance,
the Fund's election would enable shareholders to benefit from the same
foreign tax credit or deduction that would be received if they had been
the record owners of the Fund's foreign securities and had paid foreign
taxes on the income received.
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 distribution. The Fund qualified
during its last fiscal year, and intends to qualify in current and future
years, but reserves the right not to do so. The Internal Revenue Code
contains a number of complex tests relating to such qualification in which
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 Covered Calls and Hedging Instruments," above). If it did not
so qualify, the Fund would be treated for tax purposes as an ordinary
corporation and receive no tax deduction for payments made to
shareholders.
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.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other OppenheimerFunds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. Class B
and Class Y shareholders should be aware that as of the date of this
Statement of Additional Information, not all of the OppenheimerFunds offer
Class B and/or Class Y shares. 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 shares of other 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 the banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager
and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of Oppenheimer Discovery Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer Discovery Fund as of September 30, 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 eight-year period
then ended and the period from September 11, 1986 (commencement of operations)
to September 30, 1986. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 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 Discovery Fund as of September 30, 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 eight-year period then ended and the period from
September 11, 1986 (commencement of operations) to September 30, 1986, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
October 21, 1994
<PAGE>
STATEMENT OF INVESTMENTS September 30, 1994
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
==========================================================
==========================================================
==============
<S> <C> <C>
REPURCHASE AGREEMENTS--20.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with The First Boston Corp., 4.70%, dated
9/30/94, to be repurchased at $15,005,875 on 10/3/94, collateralized
by U.S. Treasury Bills., 0%, 6/29/95, with a value of $15,318,945
(Cost $15,000,000) $ 15,000,000 $ 15,000,000
---------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
4.95%, dated 9/30/94, to be repurchased at $117,148,304
on 10/3/94, collateralized by U.S. Treasury Nts., 4.25%-8.50%,
4/15/95-7/15/98, with a value of $66,216,113 and U.S.
Treasury Bills, 0%, 3/16/95-3/23/95, with a value of $53,334,535
(Cost $117,100,000) 117,100,000 117,100,000
------------
Total Repurchase Agreements (Cost $132,100,000) 132,100,000
==========================================================
==========================================================
==============
CORPORATE BONDS AND NOTES--4.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Genesis Health Ventures, Inc., 6% Cv. Sr. Sub. Debs., 11/30/03 1,300,000 1,745,250
---------------------------------------------------------------------------------------------------------
IntelCom Group, Inc., 8% Cv. Sub. Debs., 9/24/98(2) 2,080,000 1,649,934
---------------------------------------------------------------------------------------------------------
IntelCom Group, Inc., 7% Cv. Sub. Nts., 10/30/98(2) 2,070,000 1,265,101
---------------------------------------------------------------------------------------------------------
Medaphis Corp., 6.50% Cv. Sub. Debs., 1/1/00(2) 4,000,000 5,465,000
---------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc., 8.25% Cv. Sub. Debs., 8/15/01(2) 1,000,000 1,140,000
---------------------------------------------------------------------------------------------------------
Physicians Clinical Laboratory, Inc., 7.50% Cv. Sub. Debs., 8/15/00(2) 4,000,000 4,160,000
---------------------------------------------------------------------------------------------------------
Sierra On-Line, Inc., 6.50% Sub. Nts., 4/1/01(2) 2,000,000 1,800,000
---------------------------------------------------------------------------------------------------------
Solectron Corp., 0% Liq. Yld. Opt. Sub. Nts., 5/5/12 12,000,000 6,765,000
---------------------------------------------------------------------------------------------------------
Tops Appliance City, Inc., 6.50% Cv. Sub. Debs., 11/30/03(2) 3,000,000 1,935,000
---------------------------------------------------------------------------------------------------------
United Gaming, Inc., 7.50% Cv. Sub. Debs., 9/15/03 920,000 769,350
------------
Total Corporate Bonds and Notes (Cost $25,979,497) 26,694,635
<CAPTION>
UNITS
==========================================================
==========================================================
==============
<S> <C> <C>
RIGHTS AND WARRANTS--0.1%
- ----------------------------------------------------------------------------------------------------------------------------------
China Aerospace International Holdings Ltd., Wts., Exp. 12/95 2,400,000 143,494
---------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc. Wts., Exp. 12/97 40,110 145,599
---------------------------------------------------------------------------------------------------------
Xoma Corp. Wts., Exp. 6/95 6,914 1,037
------------
Total Rights and Warrants (Cost $263,061) 290,130
<CAPTION>
SHARES
SUBJECT
DATE/PRICE TO PUT
==========================================================
==========================================================
==============
<S> <C> <C> <C>
PUT OPTIONS PURCHASED--1.2%
- ----------------------------------------------------------------------------------------------------------------------------------
S&P 100 Index, 11/21/94(1) Nov./$420.00 13,000 7,150,000
---------------------------------------------------------------------------------------------------------
NASDAQ 100 Stock Index, 11/21/94(1) Nov./$375.00 1,320 610,500
------------
Total Put Options Purchased (Cost $5,666,210) 7,760,500
<CAPTION>
SHARES
==========================================================
==========================================================
==============
<S> <C> <C>
COMMON STOCKS--76.5%
- ----------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--3.3%
- ----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS: SPECIALTY--0.7%
BAREFOOT, INC.(1) 280,000 4,550,000
- ----------------------------------------------------------------------------------------------------------------------------------
COPPER--0.7% Greenbrier Companies, Inc.(1) 240,000 4,410,000
- ----------------------------------------------------------------------------------------------------------------------------------
METALS: MISCELLANEOUS--0.1%
Addington Resources, Inc.(1) 50,000 662,500
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
STEEL--1.8% AK Steel Holding Corp.(1) 160,000 $ 5,200,000
---------------------------------------------------------------------------------------------------------
Reliance Steel & Aluminum Co.(1) 105,000 1,653,750
---------------------------------------------------------------------------------------------------------
Rouge Steel Co., Cl. A(1) 155,000 4,553,125
------------
11,406,875
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--21.0%
- ----------------------------------------------------------------------------------------------------------------------------------
AUTO PARTS: AFTER MARKET--0.4%
O'Reilly Automotive, Inc.(1) 100,000 2,500,000
- ----------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--1.7% Autotote Corp., Cl. A(1) 150,000 2,812,500
---------------------------------------------------------------------------------------------------------
Harveys Casinos Resorts 70,000 918,750
---------------------------------------------------------------------------------------------------------
Imax Corp.(1) 87,000 804,750
---------------------------------------------------------------------------------------------------------
Iwerks Entertainment, Inc.(1) 174,500 850,688
---------------------------------------------------------------------------------------------------------
Monarch Casino & Resort, Inc.(1) 150,000 1,106,250
---------------------------------------------------------------------------------------------------------
Players International, Inc.(1) 170,000 4,122,500
------------
10,615,438
- ----------------------------------------------------------------------------------------------------------------------------------
HOTELS/MOTELS--1.4% Hospitality Franchise Systems, Inc.(1) 295,000 9,255,625
- ----------------------------------------------------------------------------------------------------------------------------------
LEISURE TIME--1.5% Arctco, Inc. 192,500 3,657,500
---------------------------------------------------------------------------------------------------------
Mikohn Gaming Corp.(1) 50,000 525,000
---------------------------------------------------------------------------------------------------------
Outboard Marine Corp. 245,000 5,573,750
------------
9,756,250
- ----------------------------------------------------------------------------------------------------------------------------------
PUBLISHING--0.6% Marvel Entertainment Group, Inc.(1) 140,000 2,432,500
---------------------------------------------------------------------------------------------------------
Scientific Games Holdings Corp.(1) 35,000 1,461,250
------------
3,893,750
- ----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--5.4% Apple South, Inc. 525,000 9,318,750
---------------------------------------------------------------------------------------------------------
Applebee's International, Inc. 300,000 5,700,000
---------------------------------------------------------------------------------------------------------
DF & R Restaurants, Inc.(1) 145,000 4,096,250
---------------------------------------------------------------------------------------------------------
IHOP Corp.(1) 215,000 5,966,250
---------------------------------------------------------------------------------------------------------
Marcus Corp. (The) 110,000 3,011,250
---------------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc.(1) 220,000 6,242,500
------------
34,335,000
- ----------------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--5.6% Carson Pirie Scott & Co.(1) 100,000 2,112,500
---------------------------------------------------------------------------------------------------------
General Nutrition Cos., Inc.(1) 281,400 6,261,150
---------------------------------------------------------------------------------------------------------
GYMBOREE CORP(1) 200,000 5,950,000
---------------------------------------------------------------------------------------------------------
Hollywood Entertainment Corp.(1) 125,000 3,500,000
---------------------------------------------------------------------------------------------------------
Insurance Auto Auctions, Inc.(1) 200,000 6,850,000
---------------------------------------------------------------------------------------------------------
Jos. A. Banks Clothiers, Inc.(1) 90,000 607,500
---------------------------------------------------------------------------------------------------------
Men's Wearhouse, Inc.(1) 172,500 3,450,000
---------------------------------------------------------------------------------------------------------
Petco Animal Supplies, Inc.(1) 140,000 2,100,000
---------------------------------------------------------------------------------------------------------
Rex Stores Corp.(1) 190,000 3,823,750
---------------------------------------------------------------------------------------------------------
Ultimate Electronics, Inc.(1) 130,000 1,397,500
------------
36,052,400
</TABLE>
<PAGE> 6
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TEXTILES: APPAREL Authentic Fitness Corp.(1) 195,000 $ 3,022,500
MANUFACTURERS--4.4% ---------------------------------------------------------------------------------------------------------
CYGNE DESIGNS, INC.(1) 150,000 3,375,000
---------------------------------------------------------------------------------------------------------
Marisa Christina, Inc.(1) 200,000 2,725,000
---------------------------------------------------------------------------------------------------------
Mohawk Industries, Inc.(1) 145,000 2,211,250
---------------------------------------------------------------------------------------------------------
Nautica Enterprises, Inc.(1) 260,000 8,043,750
---------------------------------------------------------------------------------------------------------
Tommy Hilfiger Corp.(1) 232,600 9,042,325
------------
28,419,825
- ----------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--14.9%
- ----------------------------------------------------------------------------------------------------------------------------------
DRUGS--1.2% Roberts Pharmaceutical Corp.(1) 130,000 3,575,000
---------------------------------------------------------------------------------------------------------
Watson Pharmaceutical, Inc.(1) 167,600 4,231,900
------------
7,806,900
- ----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE: DIVERSIFIED--1.6%
TheraTx, Inc.(1) 220,000 3,836,250
---------------------------------------------------------------------------------------------------------
Value Health, Inc.(1) 135,000 6,480,000
------------
10,316,250
- ----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE: Cephalon, Inc.(1) 62,000 662,625
MISCELLANEOUS--5.3% ---------------------------------------------------------------------------------------------------------
COR Therapeutics, Inc.(1) 107,500 1,639,375
---------------------------------------------------------------------------------------------------------
Dentsply International, Inc. 160,000 5,480,000
---------------------------------------------------------------------------------------------------------
Ethical Holdings Ltd., Sponsored ADR(1) 320,000 2,640,000
---------------------------------------------------------------------------------------------------------
Genesis Health Ventures, Inc.(1) 144,000 4,086,000
---------------------------------------------------------------------------------------------------------
Genetic Therapy, Inc.(1) 116,300 901,325
---------------------------------------------------------------------------------------------------------
Horizon Healthcare Corp.(1) 267,300 7,317,338
---------------------------------------------------------------------------------------------------------
Martek Biosciences Corp.(1) 200,000 1,950,000
---------------------------------------------------------------------------------------------------------
Matrix Pharmaceutical, Inc.(1) 100,000 1,425,000
---------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc.(1) 130,380 1,849,766
---------------------------------------------------------------------------------------------------------
PerSeptive Technology II Corp., Units(1) 197,500 2,567,500
---------------------------------------------------------------------------------------------------------
Rural/Metro Corp.(1) 165,000 3,073,125
------------
33,592,054
- ----------------------------------------------------------------------------------------------------------------------------------
HOSPITAL MANAGEMENT--5.5%
American Medical Response, Inc.(1) 160,000 4,020,000
---------------------------------------------------------------------------------------------------------
Community Psychiatric Centers 400,000 5,450,000
---------------------------------------------------------------------------------------------------------
Lincare Holdings, Inc.(1) 125,000 2,906,250
---------------------------------------------------------------------------------------------------------
Mariner Health Group, Inc.(1) 258,500 5,412,344
---------------------------------------------------------------------------------------------------------
Medaphis Corp.(1) 130,000 4,712,500
---------------------------------------------------------------------------------------------------------
Ornda Healthcorp(1) 500,000 8,062,500
---------------------------------------------------------------------------------------------------------
Sun Healthcare Group, Inc.(1) 225,000 4,921,875
------------
35,485,469
- ----------------------------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS--1.3% MARQUETTE ELECTRONICS, INC., Cl. A(1) 80,000
1,520,000
---------------------------------------------------------------------------------------------------------
Medisense, Inc.(1) 250,000 4,406,250
---------------------------------------------------------------------------------------------------------
Steris Corp.(1) 100,000 2,650,000
------------
8,576,250
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY--3.8%
- ----------------------------------------------------------------------------------------------------------------------------------
OIL AND GAS DRILLING--3.0%
Basin Exploration, Inc.(1) 300,000 $ 3,375,000
---------------------------------------------------------------------------------------------------------
Cross Timbers Oil Co. 160,000 2,340,000
---------------------------------------------------------------------------------------------------------
Nabors Industries, Inc.(1) 500,000 3,062,500
---------------------------------------------------------------------------------------------------------
Newfield Exploration Co.(1) 80,000 1,970,000
---------------------------------------------------------------------------------------------------------
Noble Drilling Corp.(1) 300,000 2,250,000
---------------------------------------------------------------------------------------------------------
St. Mary Land & Exploration Co. 250,000 3,062,500
---------------------------------------------------------------------------------------------------------
Stone Energy Corp.(1) 200,000 3,475,000
------------
19,535,000
- ----------------------------------------------------------------------------------------------------------------------------------
OIL WELL SERVICES NUMAR Corp.(1) 120,000 1,642,500
AND EQUIPMENT--0.8% ---------------------------------------------------------------------------------------------------------
Weatherford International, Inc.(1) 260,000 3,217,500
------------
4,860,000
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--6.2%
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: Credit Depot Corp.(1) 38,500 269,500
MISCELLANEOUS--3.9% ---------------------------------------------------------------------------------------------------------
First USA, Inc. 135,000 4,741,875
---------------------------------------------------------------------------------------------------------
Foothill Group, Inc. (The), Cl. A 350,000 5,206,250
---------------------------------------------------------------------------------------------------------
Green Tree Financial Corp. 355,300 9,548,688
---------------------------------------------------------------------------------------------------------
Olympic Financial Ltd.(1) 260,000 1,365,000
---------------------------------------------------------------------------------------------------------
Servicios Financieros Quadrun SA,Sponsored ADR(1) 120,000 1,950,000
---------------------------------------------------------------------------------------------------------
TFC Enterprises, Inc.(1) 170,000 2,210,000
------------
25,291,313
- ----------------------------------------------------------------------------------------------------------------------------------
INSURANCE: LIFE--0.6% Physicians Health Services, Inc., Cl. A(1) 165,800 3,771,950
- ----------------------------------------------------------------------------------------------------------------------------------
INSURANCE: MULTI-LINE--0.6%
CCP Insurance, Inc. 170,000 3,888,750
- ----------------------------------------------------------------------------------------------------------------------------------
INSURANCE: PROPERTY Mid Ocean Ltd.(1) 59,300 1,501,031
AND CASUALTY--0.8% ---------------------------------------------------------------------------------------------------------
Vesta Insurance Group, Inc. 125,000 3,312,500
------------
4,813,531
- ----------------------------------------------------------------------------------------------------------------------------------
SAVINGS AND LOANS/ Metropolitan Bancorp. 165,000 1,856,250
HOLDINGS COS.--0.3%
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--8.6%
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS GROUP--1.8%
BMC West Corp.(1) 310,000 4,940,625
---------------------------------------------------------------------------------------------------------
Centex Construction Products, Inc.(1) 257,000 3,212,500
---------------------------------------------------------------------------------------------------------
Giant Cement Holding, Inc.(1) 240,000 3,360,000
------------
11,513,125
- ----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES--1.1%
Dimac Corp.(1) 170,000 2,082,500
---------------------------------------------------------------------------------------------------------
Fusion Systems Corp.(1) 150,000 4,865,625
------------
6,948,125
- ----------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.7%
AER Energy Resources, Inc.(1) 268,000 2,010,000
---------------------------------------------------------------------------------------------------------
Kent Electronics Corp.(1) 90,000 3,195,000
---------------------------------------------------------------------------------------------------------
Oak Industries, Inc.(1) 235,000 5,786,875
------------
10,991,875
</TABLE>
<PAGE> 8
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MACHINERY: DIVERSIFIED--1.3%
Duracraft Corp.(1) 90,000 $ 3,060,000
---------------------------------------------------------------------------------------------------------
Novellus Systems, Inc.(1) 110,000 5,197,500
------------
8,257,500
- ----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING: Johnstown America Industries, Inc.(1) 215,000 5,751,250
DIVERSIFIED INDUSTRIALS--0.9%
- ----------------------------------------------------------------------------------------------------------------------------------
POLLUTION CONTROL--1.0% United Waste Systems, Inc.(1) 270,000
6,682,500
- ----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: Fritz Cos., Inc.(1) 138,000 4,899,000
MISCELLANEOUS--0.8%
- ----------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--18.7%
- ----------------------------------------------------------------------------------------------------------------------------------
COMMUNICATION--1.6% Aspect Telecommunications Corp.(1) 95,000
3,610,000
---------------------------------------------------------------------------------------------------------
Glenayre Technologies, Inc.(1) 115,000 6,641,250
------------
10,251,250
- ----------------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE Acxiom Corp.(1) 125,000 3,562,500
AND SERVICES--9.5% ---------------------------------------------------------------------------------------------------------
CUC International, Inc.(1) 150,000 4,950,000
---------------------------------------------------------------------------------------------------------
Cornerstone Imaging, Inc.(1) 197,000 4,087,750
---------------------------------------------------------------------------------------------------------
Davidson & Associates, Inc.(1) 100,000 2,000,000
---------------------------------------------------------------------------------------------------------
EMC Corp.(1) 520,000 10,465,000
---------------------------------------------------------------------------------------------------------
FTP Software, Inc.(1) 168,700 4,038,256
---------------------------------------------------------------------------------------------------------
HBO & Co. 260,000 8,840,000
---------------------------------------------------------------------------------------------------------
Medicus Systems Corp. 120,000 1,770,000
---------------------------------------------------------------------------------------------------------
Oracle Systems Corp.(1) 84,400 3,629,200
---------------------------------------------------------------------------------------------------------
Project Software & Development, Inc.(1) 150,000 2,025,000
---------------------------------------------------------------------------------------------------------
Proxima Corp.(1) 95,000 2,470,000
---------------------------------------------------------------------------------------------------------
Pyxis Corp.(1) 300,000 7,350,000
---------------------------------------------------------------------------------------------------------
SPSS, Inc.(1)(3) 300,000 2,887,500
---------------------------------------------------------------------------------------------------------
Sierra On-Line, Inc.(1) 98,800 2,025,400
---------------------------------------------------------------------------------------------------------
Softkey International, Inc.(1) 45,000 669,375
------------
60,769,981
- ----------------------------------------------------------------------------------------------------------------------------------
COMPUTER SYSTEMS--1.2% BancTec, Inc.(1) 180,000 4,455,000
---------------------------------------------------------------------------------------------------------
Planar Systems, Inc.(1) 212,500 3,028,125
------------
7,483,125
- ----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS: Gentex Corp.(1) 180,000 4,275,000
INSTRUMENTATION--3.5% ---------------------------------------------------------------------------------------------------------
Recoton Corp.(1) 370,000 6,012,500
---------------------------------------------------------------------------------------------------------
Sanmina Corp.(1) 158,800 3,850,900
---------------------------------------------------------------------------------------------------------
Symbol Technologies, Inc.(1) 265,000 8,082,500
------------
22,220,900
- ----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS: Advanced Technology Materials, Inc.(1) 172,200 1,248,450
SEMICONDUCTORS--1.5% ---------------------------------------------------------------------------------------------------------
Dallas Semiconductor Corp.(1) 85,000 1,317,500
---------------------------------------------------------------------------------------------------------
Lam Research Corp.(1) 150,000 6,037,500
---------------------------------------------------------------------------------------------------------
MRS Technology, Inc.(1) 162,900 1,343,925
------------
9,947,375
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS--1.4% Intertel Communications, Inc.(1) 150,000 $
1,959,375
---------------------------------------------------------------------------------------------------------
Intertel Communications, Inc.(1)(2) 22,500 256,781
---------------------------------------------------------------------------------------------------------
LCI International, Inc.(1) 346,600 6,737,037
------------
8,953,193
------------
Total Common Stocks (Cost $393,850,609) 490,320,579
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $557,859,377) 102.6%
657,165,844
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (2.6) (16,740,987)
------- ------------
NET ASSETS 100.0% $640,424,857
------- ------------
</TABLE>
1. Non-income-producing security.
2. Restricted security--See Note 5 of Notes to
Financial Statements.
3. Affiliated company. Represents ownership of at
least 5% of the voting securities of the issuer and is
or was an affiliate, as defined in the Investment
Company Act of 1940, at or during the year ended
September 30, 1994. The aggregate fair value of all
securities of affiliated companies as of September 30,
1994 amounted to $2,887,500. Transactions during the
period in which the issuer was an affiliate are as
follows:
<TABLE>
<CAPTION>
BALANCE BALANCE
SEPTEMBER 30, 1993 GROSS ADDITIONS GROSS REDUCTIONS
SEPTEMBER 30, 1994
------------------ --------------- ------------------- ------------------
SHARES COST SHARES COST SHARES COST SHARES
COST
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
LifeQuest Medical, Inc. 200,000 $2,011,250 -- $-- 200,000 $2,011,250 -- $ --
----------------------------------------------------------------------------------------------------------
OCTUS, Inc., Units 270,000 1,665,312 -- -- 270,000 1,665,313 -- --
----------------------------------------------------------------------------------------------------------
SPSS, Inc. 300,000 2,400,000 -- -- -- -- 300,000 2,400,000
---------- ---------- ----------
$6,076,562 $3,676,563 $2,400,000
========== ==========
==========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES September 30, 1994
<TABLE>
<S> <C> <C>
==========================================================
==========================================================
===============
ASSETS Investments, at value (including repurchase agreements of $132,100,000)
(cost $557,859,377)--see accompanying statement $657,165,844
----------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 19,463,678
Shares of beneficial interest sold 5,010,887
Dividends and interest 457,381
----------------------------------------------------------------------------------------------------------
Other 21,919
------------
Total assets 682,119,709
==========================================================
==========================================================
===============
LIABILITIES Bank overdraft 900,946
----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 34,939,205
Options written, at value (premiums received $2,540,763)--Note 6 3,006,250
Shares of beneficial interest redeemed 1,940,411
Distribution and service plan fees--Note 4 366,268
Other 541,772
------------
Total liabilities 41,694,852
==========================================================
==========================================================
===============
NET ASSETS $640,424,857
============
==========================================================
==========================================================
===============
COMPOSITION OF Paid-in capital $516,189,957
NET ASSETS ----------------------------------------------------------------------------------------------------------
Accumulated net investment loss (115,587)
----------------------------------------------------------------------------------------------------------
Accumulated net realized gain from investment and written option transactions 25,509,507
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 98,840,980
------------
Net assets $640,424,857
============
==========================================================
==========================================================
===============
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $613,740,255 and 17,138,714 shares of beneficial interest outstanding) $35.81
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $37.99
----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $26,491,076 and 742,983 shares of beneficial interest outstanding) $35.65
----------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $193,526 and 5,404 shares of beneficial interest outstanding) $35.81
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 11
STATEMENT OF OPERATIONS For the Year Ended September 30, 1994
<TABLE>
<S> <C>
==========================================================
==========================================================
===============
INVESTMENT INCOME Interest $ 4,730,334
----------------------------------------------------------------------------------------------------------
Dividends 1,115,071
------------
Total income 5,845,405
==========================================================
==========================================================
===============
EXPENSES Management fees--Note 4 4,280,597
----------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 1,429,769
Class B--Note 4 61,551
Class Y--Note 4 1
----------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 1,083,640
----------------------------------------------------------------------------------------------------------
Shareholder reports 354,806
----------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 241,347
----------------------------------------------------------------------------------------------------------
Custodian fees 149,355
----------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 26,857
Class B 7,978
Class Y 63
----------------------------------------------------------------------------------------------------------
Legal and auditing fees 65,346
----------------------------------------------------------------------------------------------------------
Other 188,280
------------
Total expenses 7,889,590
==========================================================
==========================================================
===============
NET INVESTMENT LOSS (2,044,185)
==========================================================
==========================================================
===============
REALIZED AND UNREALIZED Net realized gain on investments
28,310,742
GAIN (LOSS) ON INVESTMENTS
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (71,924,513)
------------
Net realized and unrealized loss on investments (43,613,771)
==========================================================
==========================================================
===============
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(45,657,956)
============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 12
STATEMENTS OF CHANGES IN NET ASSET
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994 1993
==========================================================
==========================================================
===============
<S> <C> <C> <C>
OPERATIONS Net investment loss $ (2,044,185) $ (2,412,387)
----------------------------------------------------------------------------------------------------------
Net realized gain on investments 28,310,742 19,651,352
----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (71,924,513) 140,464,453
------------ ------------
Net increase (decrease) in net assets resulting from operations (45,657,956) 157,703,418
==========================================================
==========================================================
===============
DISTRIBUTIONS Distributions from net realized gain on investments:
TO SHAREHOLDERS Class A ($1.00 per share) (15,359,681) --
==========================================================
==========================================================
===============
BENEFICIAL INTEREST Net increase in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2 88,455,074 135,344,010
----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 25,739,503 --
----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class Y
beneficial interest transactions--Note 2 190,922 --
==========================================================
==========================================================
===============
NET ASSETS Total increase 53,367,862 293,047,428
----------------------------------------------------------------------------------------------------------
Beginning of year 587,056,995 294,009,567
------------ ------------
End of year [including accumulated net investment
losses of ($115,587) and ($3,803,286), respectively] $640,424,857 $587,056,995
============
============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 39.90 $ 27.62 $ 26.03 $ 17.97 $ 24.51 $ 17.62
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .26 (.13) (.17) .06 .16 .29
Net realized and unrealized gain (loss)
on investments and options written (3.35) 12.41 3.05 8.87 (4.84) 6.74
-------- -------- -------- -------- ------- --------
Total income (loss) from
investment operations (3.09) 12.28 2.88 8.93 (4.68) 7.03
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income -- -- -- (.19) (.30) (.14)
Distributions from net realized gain
on investments and options written (1.00) -- (1.29) (.68) (1.56) --
-------- -------- -------- -------- ------- --------
Total dividends and
distributions to shareholders (1.00) -- (1.29) (.87) (1.86) (.14)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 35.81 $ 39.90 $ 27.62 $ 26.03 $ 17.97 $ 24.51
======== ======== ======== ========
======= ========
==========================================================
==========================================================
===========
TOTAL RETURN, AT NET ASSET VALUE(4) (7.91)% 44.46% 11.28% 51.88% (20.34)%
40.23%
==========================================================
==========================================================
===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $613,740 $587,057 $294,010 $117,110 $50,357 $ 53,793
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $588,642 $451,016 $218,065 $ 75,083 $54,454 $ 40,641
- -------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 17,139 14,713 10,647 4,499 2,802 2,195
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (.34)% (.54)% (.62)% .22% .83% 1.52%
Expenses 1.32% 1.27% 1.52% 1.42% 1.53% 1.46%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 83.3% 85.2% 67.9% 158.1% 234.6% 132.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS Y
---------------------------------------- ---------------------------------
YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1988 1987 1986(3) 1994(2) 1994(1)
==========================================================
==========================================================
===========
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.49 $ 14.21 $14.29 $ 35.65 $34.89
Income (loss) from investment operations:
Net investment income (loss) .14 .02 .02 .03 .11
Net realized and unrealized gain (loss)
on investments and options written (1.98) 7.28 (.10) (.03) .81
------- ------- ------ ------- ------
Total income (loss) from
investment operations (1.84) 7.30 (.08) -- .92
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.05) (.02) -- -- --
Distributions from net realized gain
on investments and options written (1.98) -- -- -- --
------- ------- ------ ------- ------
Total dividends and
distributions to shareholders (2.03) (.02) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.62 $ 21.49 $14.21 $ 35.65 $35.81
======= ======= ====== =======
======
==========================================================
==========================================================
===========
TOTAL RETURN, AT NET ASSET VALUE(4) (7.11)% 51.08% (.56)% (1.93)%
3.20%
==========================================================
==========================================================
===========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $33,361 $35,834 $1,353 $26,491 $ 194
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $32,089 $21,439 $1,173 $12,435 $ 39
- -------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 1,894 1,667 95 743 5
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) .80% .19% 3.55%(5) (1.06)%(5) (.13)%(5)
Expenses 1.52% 1.74% 1.50%(5) 2.36%(5) 1.41%(5)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 169.0% 145.4% 0.0% 83.3% 83.3%
</TABLE>
(1) For the period from June 1, 1994 (inception of offering) to September 30,
1994.
(2) For the period from April 1, 1994 (inception of offering) to September 30,
1994.
(3) For the period from September 11, 1986 (commencement of operations) to
September 30, 1986.
(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 September 30, 1994 were $428,361,291 and $431,915,878,
respectively.
See accompanying Notes to Financial Statements.
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
==========================================================
=====================
1. SIGNIFICANT
ACCOUNTING POLICIES Oppenheimer Discovery 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
Class A, Class B and Class Y shares. Class A shares
are sold with a front-end sales charge. Class B shares
may be subject to a contingent deferred sales charge.
All three classes of shares have identical rights to
earnings, assets and voting privileges, except that
each class has its own expenses directly attributable
to a particular class and exclusive voting rights with
respect to matters affecting a single class. Classes A
and B have separate distribution and/or service plans.
Class B shares will automatically convert to Class A
shares six years after the date of purchase. The
following is a summary of significant accounting
policies consistently followed by the Fund.
------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued
at 4:00 p.m. (New York time) on each trading day.
Listed and unlisted securities for which such
information is regularly reported are valued at the
last sale price of the day or, in the absence of
sales, at values based on the closing bid or asked
price or the last sale price on the prior trading day.
Long-term debt securities are valued by a portfolio
pricing service approved by the Board of Trustees.
Long-term debt securities which cannot be valued by
the approved portfolio pricing service are valued by
averaging the mean between the bid and asked prices
obtained from two active market makers in such
securities. Short-term debt securities having a
remaining maturity of 60 days or less are valued at
cost (or last determined market value) adjusted for
amortization to maturity of any premium or discount.
Securities for which market quotes are not readily
available are valued under procedures established by
the Board of Trustees to determine fair value in good
faith. An option is valued based upon the last sales
price on the principal exchange on which the option is
traded or, in the absence of any transactions that
day, the value is based upon the last sale on the
prior trading date if it is within the spread between
the closing bid and asked prices. If the last sale
price is outside the spread, the closing bid or asked
price closest to the last reported sale price is used.
------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records
of the Fund are maintained in U.S. dollars. Prices of
securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of
securities and investment income are translated at the
rates of exchange prevailing on the respective dates
of such transactions.
The Fund generally enters into forward
currency exchange contracts as a hedge, upon the
purchase or sale of a security denominated in a
foreign currency. Risks may arise from the potential
inability of the counterparty to meet the terms of the
contract and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar.
The effect of changes in foreign currency
exchange rates on investments is separately identified
from the fluctuations arising from changes in market
values of securities held and reported with all other
foreign currency gains and losses in the Fund's
results of operations.
------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian
to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all
securities held as collateral for repurchase
agreements. If the seller of the agreement defaults
and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of
the value of the collateral by the Fund may be delayed
or limited.
------------------------------------------------------
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 September 30,
1994, the Fund had available for federal income tax
purposes an unused capital loss carryover of
approximately $1,875,000 expiring in 1995, the usage
of which is subject to certain limitations.
<PAGE> 15
==========================================================
=====================
1. SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED) 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.
The accumulated liability for the Fund's projected
benefit obligations was $117,741 at September 30,
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 FOR DISTRIBUTIONS TO
SHAREHOLDERS. Effective October 1, 1993, 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 September 30, 1993, amounts
have been reclassified to reflect a decrease in
paid-in capital of $2,004,732, a decrease in
undistributed net investment loss of $3,682,108, and a
decrease in undistributed capital gain on investments
of $1,677,376. During the year ended September 30,
1994, in accordance with Statement of Position 93-2,
undistributed net investment loss was decreased by
$2,049,776, undistributed capital gain was decreased
by $68,230 and paid-in capital was decreased by
$1,981,546.
------------------------------------------------------
OTHER. Investment transactions are accounted for on
the date the investments are purchased or sold (trade
date) and dividend income is recorded on the
ex-dividend date. Discount on securities purchased is
amortized over the life of the respective securities,
in accordance with federal income tax requirements.
Realized gains and losses on investments and
unrealized appreciation and depreciation are
determined on an identified cost basis, which is the
same basis used for federal income tax purposes.
==========================================================
=====================
2. SHARES OF
BENEFICIAL INTEREST The Fund has authorized an unlimited number of no par
value shares of beneficial interest of each class.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994(1) YEAR ENDED SEPTEMBER
30, 1993
-------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 10,323,810 $381,892,840 10,406,503 $349,688,611
Distributions reinvested 384,457 14,724,695 -- --
Redeemed (8,282,662) (308,162,461) (6,339,986) (214,344,601)
---------- ------------ ---------- ------------
Net increase 2,425,605 $ 88,455,074 4,066,517 $135,344,010
========== ============
========== ============
----------------------------------------------------------------------------------------------------------
Class B:
Sold 961,766 $ 33,185,516 -- $ --
Redeemed (218,783) (7,446,013) -- --
---------- ------------ ---------- ------------
Net increase 742,983 $ 25,739,503 -- $ --
========== ============
========== ============
----------------------------------------------------------------------------------------------------------
Class Y:
Sold 5,405 $ 190,967 -- $ --
Redeemed (1) (45) -- --
---------- ------------ ---------- ------------
Net increase 5,404 $ 190,922 -- $ --
========== ============
========== ============
</TABLE>
1. For the year ended September 30, 1994 for Class A
shares, for the period from April 1, 1994 (inception
of offering) to September 30, 1994 for Class B shares,
and for the period from June 1, 1994 (inception of
offering) to September 30, 1994 for Class Y shares.
==========================================================
=====================
3. UNREALIZED GAINS AND
LOSSES ON At September 30, 1994, net unrealized appreciation on
INVESTMENTS investments and options written of $98,840,980 was
composed of gross appreciation of $121,752,992, and
gross depreciation of $22,912,012.
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (Continued)
==========================================================
=====================
4. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES Management fees paid to the Manager were in accordance
with the investment advisory agreement with the Fund
which provides for an annual fee of .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 September 30, 1994,
commissions (sales charges paid by investors) on sales
of Fund shares totaled $5,199,808, of which $1,699,406
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 September 30, 1994, OFDI
received contingent deferred sales charges of $6,595
upon redemption of Class B 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, Class A and
Class B 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, including
amounts paid to brokers, dealers, banks and other
financial institutions. In addition, Class B 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 B 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 B shares sold
prior to termination or discontinuance of the plan.
During the year ended September 30, 1994, OFDI paid
$92,564 to an affiliated broker/dealer as
reimbursement for Class A personal service and
maintenance expenses and retained $61,551 as
reimbursement for Class B sales commissions and
service fee advances, as well as financing costs.
==========================================================
=====================
5. 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. Restricted
and illiquid securities, excluding securities eligible
for resale pursuant to Rule 144A of the Act amount to
$17,671,816, or 2.8% of the Fund's net assets, at
September 30, 1994. 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 SEPTEMBER
30, 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IntelCom Group, Inc., 7% Cv. Sub. Nts., 10/30/98 10/26/93-10/27/93 $ 99.75 $ 61.12
---------------------------------------------------------------------------------------------------------
IntelCom Group, Inc., 8% Cv. Sub. Debs., 9/24/98 9/24/93 $100.00 $ 79.32
---------------------------------------------------------------------------------------------------------
Intertel Communications, Inc. 1/10/94 $ 13.89 $ 11.41
---------------------------------------------------------------------------------------------------------
Medaphis Corp., 6.50% Cv. Sub. Nts., 1/1/00 9/28/94 $117.25 $136.63
---------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc., 8.25% Cv. Sub. Debs.,
8/15/01 8/19/94 $100.00 $114.00
---------------------------------------------------------------------------------------------------------
Physicians Clinical Laboratory, Inc., 7.50% Cv. Sub.
Debs., 8/15/00 1/13/94 $101.00 $104.00
---------------------------------------------------------------------------------------------------------
Sierra On-Line, Inc., 6.50% Sub. Nts., 4/1/01 4/13/94 $100.00 $ 90.00
---------------------------------------------------------------------------------------------------------
Tops Appliance City, Inc., 6.50% Cv. Sub. Debs.,
11/30/03 11/26/93 $100.00 $ 64.50
</TABLE>
==========================================================
=====================
6. PUT OPTION ACTIVITY Put option activity for the year ended September 30,
1994 was as follows:
<TABLE>
<CAPTION>
NUMBER AMOUNT OF
PUT OPTION ACTIVITY OF OPTIONS PREMIUMS
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at September 30, 1993 -- $ --
Options written 13,000 2,540,763
Options expired prior to exercise -- --
Options exercised -- --
------ ----------
Options outstanding at September 30, 1994 13,000 $2,540,763
====== ==========
</TABLE>
At September 30, 1994, the Fund had outstanding put
options written with an expiration date of 11/21/94
and an exercise price of 405. The market value was
$3,006,250.
<PAGE>
Appendix
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
Food
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
<PAGE>
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 Agent 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
