Oppenheimer
Discovery Fund
Prospectus dated October 1, 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.
Some of the Fund's investment techniques may be considered
speculative. These techniques 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.
Please refer to "Investment Objective and Policies" for more
information about the types of securities the Fund invests in and the
risks of investing in the Fund.
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 October 1, 1995 Statement of Additional Information.
For a free copy, call Oppenheimer Shareholder Services, the Fund's
Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent at
the address on the back cover. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and
is incorporated into this Prospectus by reference (which means that it
is legally part of this Prospectus).
(OppenheimerFunds logo)
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
4 Expenses
6 A Brief Overview of the Fund
7 Financial Highlights
10 Investment Objective and Policies
18 How the Fund is Managed
20 Performance of the Fund
ABOUT YOUR ACCOUNT
24 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
36 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
38 How to Sell Shares
By Mail
By Telephone
40 How to Exchange Shares
42 Shareholder Account Rules and Policies
44 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 22 through 33, for an explanation of how and when these
charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
Shares Shares Shares Shares
-------- -------- -------- --------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases
(as a % of offering price) 5.75% None None None
Sales Charge on Reinvested Dividends None None None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds) None(1) 5% in the 1% if shares None
first year, are redeemed
declining to within 12
1% in the months of
sixth year purchase(2)
and eliminated
thereafter(2)
Exchange Fee None None None None
<FN>
___________________
(1) If you invest $1 million or more ($500,000 or more for purchases
by OppenheimerFunds prototype 401(k) plans) 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) See "How to Buy Shares - Class B Shares" and "How to Buy Shares -
Class C Shares," below, for more information on the contingent deferred
sales charges.
</TABLE>
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For
example, the Fund pays management fees to its investment adviser,
Oppenheimer Management Corporation (which is referred to in this
Prospectus as the "Manager"). The rates of the Manager's fees are set
forth in "How the Fund is Managed," below. The Fund has other regular
expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds 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 and
Class C shares the 12b-1 Distribution Plan Fees are the service plan
fees and asset-based sales charges. The service fee for each class is
0.25% of average annual net assets of the class and the asset-based
sales charge for Class B and Class C shares is 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, Class Y shares did not become available until June 1,
1994 and Class C shares were not publicly offered during the fiscal
year ended September 30, 1994. Therefore the Annual Fund Operating
Expenses shown for Class B and Class Y shares are based on expenses for
the periods from the inception dates until September 30, 1994, and the
Annual Fund Operating Expenses for Class C shares are estimates based
on amounts that would have been payable in that period assuming that
Class C shares were outstanding during such fiscal year.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
Shares Shares Shares Shares
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fees 0.72% 0.72% 0.72% 0.72%
12b-1 Distribution or
Service Plan Fees 0.24% 1.00% 1.00% None
Other Expenses 0.35% 0.64% 0.64% 0.69%
Total Fund Operating
Expenses 1.32% 2.36% 2.36% 1.41%
</TABLE>
- 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:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Class A Shares $70 $97 $126 $207
Class B Shares $74 $104 $146 $220
Class C Shares $34 $74 $126 $270
Class Y Shares $14 $45 $77 $169
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years*
------ ------- ------- ---------
Class A Shares $70 $97 $126 $207
Class B Shares $24 $74 $126 $220
Class C Shares $24 $74 $126 $270
Class Y Shares $14 $45 $77 $169
<FN>
______________________
* 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. Because of the
asset-based sales charge and the contingent deferred sales charge on
Class B and Class C shares, long-term Class B and Class C shareholders
could pay the economic equivalent of an amount greater than the maximum
front-end sales charge allowed under applicable regulatory
requirements. For Class B shareholders, 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.
</TABLE>
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 in the Fund. Keep
the Prospectus for reference after you invest, particularly for
information about your account, such as how to sell or exchange shares.
- What Is The Fund's Investment Objective? The Fund's investment
objective is 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 10.
- Who Manages the Fund? The Fund's investment advisor is
Oppenheimer Management Corporation (the "Manager"), which (including a
subsidiary) manages investment company portfolios having over $35
billion in assets as of June 30, 1995. 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 17 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 is generally more volatile than
the other stock funds and growth and income funds because it invests
for capital appreciation in common stocks emphasizing "growth" stocks
that tend to be more volatile than other investments. While the
Manager tries to reduce risks by diversifying investments, by carefully
researching securities before they are purchased for the portfolio, and
in some cases by using hedging techniques, there is no guarantee of
success in achieving the Fund's objective and your shares may be worth
more or less than their original cost when you redeem them. Please
refer to "Investment Objective and Policies" starting on page 10 for a
more complete discussion of the Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
on page 22 for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund offers the
individual investor three classes of shares. All classes have the same
investment portfolio but different expenses. Class A shares are
offered with a front-end sales charge, starting at 5.75%, and reduced
for larger purchases. Class B and Class C shares are offered without a
front-end sales charge, but may be subject to a contingent deferred
sales charge if redeemed within 6 years or 12 months, respectively, of
buying them. There is also an annual asset-based sales charge on Class
B and Class C shares. Please review "How to Buy Shares" starting on
page 22 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 35. The
Fund also offers exchange privileges to other OppenheimerFunds,
described in "How to Exchange Shares" on page 37.
- How Has the Fund Performed? The Fund measures its performance by
quoting its average annual total returns and cumulative total returns,
which measure historical performance. Those returns can be compared to
the returns (over similar periods) of other funds. Of course, other
funds may have different objectives, investments, and levels of risk.
The Fund's performance can also be compared to broad market indices,
which we have done on page 20. Please remember that past performance
does not guarantee future results.
<PAGE>
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data 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, together with the Fund's unaudited
financial statements for the six months ended March 31, 1995. Class B
and Class Y shares were publicly offered only during a portion of the
Fund's fiscal year ended September 30, 1994, commencing April 1, 1994
and June 1, 1994, respectively. Class C shares were not publicly
offered during the periods shown. Accordingly, no information on Class
C shares is reflected in the table below or in the Fund's financial
statements.
<TABLE>
<CAPTION>
Class A
-------
- -------------------------------------------------------------------------------
Six Months Year
Ended Ended
Mar. 31, 1995 Sept. 30,
(Unaudited) 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value,
beginning of period $ 35.81 $ 39.90 $ 27.62 $ 26.03 $ 17.97 $ 24.51 $ 17.62
--------- --------- --------- --------- --------- --------- ------
Income (loss) from
investment operations:
Net investment income (loss) (.03) .26 (.13) (.17) .06 .16 .29
Net realized and unrealized
gain (loss) on investments
and options written 1.20 (3.35) 12.41 3.05 8.87 (4.48) 6.74
--------- --------- --------- --------- --------- --------- ------
Total income (loss) from
investment operations 1.17 (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 (1.62) (1.00) -- (1.29) (.68) (1.56) --
--------- --------- --------- --------- --------- --------- ------
Total dividends and
distributions to
shareholders (1.62) (1.00) -- (1.29) (.87) (1.86) (.14)
--------- --------- --------- --------- --------- --------- ------
Net asset value, end
of period $ 35.36 $ 35.81 $ 39.90 $ 27.62 $ 26.03 $ 17.97 $ 24.51
========= ========= ========= =========
========= ========= ======
Total Return, at Net
Asset Value(4) 3.71% (7.91)% 44.46% 11.28% 51.88% (20.34)% 40.23%
--------- --------- --------- --------- --------- --------- ------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $ 643,287 $ 613,740 $ 587,057 $ 294,010 $ 117,110 $ 50,357 $53,793
--------- --------- --------- --------- --------- --------- ------
Average net assets
(in thousands) $ 603,467 $ 588,642 $ 451,016 $ 218,065 $ 75,083 $ 54,454 $40,641
--------- --------- --------- --------- --------- --------- ------
Number of shares
outstanding at end of
period (in thousands) 18,191 17,139 14,713 10,647 4,499 2,802 2,195
--------- --------- --------- --------- --------- --------- ------
Ratios to average net assets:
Net investment income (loss) (.18)%(5) (.34)% (.54)% (.62)% .22% .83% 1.52%
Expenses 1.51%(5) 1.32% 1.27% 1.52% 1.42% 1.53% 1.46%
--------- --------- --------- --------- --------- --------- ------
Portfolio turnover rate 41.1%(7) 83.3%(6) 85.2% 67.9% 158.1% 234.6%
132.0%
(Continued) Class B Class Y
---------------------------------- ---------------------------------------------------------
Year Six Months Period Six Months Period
Ended Ended Ended Ended Ended
Sept. 30, Mar. 31, 1995 Sept. 30, Mar. 31, 1995 Sept. 30,
1988 1987 1986(3) (Unaudited) 1994(2) (Unaudited) 1994(1)
-------- -------- -------- -------- -------- -------- ------
Per Share Operating Data:
Net asset value,
beginning of period $ 21.49 $ 14.21 $ 14.29 $ 35.65 $ 35.65 $ 35.81 $ 34.89
-------- -------- -------- -------- -------- -------- ------
Income (loss) from
investment operations:
Net investment income (loss) .14 .02 .02 (.13) .03 (.07) .11
Net realized and unrealized
gain (loss) on investments
and options written (1.98) 7.28 (.10) 1.17 (.03) 1.32 .81
-------- -------- -------- -------- -------- -------- ------
Total income (loss) from
investment operations (1.84) 7.30 (.08) 1.04 -- 1.25 .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) -- -- (1.62) -- (1.62) --
-------- -------- -------- -------- -------- -------- ------
Total dividends and
distributions to
shareholders (2.03) (.02) -- (1.62) -- (1.62) --
-------- -------- -------- -------- -------- -------- ------
Net asset value, end
of period $ 17.62 $ 21.49 $ 14.21 $ 35.07 $ 35.65 $ 35.44 $ 35.81
======== ======== ======== ========
======== ======== ======
Total Return, at Net
Asset Value(4) (7.11)% 51.08% (.56)% 3.35% (1.93)% 3.94% 3.20%
-------- -------- -------- -------- -------- -------- ------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $ 33,361 $ 35,834 $ 1,353 $ 41,548 $ 26,491 $ 2,403 $ 194
-------- -------- -------- -------- -------- -------- ------
Average net assets
(in thousands) $ 32,089 $ 21,439 $ 1,173 $ 31,699 $ 12,435 $ 1,003 $ 39
-------- -------- -------- -------- -------- -------- ------
Number of shares
outstanding at end of
period (in thousands) 1,894 1,667 95 1,185 743 68 5
-------- -------- -------- -------- -------- -------- ------
Ratios to average net assets:
Net investment income (loss) .80% .19% 3.55%(5) (.89)%(5) (1.06)%(5) .40%(5)
(.13)%(5)
Expenses 1.52% 1.74% 1.50%(5) 2.25%(5) 2.36%(5) 1.08%(5)
1.41%(5)
-------- -------- -------- -------- -------- -------- ------
Portfolio turnover rate 169.0% 145.4% 0.0% 41.1%(7) 83.3%(6) 41.1%(7)
83.3%(6)
</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. Total returns are not annualized for periods of less than one
full year.
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.
7. 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 six months ended
March 31, 1995 were $224,844,248 and $220,398,301, respectively.
<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 Statement of Additional Information 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.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's
Board of Trustees may change non-fundamental policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus.
- 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.
- Stock Investment Risks. Because the Fund normally invests most,
or a substantial portion, of its assets in stocks, the value of the
Fund's portfolio will be affected by changes in the stock markets. At
times, the stock markets can be volatile, and stock prices can change
substantially. This market risk will affect the Fund's net asset
values per share, which will fluctuate as the values of the Fund's
portfolio securities change. Not all stock prices change uniformly or
at the same time, not all stock markets move in the same direction at
the same time, and other factors can affect a particular stock's prices
(for example, poor earnings reports by an issuer, loss of major
customers, major litigation against an issuer, or changes in government
regulations affecting an industry). Not all of these factors can be
predicted.
As discussed below, the Fund attempts to limit market risks by
diversifying its investments, that is, by not holding a substantial
amount of stock of any one company and by not investing too great a
percentage of the Fund's assets in any one company.
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 investment
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 investment. Because changes in securities market prices
can occur at any time, there is no assurance that the Fund will achieve
its investment objective, and when you redeem your shares, they may be
worth more or less than what you paid for them.
- 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 brokers,
dealers and other financial institutions. The Fund must receive
collateral for a loan. These loans are limited to not more than 25% of
the value of the Fund's net assets and are subject to the conditions
described in the Statement of Additional Information. 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. 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. 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.
- Derivative Investments. In general, a "derivative investment" is
a specially-designed investment. Its performance is linked to the
performance of another investment or security, such as an option,
future, index or currency. The Fund can invest in a number of
different kinds of "derivative investments." They are used in some
cases for hedging purposes, and in others because they offer the
potential for increased income and principal value. In the broadest
sense, exchange-traded options and futures contracts (please refer to
"Hedging" above) may be considered "derivative investments."
One 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, unlike a typical note,
where repayment of principal is based on a set face amount. 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 rates at which they pay
income are determined by the change in value of the U.S. dollar against
one or more foreign currencies or an index. In some cases, these
securities may pay an amount at maturity based on a multiple of the
amount of the relative currency movements. This variety of index
security offers the potential for greater income but at a greater risk
of loss.
Other derivative investments 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 may not be as high as was expected).
- Derivatives may entail special risks. The company issuing the
instrument might not pay the amount due on the maturity of the
instrument. Also, the underlying investment or security on which the
derivative is based might not perform the way the Manager expected it
to perform. The performance of derivative investments may also be
influenced by interest rate changes in the U.S. and abroad. All of
these risks mean that the Fund might realize less income than expected
from its investments, or that it can lose part of the value 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 markets 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.
- 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 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:
- 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;
- make short sales of securities except "short sales against-the-
box";
- concentrate more than 25% of its total assets in securities of
companies in any one industry; or
- 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 officers of the Fund and
provides more information about them. Although the Fund is not
required by law to hold annual meetings, it may hold shareholder
meetings from time to time on important matters, and shareholders have
the right to call a meeting to remove a Trustee or to take other action
described in the Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The
Board has done so, and the Fund currently has four classes of shares,
Class A, Class B, Class C and Class Y. All classes invest in the same
investment portfolio. 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 as a
class 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 (including subsidiary) currently manages investment companies,
including other OppenheimerFunds, with assets of more than $35 billion
as of June 30, 1995, and with more than 2.6 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
- Portfolio Manager. The portfolio manager of the Fund is Jay W.
Tracey, III. He is 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 and 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 fees and
auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce
the net asset value of shares, and therefore are indirectly borne by
shareholders through their investment. 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,
brokers and other financial institutions 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. These returns measure the performance of a hypothetical account
in the Fund over various periods, and do not show the performance of
each shareholder's account (which will vary if dividends are received
in cash or shares are sold or purchased). The Fund's performance
information may help you see how well your investment in the Fund has
done over time 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. When total returns are shown for a one-year
period for Class C shares, they reflect the effect of the contingent
deferred sales charge. Total returns may also be quoted "at net asset
value," without considering the effect of the sales charge, and those
returns would be reduced if sales charges were deducted.
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 graphs 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, performance is measured from the inception of the class
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. Class C shares were not publicly offered during the
fiscal year ended September 30, 1994. Accordingly, no information is
presented on Class C shares in the graphs below.
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 in the graphs below shows the effect of taxes. Moreover,
index performance data does not reflect any assessment of the risk of
the investments included in the index. 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 the securities in the indices shown.
Comparison of Change in Value
of $10,000 Hypothetical Investments
In: Oppenheimer Discovery Fund,
S&P 500 and Russell 2000 Index
(Graphs)
<TABLE>
<CAPTION>
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)
- -------- ------ ------ ------- -------- ----
<S> <C> <C> <C> <C> <C>
(13.20)% 11.04% 16.03% (6.83)%
Y Shares Life (3)
-------- -----
3.20%
<FN>
_____________________
(1) The inception date of the Fund (Class A shares) was 9/11/86. The
average annual total returns and the ending account value for Class A
shares in the graph reflect reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 5.75% maximum
initial sales charge.
(2) Class B shares of the Fund were first publicly offered on 4/1/94.
The cumulative total return and the ending account value for Class B
shares in the graph reflect reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 5% contingent
deferred sales charge.
(3) Class Y shares of the Fund were first publicly offered on 6/1/94.
The cumulative total return and the ending account value for Class Y
shares in the graph reflect reinvestment of all dividends and capital
gains distributions.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
</TABLE>
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers individual investors three
different classes of shares, Class A, Class B and Class C. Only
certain institutional investors may purchase a fourth 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 (up to $500,000 for
purchases by OppenheimerFunds prototype 401(k) plans). If you purchase
Class A shares as part of an investment of at least $1 million
($500,000 for purchases by OppenheimerFunds prototype 401(k) plans) 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 of
buying them, you may pay a contingent deferred sales charge. The
amount will vary depending on the amount you invested. Sales charges
are described in "Buying Class A Shares," 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 of buying them, you will normally pay a contingent deferred sales
charge. That sales charge varies depending on how long you own your
shares. It is described in "Buying Class B Shares," below.
- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred
sales charge of 1%. It is described in "Buying Class C Shares," 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 or Class C
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 each
class and considered the effect of the annual asset-based sales charges
on Class B and Class C 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. The discussion below of the
factors to consider in purchasing a particular class of shares assumes
that you will purchase only one class of shares and not a combination
of shares of different classes.
- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long
you expect to hold your investment will assist you in selecting the
appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest.
For example, the reduced sales charges available for larger purchases
of Class A shares may, over time, offset the effect of paying an
initial sales charge on your investment (which reduces the amount of
your investment dollars used to buy shares for your account), compared
to the effect over time of higher class-based expenses on Class B or
Class C shares for which no initial sales charge is paid.
Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C
shares rather than Class B shares, because of the effect of the Class B
contingent deferred sales charge if you redeem in less than 7 years, as
well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares
might be the appropriate choice (especially for investments of less
than $100,000), because there is no initial sales charge on Class C
shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter
term, then the more you invest and the more your investment horizon
increases toward six years, Class C shares might not be as advantageous
as Class A shares. That is because the annual asset-based sales charge
on Class C shares will have a greater impact on your account over the
longer term than the reduced front-end sales charge available for
larger purchases of Class A shares. For example, Class A might be more
advantageous than Class C (as well as Class B) for investments of more
than $100,000 expected to be held for 5 or 6 years (or more). For
investments over $250,000 expected to be held 4 to 6 years (or more),
Class A shares may become more advantageous than Class C (and B). If
investing $500,000 or more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor
normally will not accept purchase orders of $500,000 or $1 million or
more of Class B or Class C shares, respectively, from a single
investor.
Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for seven years or more, Class B shares may be an
appropriate consideration, if you plan to invest less than $100,000. If
you plan to invest more than $100,000 over the long term, Class A
shares will likely be more advantageous than Class B shares or C
shares, as discussed above, because of the effect of the expected lower
expenses for Class A shares and the reduced initial sales charges
available for larger investments in Class A shares under the Fund's
Right of Accumulation.
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 assumed annual performance return stated above, and
therefore 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 or Class
C shareholders, or other features (such as Automatic Withdrawal Plans)
might not be advisable (because of the effect of the contingent
deferred sales charge) for Class B or Class C shareholders, you should
carefully review how you plan to use your investment account before
deciding which class of shares to buy. Also, not all OppenheimerFunds
currently offer Class B or Class C shares, limiting exchangeability
from the Fund. Share certificates are not available for Class B or
Class C shares and if you are considering using your shares as
collateral for a loan, that may be a factor to consider.
- How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation
for selling Fund shares may receive different compensation for selling
one class of shares than for selling another class. It is important
that investors understand that the purpose of the Class B and Class C
contingent deferred sales charges and asset-based sales charges is the
same as the purpose of the front-end sales charge on sales of Class A
shares: that is, 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, directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan
under the OppenheimerFunds AccountLink service. When you buy shares, be
sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, it is recommended that you discuss your investment
first with a financial advisor, to be sure that 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 have the Transfer Agent send redemption proceeds, or to transmit
dividends and distributions.
Shares are purchased for your account on the regular business day
the Distributor is instructed by you to initiate the ACH transfer to
buy shares. You can provide those instructions automatically, under an
Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. You should request
AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to
"AccountLink" below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your
account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are on the Application and in the
Statement of Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales
charge that applies) that is next determined after the Distributor
receives the purchase order in Denver, Colorado. 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.
Buying 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.
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 of the
OppenheimerFunds in the following cases:
- purchases aggregating $1 million or more, or
- purchases by an OppenheimerFunds prototype 401(k) plan that: (1)
buys shares costing $500,000 or more or (2) has, at the time of
purchase, 100 or more eligible participants, or (3) certifies that it
projects to have annual plan purchases of $200,000 or more.
Shares of any class of the OppenheimerFunds that offers only one
class of shares that has no class designation are considered "Class A
shares" for this purpose. The Distributor pays dealers of record
commissions on those 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 purchases over $5 million. That commission will be paid only on the
amount of those purchases in excess of $1 million ($500,000 for
purchases by OppenheimerFunds prototype 401(k) plans) 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") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0%
of either(1)the aggregate net asset value 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. 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 and Class B shares you purchase for
your individual accounts, or jointly, or for trust or custodial
accounts on behalf of your children who are minors. 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 and
Class B shares of the Fund and other OppenheimerFunds to reduce the
sales charge rate that applies to current purchases of Class A shares.
You can also include Class A and Class B shares of OppenheimerFunds you
previously purchased subject to an initial or a contingent deferred
sales charge to reduce the sales charge rate for current purchases of
Class A shares, provided that you still hold your investment in one of
the 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 Distributor. 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, if you purchase
Class A shares or Class A and Class B shares of the Fund and other
OppenheimerFunds during a 13-month period, you can reduce the sales
charge rate that applies to your purchases of Class A shares. The total
amount of your intended purchases of both Class A and Class B shares
will determine the reduced sales charge rate for the Class A shares
purchased during that period. 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. The Class A sales charges are
not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the Statement
of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not
subject to any Class A sales charges:
- the Manager or its affiliates;
- 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;
- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
- employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and 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);
- 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 (those clients may be charged a
transaction fee by their dealer, broker or adviser for the purchase or
sale of Fund shares); and
- 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.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party, or
- shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its
affiliates acts as sponsor,
- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other OppenheimerFunds (other
than Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor, or
- shares purchased and paid for with the proceeds of shares redeemed
in the past 12 months from a mutual fund (other than a fund managed by
the Manager or any of its subsidiaries) on which an initial sales
charge or contingent deferred sales charge was paid (this waiver also
applies to shares purchased by exchange of shares of Oppenheimer Money
Market Fund, Inc. that were purchased and paid for in this manner);
this waiver must be requested when the purchase order is placed for
your shares of the Fund, and the Distributor may require evidence of
your qualification for this waiver.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also
waived if shares that would otherwise be subject to the contingent
deferred sales charge are redeemed in the following cases:
- for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred compensation
plans or other employee benefit plans, including OppenheimerFunds
prototype 401(k) plans (these are all referred to as "Retirement
Plans");
- to return excess contributions made to Retirement Plans;
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below);
- if, at the time a purchase 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 (and no further commission will be payable if the
shares are redeemed within 18 months of purchase); or
- for distributions from OppenheimerFunds prototype 401(k) plans for
any of the following cases or purposes: (1) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must occur after the
participant's account was established); (2) hardship withdrawals, as
defined in the plan; (3) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (4) to meet the minimum
distribution requirements of the Internal Revenue Code; (5) to
establish "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code, or (6) separation from
service.
- 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 shareholder 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.
Buying 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 contingent deferred sales
charge is not imposed in the circumstances described in "Waivers of
Class B and Class C Sales Charges" below.
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.
- 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 and Service Plan, described below. The
conversion is based on the relative net asset value of the two classes,
and no sales load or other charge is imposed. When 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, Class B and Class C 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 reimburse
the Distributor for 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 service 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.
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.
- Waivers of Class B and Class C Sales Charges. The Class B and
Class C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to shares
redeemed in certain circumstances as described below. The reasons for
this policy are in "Reduced Sales Charges" in the Statement of
Additional Information.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemptions of
shares in the following cases:
- 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);
- redemptions from accounts other than Retirement Plans following
the death or disability of the last surviving 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);
- returns of excess contributions to Retirement Plans;
- distributions from IRAs (including SEP-IRAs and SAR/SEP accounts)
before the participant is age 59-1/2, and distributions from 403(b)(7)
custodial plans or pension or profit sharing plans before the
participant is age 59-1/2 but only after the participant has separated
from service, if the distributions are made in substantially equal
periodic payments over the life (or life expectancy) of the participant
or the joint lives (or joint 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); or
- distributions from OppenheimerFunds prototype 401(k) plans (1) for
hardship withdrawals; (2) under a Qualified Domestic Relations Order,
as defined in the Internal Revenue Code; (3) to meet minimum
distribution requirements as defined in the Internal Revenue Code; (4)
to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code; or (5) for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
- shares sold to the Manager or its affiliates;
- 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;
- shares issued in plans of reorganization to which the Fund is a
party; or
- shares redeemed in involuntarily redemptions as described below.
Buying Class C Shares. Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred
sales charge of 1.0% will be deducted from the redemption proceeds.
That sales charge will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions. The charge
will be assessed on the lesser of the net asset value of the shares at
the time of redemption or the original purchase price. The contingent
deferred sales charge is not imposed on the amount of your account
value represented by the increase in net asset value over the initial
purchase price (including increases due to the reinvestment of
dividends and capital gains distributions). The Class C contingent
deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1)
shares acquired by reinvestment of dividends and capital gains
distributions, (2) shares held for over 12 months, and (3) shares held
the longest during the 12-month period.
- Waivers of Class C Sales Charge. The Class C contingent deferred
sales charge will be waived if the shareholder requests it for any of
the redemptions or circumstances described above under "Waivers of
Class B and Class C Sales Charges."
- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to
compensate the Distributor for distributing Class C shares and
servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class C shares.
The Distributor also receives a service fee of 0.25% per year. Both
fees are computed on the average annual net assets of Class C shares,
determined as of the close of each regular business day. The asset-
based sales charge allows investors to buy Class C shares without a
front-end sales charge while allowing the Distributor to compensate
dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares.
Those services are similar to those provided under the Class A Service
Plan, described above. The asset-based sales charge and service fees
increase Class C expenses by 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class C shares have been sold by the dealer.
After the shares have been held for a year, the Distributor pays the
service fee on a quarterly basis. The Distributor pays sales
commissions of 0.75% of the purchase price to dealers from its own
resources at the time of sale. The total up-front commission paid by
the Distributor to the dealer at the time of sale of Class C shares is
1.00% of the purchase price. The Distributor plans to pay the asset-
based sales charge as an ongoing commission to the dealer on Class C
shares that have been outstanding for a year or more.
The Fund pays the asset-based sales charge to the Distributor for
its services rendered in connection with the distribution of Class C
shares. Those payments are at a fixed rate which is not related to the
Distributor's expenses. The services rendered by the Distributor
include paying and financing the payment of sales commissions, service
fees, and other costs of distributing and selling Class C shares,
including compensating personnel of the Distributor who support
distribution of Class C shares. 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 distributing Class C
shares 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 may 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 by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply
to each shareholder listed in the registration on your account as well
as to your dealer representative of record unless and until the
Transfer Agent receives written instructions terminating or changing
those privileges. After you establish AccountLink for your account,
any change of bank account information must be made by signature-
guaranteed instructions to the Transfer Agent signed by all
shareholders who own the account.
- 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 to
automatically 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 Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or other
OppenheimerFunds without paying a sales charge. This privilege applies
to Class A shares that you purchased with an initial sales charge and
to Class A or Class B shares on which you paid a contingent deferred
sales charge when you redeemed them. It does not apply to Class C
shares. 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
- 401(k) prototype retirement plans for businesses
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers
you a number of ways to sell your shares: in writing or by telephone.
You can also set up Automatic Withdrawal Plans to redeem shares on a
regular basis, as described above. If you have questions about any of
these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner, or from a
retirement plan, please call the Transfer Agent first, at 1-800-525-
7048, for assistance.
- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must
submit a withholding form with your request to avoid delay. If your
retirement plan account is held for you by your employer, you must
arrange for the distribution request to be sent by the plan
administrator or trustee. There are additional details in the Statement
of Additional Information.
- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations
(there may be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive a
check
- The redemption check is not payable to all shareholders listed on
the account statement
- The 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 account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling,
- The signatures of all registered owners exactly as the account is
registered, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell
shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your call must be received
by the Transfer Agent by the close of The New York Stock Exchange that
day, which is normally 4:00 P.M., but may be earlier on some days. 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 transferred.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. Brokers or dealers may charge for that
service. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. To exchange shares, you must meet several
conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can
exchange Class A shares of this Fund only for Class A shares of another
fund. At present, not all of the OppenheimerFunds offer Class B and
Class C shares. A list showing which funds offer which classes can be
obtained by calling the Distributor at 1-800-525-7048. If a fund has
only one class of shares that does not have a class designation, they
are "Class A" shares for exchange purposes. In some cases, sales
charges may be imposed on exchange transactions. 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 obtain one by
calling a service representative at 1-800-525-7048. That list can
change from time to time.
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 up to seven days 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 sale 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.
- For tax purposes, exchanges of shares involve a redemption of the
shares of the Fund you own and a purchase of the shares of the other
fund, which may result in a capital gain or loss. For more information
about taxes affecting exchanges, please refer to "How to Exchange
Shares" in the Statement of Additional Information.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
The Distributor has entered into agreements with certain dealers and
investment advisers permitting them to exchange their clients' shares
by telephone. These privileges are limited under those agreements and
the Distributor has the right to reject or suspend those privileges.
As a result, those exchanges may be subject to notice requirements,
delays and other limitations that do not apply to shareholders who
exchange their shares directly by calling or writing the Transfer
Agent.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange 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 the Transfer
Agent nor the Fund will be liable for losses or expenses arising out of
telephone instructions reasonably believed to be genuine. If you are
unable to reach the Transfer Agent during periods of unusual market
activity, you may not be able to complete a telephone transaction and
should consider placing your order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From
time to time, the Transfer Agent in its discretion may waive certain of
the requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously 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, Class B and Class C shares. Therefore, the
redemption value of your shares may be more or less than their original
cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within 7
days after the Transfer Agent receives redemption instructions in
proper form, except under unusual circumstances determined by the
Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
payment will be forwarded within 3 business days. The Transfer Agent
may delay forwarding a check or processing a payment via AccountLink
for recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 10 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or
written assurance to the Transfer Agent that your purchase payment has
cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $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, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-
800-525-7048 to ask that copies of those materials be sent personally
to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class
B, Class C 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 and Class C shares because expenses allocable to Class
B and Class C 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. There is no fixed dividend rate and there can be
no assurance as to the payment of any dividends.
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 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. Generally speaking, 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." Class C shares were not publicly
offered during the fiscal year ended September 30, 1994. Therefore, no
data points are shown below for Class C shares.
<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
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 W. 47th Street
New York, New York 10036
No dealer, broker, salesperson or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional
Information, and if given or made, such information and 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 securit-
ies offered hereby in any state to any person to whom it is unlawful to
make such offer in such state.
PR0500.001.1095 *Printed on recycled paper
<PAGE>
Oppenheimer Discovery Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated October 1, 1995
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated October 1, 1995. It
should be read together with the Prospectus, which may be obtained by
writing to the Fund's Transfer Agent, Oppenheimer Shareholder Services,
at P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer
Agent at the toll-free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies
Investment Policies and Strategies
Other Investment Techniques and Strategies
Other Investment Restrictions
How the Fund is Managed
Organization and History
Trustees and Officers of the Fund
The Manager and Its Affiliates
Brokerage Policies of the Fund
Performance of the Fund
Distribution and Service Plans
About Your Account
How To Buy Shares
How To Sell Shares
How To Exchange Shares
Dividends, Capital Gains and Taxes
Additional Information About the Fund
Independent Auditors' Report
Financial Statements
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 and the types of
securities in which the Fund invests, as well as strategies the Fund
may use to try to achieve its objective. 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. There are additional investment restrictions that the
Fund must follow that are also fundamental policies. Fundamental
policies and the Fund's 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:
- 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;
- 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;
- 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;
- 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;
- 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);
- 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;
- 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;
- 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;
- invest in companies for the purpose of acquiring control or
management thereof;
- invest in interests in oil, gas or other mineral exploration or
development programs; or
- 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 the eighth restriction 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 the third investment restriction in the Prospectus, the
Fund has adopted the industry classifications set forth in the Appendix
to this Statement of Additional Information. This is not a fundamental
policy.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund
is not required to hold, and does not plan to hold, regular annual
meetings of shareholders. The Fund will hold meetings when required to
do so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the
Trustees will then either make the Fund's shareholder list available to
the applicants or mail their communication to all other shareholders at
the applicants' expense, or the Trustees may take such other action as
set forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and
provides for indemnification and reimbursement of expenses out of its
property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, while Massachusetts law permits a shareholder
of a business trust (such as the Fund) to be held personally liable as
a "partner" under certain circumstances, the risk of a Fund shareholder
incurring financial loss on account of shareholder liability is
limited to the relatively remote circumstances in which the Fund would
be unable to meet its obligations described above. Any person doing
business with the Trust, and any shareholder of the Trust, agrees under
the Trust's Declaration of Trust to look solely to the assets of the
Trust for satisfaction of any claim or demand which may arise out of
any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers
and their principal occupations and business affiliations during the
past five years are set forth below. The address 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 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
Global Growth & Income Fund, Oppenheimer Global Emerging Growth Fund,
Oppenheimer Multi-Sector Income Trust and Oppenheimer Multi-Government
Trust (collectively, the "New York-based Oppenheimer funds"). As of
September 1, 1995, 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
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership) and
Chairman of Avatar Holdings, Inc. (real estate development).
Leo Cherne, Trustee; Age: 82
122 East 42nd Street, New York, New York 10168
Chairman Emeritus of the International Rescue Committee (philanthropic
organization); formerly Executive Director of The Research Institute of
America.
Robert G. Galli, Trustee*; Age: 62
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 Oppenheimer funds and Executive Vice
President and General Counsel of the Manager and the Distributor.
Benjamin Lipstein, Trustee; Age: 72
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; a director of Sussex Publishers, Inc.
(Publishers of Psychology Today and Mother Earth News) 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: 68
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: 65
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 trustee, New
York State and Local Retirement Fund.
____________________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
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.
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. (a closed-end
investment company); 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
498 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 Oppenheimer
funds 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: 45
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other Oppenheimer funds; formerly Senior
Vice President and Associate General Counsel of the Manager and the
Distributor, prior to which he was a Partner in Kraft & McManimon (a
law firm), an officer of First Investors Corporation (a broker-dealer)
and First Investors Management Company, Inc. (broker-dealer and
investment adviser); 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
Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age: 47
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
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 Oppenheimer funds; 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 Oppenheimer funds; 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, excluding Messrs. Galli
and Spiro) received the total amounts shown below (I) from the Fund,
during its fiscal year ended September 30, 1994, and (ii) from all 17
of the New York-based Oppenheimer funds (including the Fund) listed in
the first paragraph of this section (and from Oppenheimer Global
Environment Fund, a former New York-based Oppenheimer funds), for
services in the positions shown:
<TABLE>
<CAPTION>
Aggregate Retirement Benefits Total Compensation
Compensation Accrued as Part From All
Name and from of Fund New York-based
Position Fund Expenses Oppenheimer funds1
<S> <C> <C> <C>
Leon Levy, Chairman $39,750 $19,392 $141,000.00
and Trustee
Leo Cherne, Audit Committee $19,404 $ 9,466 $ 68,800.00
Member and Trustee
Edmund T. Delaney, $24,304 $11,857 $ 86,200.00
Study Committee Member
and Trustee2
Benjamin Lipstein, $24,304 $11,857 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan, $17,087 $ 8,336 $ 60,625.00
Study Committee
Member and3 Trustee
Kenneth A. Randall, $22,107 $10,785 $ 78,400.00
Audit Committee Member
and Trustee
Edward V. Regan, $15,856 $ 7,736 $ 56,275.00
Audit Committee
Member3 and Trustee
Russell S. Reynolds, Jr., $14,698 $ 7,170 $ 52,100.00
Trustee
Sidney M. Robbins, Study $34,440 $16,802 $122,100.00
Committee Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere, Trustee $14,698 $ 7,170 $ 52,100.00
Clayton K. Yeutter, Trustee $14,698 $ 7,170 $ 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 Oppenheimer funds for at least 15 years to be eligible for
the maximum payment. Because each Trustee's retirement benefits will
depend on the amount of the Trustee's future compensation and length of
service, the amount of these benefits cannot be determined as of this
time nor can we estimate the number of years of credited service that
will be used to determine those benefits. No sums were accrued during
the fiscal year ended September 30, 1994 for the Fund's projected
retirement benefit obligations.
- Major Shareholders. As of September 1, 1995, no person owned
of record or was known by the Fund to own beneficially 5% or more of
the Fund's outstanding 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, Separate Investment Account 13,
Attention: Joy Smith, F-381, 1295 State Street, Springfield,
Massachusetts 01111-0001, who owned of record 193,947.694 Class Y
shares (representing 100% of the Fund's outstanding Class Y shares).
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 Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of
Ethics is carefully monitored and strictly enforced by the Manager.
- 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, Class
C 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. Class C shares were not publicly offered during this fiscal
period, and no contingent deferred sales charges were collected.
- 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 or for certain fixed-income agency transactions in the
secondary market, 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 Board has also permitted the Manager to use stated
commission on secondary fixed-income agency trades to obtain research
where the broker has represented to the Manager that (I) the trade is
not from or for the broker's own inventory, (ii) the trade was executed
by the broker on an agency basis at the stated commission, and (iii)
the trade is not a riskless principal transaction.
The 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. No calculations are presented below for Class C
shares because no shares of that class were publicly offered during the
fiscal year ended September 30, 1994.
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, Class C 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). For Class C shares, a 1.0% contingent deferred sales charge is
applied to the investment result for the one-year period (or less).
Total returns also assume that all dividends and capital gains
distributions during the period are reinvested to buy additional shares
at net asset value per share, and that the investment is redeemed at
the end of the period. The "average annual total 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, Class B or
Class C shares. Each is based on the difference in net asset value per
share at the beginning and the end of the period for a hypothetical
investment in that class of shares (without considering front-end or
contingent deferred sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions. The
cumulative total 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, Class C 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 small company 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, Class C 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 small company funds. Rankings are subject to change.
From time to time, the Fund may include in its advertisements and
sales literature performance information about the Fund cited in other
newspapers and periodicals, such as The New York Times, which may
include performance quotations from other sources, including Lipper.
The total return on an investment in the Fund's Class A, Class B
or Class C 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. The performance of the Fund's Class
A, Class B or Class C shares may also be compared in publications to
(I) the performance of various market indices or to other investments
for which reliable performance data is available, and (ii) to averages,
performance rankings or other benchmarks prepared by recognized mutual
fund statistical services.
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 Oppenheimer funds, other than
performance rankings of the Oppenheimer funds themselves. Those
ratings or rankings of shareholder/investor services by third parties
may compare the Oppenheimer funds' 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 Plans for Class B and Class C shares under
Rule 12b-1 of the Investment Company Act pursuant to which the Fund
will make payments to the Distributor 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 and Class C shares, that vote was cast by the Manager
as the sole initial holder of Class B and Class C shares of the Fund.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, 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 at no cost to the Fund. 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. In addition, because Class B
shares of the Fund automatically convert into Class A shares after six
years, the Fund is required to obtain the approval of Class B as well
as Class A shareholders for a proposed amendment to the Class A Plan
that would materially increase the amount to be paid by Class A
shareholders under the Class A Plan. Such approval must be by a
"majority of the Class A and Class B shares (as defined in the
Investment Company Act), voting separately by class. 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. 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 and Class C Plans allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year
such shares are outstanding, and thereafter on a quarterly basis, as
described in the Prospectus. The advance payment is based on the net
asset value of the shares sold. An exchange of shares does not entitle
the Recipient to an advance service fee payment. In the event 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. No payments were made
under the Class C Plan for the fiscal year ended September 30, 1994
because no shares of that class were outstanding during that period.
Although the Class B Plan and the Class C Plan permit the
Distributor to retain both the asset-based sales charges and the
service fee, 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 and the
Class C Plan by the Board. Initially, the Board has set no minimum
holding period. All payments under the Class B and the Class C Plan
are subject to the limitations imposed by the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees.
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
and Class C shares of the Fund. The Class B and the Class C Plans
provide for the Distributor to be compensated at a flat rate, whether
the Distributor's distribution expenses are more or less than the
amounts paid by the Fund during that period. Such payments are made in
recognition that the Distributor (I) pays sales commissions to
authorized brokers and dealers at the time of sale, as described in the
Prospectus, (ii) may finance such commissions and/or the advance of the
service fee payment to Recipients under those Plans, (iii) employs
personnel to support distribution of shares, and (iv) may bear the
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, Class B and Class C Shares.
The availability of three 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 and Class C shares are the same as those of the
initial sales charge with respect to Class A shares. Any salesperson
or other person entitled to receive compensation for selling Fund
shares may receive different compensation with respect to one class of
shares than the other. The Distributor will not accept any order for
$500,000 or $1 million or more of Class B or Class C shares,
respectively, 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 fourth class of shares may be purchased only by certain
institutional investors at net asset value per share (the "Class Y
shares").
The four 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 and Class C shares and the dividends payable on Class B and
Class C shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B and
Class C 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 Class 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.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B, Class C and Class Y
shares recognizes two types of expenses. General expenses that do not
pertain specifically to any 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, Class C and Class Y shares of the Fund are
determined as of the close of business of The New York Stock Exchange
(the "Exchange") on each day that the Exchange 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 Exchange 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
Exchange's most recent annual holiday schedule (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 Exchange 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, Class
C 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 actively traded on a foreign securities exchange are valued
at the last sales price available to the pricing service approved by
the Fund's Board of Trustees or to the Manager as reported by the
principal exchange on which the security is traded; (iii) unlisted
foreign securities or listed foreign securities not actively traded are
valued as in (I) above, if available, or at the mean between "bid" and
"asked" prices obtained from active market makers in the security on
the basis of reasonable inquiry; (iv) long-term debt securities having
a remaining 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 Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable
inquiry; (v) debt instruments having a maturity of more than one year
when issued, and non-money market type instruments having a maturity of
one year or less when issued, which have a remaining maturity of 60
days or less are valued at the mean between the "bid" and "asked"
prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (vi) money market-type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vii)
securities (including restricted securities) not having readily-
available market quotations are valued at fair value under the Board's
procedures.
Trading in securities on European and Asian exchanges and over-
the-counter markets is normally completed before the close of the
Exchange. 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 Exchange 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 Oppenheimer Funds. The Oppenheimer funds 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 Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California
Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government 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 Income & Growth Fund
Oppenheimer International Bond 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 Oppenheimer funds 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 and Class B
shares (or shares of either Class) of the Fund (and other eligible
Oppenheimer funds) 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 reinvestment of dividends or distributions or
purchases made at net asset value without sales charge), which together
with the investor's holdings of such funds (calculated at their
respective public offering prices calculated on the date of the Letter)
will equal or exceed the amount specified in the Letter. This enables
the investor to count the shares to be purchased under the Letter of
Intent to obtain the reduced sales charge rate (as set forth in the
Prospectus) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under the
Letter will be made at the public offering price (including the sales
charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to
purchase shares, 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.
For purchases of shares of the Fund and other OppenheimerFunds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the
Transfer Agent will not hold shares in escrow. If the intended
purchase amount under the Letter entered into by an OppenheimerFunds
prototype 401(k) plan is not purchased by the plan by the end of the
Letter of Intent period, there will be no adjustment of commissions
paid to the broker-dealer or financial institution of record for
accounts held in the name of that plan.
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 a Letter) include
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge, (b) Class B shares acquired
subject to a contingent deferred sales charge, and (c) Class A or B
shares acquired in exchange for either (I) Class A shares of one of the
other OppenheimerFunds that were acquired subject to a Class A initial
or contingent deferred sales charge or (ii) Class B shares of one of
the other OppenheimerFunds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is requested,
as described in the section of the Prospectus entitled "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 Eligible Funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, 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 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. It does not apply to
Class C shares. The reinvestment may be made without sales charge only
in Class A shares of the Fund or any of the other Oppenheimer funds
into which shares of the Fund are exchangeable as described 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 Oppenheimer funds within 90
days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment
of the redemption proceeds. 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 and Class C contingent deferred sales charges
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, 401(k)
plans, or pension or profit-sharing plans should be addressed to
"Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at
its address listed in "How To Sell Shares" in the Prospectus or on the
back cover of this Statement of Additional Information. The request
must: (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, profit-sharing or 401(k) 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.). Ordinarily, for
accounts redeemed by a broker-dealer under this procedure, payment will
be made within three business days after the shares have been redeemed
upon the Distributor's receipt of the required redemption documents in
proper form, with signature(s) of the registered owners guaranteed on
the redemption document 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 and Class C shareholders should not establish withdrawal plans
because of the imposition of the contingent deferred sales charges on
such withdrawals (except where the Class B and Class C contingent
deferred sales charges are waived as described in the Prospectus under
"Waivers of Class B and Class C Contingent Deferred Sales Charges".)
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 Oppenheimer funds
automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Exchange Plan. The minimum amount that may be
exchanged to each other fund account is $25. 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. It may not be desirable to purchase additional Class
A shares while making automatic withdrawals because of the sales
charges that apply to purchases when made. Accordingly, a shareholder
normally may not maintain an Automatic Withdrawal Plan while
simultaneously making regular purchases of Class A shares.
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 Class A 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
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. Shares
of the Oppenheimer funds that have a single class without a class
designation are deemed "Class A" shares for this purpose. All
Oppenheimer funds offer Class A shares, but only certain other
Oppenheimer funds do not presently offer either Class B, Class C and/or
Class Y shares. A list showing which Funds offer which class can be
obtained by calling the Distributor at 1-800-525-7048.
Class A shares of Oppenheimer funds 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
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
Oppenheimer funds subject to a contingent deferred sales charge).
However, shares of Oppenheimer Money Market Fund, Inc. purchased with
the redemption proceeds of shares of other mutual funds (other than
funds managed by the Manager or its subsidiaries) redeemed within the
12 months prior to that purchase may subsequently be exchanged for
shares of other Oppenheimer funds without being subject to an initial
or contingent deferred sales charge, whichever is applicable. To
qualify for that privilege, the investor or the investor's dealer must
notify the Distributor of eligibility for this privilege at the time
the shares of Oppenheimer Money Market Fund, Inc. are purchased, and,
if requested, must supply proof of entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds or from any unit
investment trust for which reinvestment arrangements have been made
with the Distributor may be exchanged at net asset value for shares of
any of the Oppenheimer funds. 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 Oppenheimer funds
purchased subject to a Class A contingent deferred sales charge are
redeemed within 18 months of the end of the calendar month of the
initial purchase of the exchanged Class A shares, the Class A
contingent deferred sales charge is imposed on the redeemed shares (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. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange
if they are redeemed within 12 months of the initial purchase of the
exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for
the imposition of the Class B and Class C contingent deferred sales
charge will be followed in determining the order in which the shares
are exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any contingent deferred sales
charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of more than one class must specify
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of 10 or more
accounts. The Fund may accept requests for exchanges of up to 50
accounts per day from representatives of authorized dealers that
qualify for this privilege. In connection with any exchange request,
the number of shares exchanged may be less than the number requested if
the exchange or the number requested would include shares subject to a
restriction cited in the Prospectus or this Statement of Additional
Information or 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 Oppenheimer funds 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.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's
portfolio, and expenses borne by the Fund or borne separately by a
class, as described in "Alternative Sales Arrangements -- Class A,
Class B and Class C Shares," above. Dividends are calculated in the
same manner, at the same time and on the same day for shares of each
class. However, dividends on Class B and Class C shares are expected
to be lower as a result of the asset-based sales charge on Class B and
Class C shares, and Class B and Class C dividends will also differ in
amount as a consequence of any difference in net asset value between
the classes.
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 Oppenheimer funds listed
in "Reduced Sales Charges," above, at net asset value without sales
charge. Class B, Class C and Class Y shareholders should be aware that
as of the date of this Statement of Additional Information, not all of
the Oppenheimer funds offer Class B, Class C 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
Oppenheimer funds 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. The Fund's cash balances in excess of $100,000 are not
protected by Federal deposit insurance. Such uninsured balances may at
times be substantial.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the
Manager and its affiliates.
<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>
4 Oppenheimer Discovery Fund
<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>
5 Oppenheimer Discovery Fund
<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>
6 Oppenheimer Discovery Fund
<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>
7 Oppenheimer Discovery Fund
<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>
8 Oppenheimer Discovery Fund
<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.
9 Oppenheimer Discovery Fund
<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.
10 Oppenheimer Discovery Fund
<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.
11 Oppenheimer Discovery Fund
<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.
12 Oppenheimer Discovery Fund
<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.
13 Oppenheimer Discovery Fund
<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.
14 Oppenheimer Discovery Fund
<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.
15 Oppenheimer Discovery Fund
<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.
STATEMENT OF INVESTMENTS March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
==========================================================
==================================================
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS AND NOTES--4.9%
- ------------------------------------------------------------------------------------------------------------
Genesis Health Ventures, Inc., 6% Cv. Sr. Sub. Debs., 11/30/03 $1,300,000 $ 1,865,500
- ------------------------------------------------------------------------------------------------------------
Intelcom Group, Inc., 7% Cv. Sub. Nts., 10/30/98(2)(3) 2,140,000 1,515,955
- ------------------------------------------------------------------------------------------------------------
Intelcom Group, Inc., 8% Cv. Sub. Debs., 9/24/98(1)(2)(3) 2,080,000 1,529,938
- ------------------------------------------------------------------------------------------------------------
Medaphis Corp., 6.50% Cv. Sub. Nts., 1/1/00(1) 4,000,000 9,115,000
- ------------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc., 8.25% Cv. Sub. Debs., 8/15/01(2) 1,000,000 725,000
- ------------------------------------------------------------------------------------------------------------
Physicians Clinical Laboratory, Inc., 7.50% Cv. Sub. Debs., 8/15/00(1) 4,000,000 3,815,000
- ------------------------------------------------------------------------------------------------------------
Sierra On-Line, Inc., 6.50% Cv. Sub. Nts., 4/1/01(1) 4,000,000 6,390,000
- ------------------------------------------------------------------------------------------------------------
Solectron Corp., Zero Coupon Cv. Liquid Yield Option Sub. Nts., 5/5/12 6,300,000 3,835,125
- ------------------------------------------------------------------------------------------------------------
Theratx, Inc., 8% Cv. Sub. Debs., 2/1/02(1) 4,000,000 3,800,000
- ------------------------------------------------------------------------------------------------------------
Tops Appliance City, Inc., 6.50% Cv. Sub. Debs., 11/30/03(1) 3,000,000 1,200,000
------------
Total Convertible Corporate Bonds and Notes (Cost $29,147,772) 33,791,518
</TABLE>
<TABLE>
<CAPTION>
SHARES
==========================================================
==================================================
<S> <C> <C>
COMMON STOCKS--74.5%
- ------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--0.3%
- ------------------------------------------------------------------------------------------------------------
METALS--0.3%
- ------------------------------------------------------------------------------------------------------------
Rouge Steel Co., Cl. A 72,500 1,776,250
- ------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--16.9%
- ------------------------------------------------------------------------------------------------------------
AUTOS AND HOUSING--1.3%
- ------------------------------------------------------------------------------------------------------------
Gentex Corp.(4) 36,800 772,800
- ------------------------------------------------------------------------------------------------------------
Recoton Corp.(4) 370,000 6,151,250
- ------------------------------------------------------------------------------------------------------------
Reddi Brake Supply Corp.(4) 572,000 1,894,750
------------
8,818,800
- ------------------------------------------------------------------------------------------------------------
LEISURE AND
ENTERTAINMENT--3.9%
- ------------------------------------------------------------------------------------------------------------
Apple South, Inc. 126,400 1,975,000
- ------------------------------------------------------------------------------------------------------------
Applebee's International, Inc. 150,000 3,318,750
- ------------------------------------------------------------------------------------------------------------
DF & R Restaurants, Inc.(4) 200,000 2,900,000
- ------------------------------------------------------------------------------------------------------------
Hospitality Franchise Systems, Inc.(4) 130,000 4,160,000
- ------------------------------------------------------------------------------------------------------------
IHOP Corp.(4) 185,000 5,445,938
- ------------------------------------------------------------------------------------------------------------
Outboard Marine Corp. 186,000 3,906,000
- ------------------------------------------------------------------------------------------------------------
Rock Bottom Restaurants, Inc.(4) 75,000 1,546,875
- ------------------------------------------------------------------------------------------------------------
Supertel Hospitality, Inc.(4) 235,000 3,348,750
------------
26,601,313
- ------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--5.3%
- ------------------------------------------------------------------------------------------------------------
Authentic Fitness Corp.(4) 245,000 3,920,000
- ------------------------------------------------------------------------------------------------------------
Cygne Designs, Inc.(4) 400,000 4,700,000
- ------------------------------------------------------------------------------------------------------------
Marisa Christina, Inc.(4) 300,000 3,637,500
- ------------------------------------------------------------------------------------------------------------
Nautica Enterprises, Inc.(4) 260,000 8,125,000
- ------------------------------------------------------------------------------------------------------------
Quicksilver, Inc.(4) 230,000 4,973,750
- ------------------------------------------------------------------------------------------------------------
Tommy Hilfiger Corp.(4) 504,200 11,092,400
------------
36,448,650
- ------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--6.4%
- ------------------------------------------------------------------------------------------------------------
CellStar Corp. 20,000 400,000
- ------------------------------------------------------------------------------------------------------------
Corporate Express, Inc.(4) 200,000 5,300,000
- ------------------------------------------------------------------------------------------------------------
CUC International, Inc.(4) 150,000 5,831,250
- ------------------------------------------------------------------------------------------------------------
General Nutrition Cos., Inc.(4) 231,400 6,421,350
- ------------------------------------------------------------------------------------------------------------
Insurance Auto Auctions, Inc.(4) 200,000 6,900,000
</TABLE>
6 Oppenheimer Discovery Fund
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
==========================================================
==================================================
<S> <C> <C>
RETAIL: SPECIALITY
(CONTINUED)
Movie Gallery, Inc.(4) 235,000 $ 6,315,625
- ------------------------------------------------------------------------------------------------------------
O'Reilly Automotive, Inc.(4) 100,000 2,587,500
- ------------------------------------------------------------------------------------------------------------
Petco Animal Supplies, Inc.(4) 180,000 3,780,000
- ------------------------------------------------------------------------------------------------------------
Rex Stores Corp.(4) 163,400 2,287,600
- ------------------------------------------------------------------------------------------------------------
U.S. Office Products Co.(4) 300,000 4,312,500
------------
44,135,825
- ------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--24.5%
- ------------------------------------------------------------------------------------------------------------
EDUCATION--0.3%
- ------------------------------------------------------------------------------------------------------------
Children's Discovery Centers of America, Inc.(4) 130,000 2,047,500
- ------------------------------------------------------------------------------------------------------------
FOOD--2.2%
- ------------------------------------------------------------------------------------------------------------
Hudson Foods, Inc., Cl. A 420,000 8,032,500
- ------------------------------------------------------------------------------------------------------------
JP Foodservice, Inc.(4) 600,000 6,900,000
------------
14,932,500
- ------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--3.3%
- ------------------------------------------------------------------------------------------------------------
Dura Pharmaceuticals, Inc.(4) 250,000 3,718,750
- ------------------------------------------------------------------------------------------------------------
Ethical Holdings, Sponsored ADR(4) 500,000 3,062,500
- ------------------------------------------------------------------------------------------------------------
Martek Biosciences Corp.(4) 160,000 1,480,000
- ------------------------------------------------------------------------------------------------------------
Matrix Pharmaceutical, Inc.(4) 129,600 1,782,000
- ------------------------------------------------------------------------------------------------------------
Roberts Pharmaceutical Corp.(4) 175,000 4,812,500
- ------------------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(4) 265,000 7,817,500
------------
22,673,250
- ------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES
AND SERVICES--18.3%
- ------------------------------------------------------------------------------------------------------------
American Medical Response, Inc.(4) 200,000 5,025,000
- ------------------------------------------------------------------------------------------------------------
Community Psychiatric Centers 200,000 2,575,000
- ------------------------------------------------------------------------------------------------------------
EmCare Holdings, Inc.(4) 200,000 4,075,000
- ------------------------------------------------------------------------------------------------------------
Equity Corp. International(4) 220,000 3,520,000
- ------------------------------------------------------------------------------------------------------------
Genesis Health Ventures, Inc.(4) 144,000 4,500,000
- ------------------------------------------------------------------------------------------------------------
Gulf South Medical Supply, Inc.(4) 136,300 5,554,225
- ------------------------------------------------------------------------------------------------------------
Horizon Healthcare Corp.(4) 347,300 9,290,275
- ------------------------------------------------------------------------------------------------------------
Lincare Holdings, Inc.(4) 165,000 4,888,125
- ------------------------------------------------------------------------------------------------------------
Living Centers of America, Inc.(4) 181,000 6,810,125
- ------------------------------------------------------------------------------------------------------------
Mariner Health Group, Inc.(4) 300,000 5,812,500
- ------------------------------------------------------------------------------------------------------------
Marquette Electronics, Inc., Cl. A(4) 80,000 1,600,000
- ------------------------------------------------------------------------------------------------------------
Medaphis Corp.(4) 100,000 6,300,000
- ------------------------------------------------------------------------------------------------------------
MedCath, Inc.(4) 300,000 4,200,000
- ------------------------------------------------------------------------------------------------------------
Medisense Inc.(4) 290,000 5,727,500
- ------------------------------------------------------------------------------------------------------------
MedPartners, Inc.(4) 80,000 1,770,000
- ------------------------------------------------------------------------------------------------------------
North American Biologicals, Inc.(4) 250,000 2,187,500
- ------------------------------------------------------------------------------------------------------------
Omnicare, Inc. 185,100 9,717,750
- ------------------------------------------------------------------------------------------------------------
Ornda Healthcorp(4) 500,000 8,562,500
- ------------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc.(4) 66,300 447,525
- ------------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc.(4) 34,080 218,538
- ------------------------------------------------------------------------------------------------------------
PerSeptive Technology II Corp., Units(4) 172,500 862,500
- ------------------------------------------------------------------------------------------------------------
Physician Reliance Network, Inc.(4) 195,000 5,021,250
- ------------------------------------------------------------------------------------------------------------
Physicians Health Services, Inc., Cl. A(4) 125,800 4,088,500
- ------------------------------------------------------------------------------------------------------------
Professional Sports Care Management, Inc.(4) 132,000 1,452,000
- ------------------------------------------------------------------------------------------------------------
Pyxis Corp.(4) 200,000 4,150,000
</TABLE>
7 Oppenheimer Discovery Fund
<PAGE> 8
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
==========================================================
==================================================
<S> <C> <C>
HEALTHCARE/SUPPLIES
AND SERVICES
(CONTINUED)
- ------------------------------------------------------------------------------------------------------------
Rural/Metro Corp.(4) 165,000 $ 3,052,500
- ------------------------------------------------------------------------------------------------------------
Steris Corp.(4) 100,000 4,000,000
- ------------------------------------------------------------------------------------------------------------
Sun Healthcare Group, Inc.(4) 275,000 7,012,500
- ------------------------------------------------------------------------------------------------------------
Theratx, Inc.(4) 200,000 3,350,000
------------
125,770,813
- ------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.4%
- ------------------------------------------------------------------------------------------------------------
Ultralife Batteries, Inc.(4) 170,000 2,975,000
- ------------------------------------------------------------------------------------------------------------
ENERGY--2.9%
- ------------------------------------------------------------------------------------------------------------
ENERGY SERVICES
AND PRODUCERS--2.9%
- ------------------------------------------------------------------------------------------------------------
Basin Exploration, Inc.(4) 250,000 2,203,125
- ------------------------------------------------------------------------------------------------------------
Cross Timbers Oil Co. 160,000 2,240,000
- ------------------------------------------------------------------------------------------------------------
Nabors Industries, Inc.(4) 500,000 3,750,000
- ------------------------------------------------------------------------------------------------------------
Newfield Exploration Co.(4) 80,000 1,720,000
- ------------------------------------------------------------------------------------------------------------
NUMAR Corp.(4) 145,000 1,323,125
- ------------------------------------------------------------------------------------------------------------
St. Mary Land & Exploration Co. 250,000 3,218,750
- ------------------------------------------------------------------------------------------------------------
Stone Energy Corp.(4) 200,000 2,950,000
- ------------------------------------------------------------------------------------------------------------
Weatherford International, Inc.(4) 260,000 2,730,000
------------
20,135,000
- ------------------------------------------------------------------------------------------------------------
FINANCIAL--3.7%
- ------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--3.7%
- ------------------------------------------------------------------------------------------------------------
First USA, Inc. 135,000 5,670,000
- ------------------------------------------------------------------------------------------------------------
Foothill Group, Inc. (The), Cl. A 430,000 8,546,250
- ------------------------------------------------------------------------------------------------------------
Green Tree Financial Corp. 169,200 6,937,200
- ------------------------------------------------------------------------------------------------------------
Renters Choice, Inc.(4) 280,000 4,340,000
------------
25,493,450
- ------------------------------------------------------------------------------------------------------------
INDUSTRIAL--5.9%
- ------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.9%
- ------------------------------------------------------------------------------------------------------------
Oak Industries, Inc.(4) 235,000 6,051,250
- ------------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS--0.9%
- ------------------------------------------------------------------------------------------------------------
Giant Cement Holding, Inc.(4) 240,000 2,760,000
- ------------------------------------------------------------------------------------------------------------
U.S. Can Corp.(4) 165,000 3,506,250
------------
6,266,250
- ------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--3.7%
- ------------------------------------------------------------------------------------------------------------
Acxiom Corp.(4) 200,000 3,350,000
- ------------------------------------------------------------------------------------------------------------
Daisytek International Corp.(4) 140,000 3,027,500
- ------------------------------------------------------------------------------------------------------------
Fritz Cos., Inc.(4) 120,000 7,710,000
- ------------------------------------------------------------------------------------------------------------
Kent Electronics Corp.(4) 135,000 3,982,500
- ------------------------------------------------------------------------------------------------------------
United Waste Systems, Inc.(4) 270,000 7,627,500
------------
25,697,500
- ------------------------------------------------------------------------------------------------------------
MANUFACTURING--0.4%
- ------------------------------------------------------------------------------------------------------------
Cyrk International, Inc.(4) 150,000 2,568,750
- ------------------------------------------------------------------------------------------------------------
Greenbrier Companies, Inc. 24,800 368,900
------------
2,937,650
- ------------------------------------------------------------------------------------------------------------
TECHNOLOGY--20.3%
- ------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--3.6%
- ------------------------------------------------------------------------------------------------------------
AER Energy Resources, Inc.(4) 268,000 1,239,500
- ------------------------------------------------------------------------------------------------------------
Data Translation, Inc.(4) 100,000 3,200,000
- ------------------------------------------------------------------------------------------------------------
EMC Corp.(4) 390,000 6,532,500
</TABLE>
8 Oppenheimer Discovery Fund
<PAGE> 9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
==========================================================
==================================================
<S> <C> <C>
COMPUTER HARDWARE
(CONTINUED)
- ------------------------------------------------------------------------------------------------------------
In Focus Systems, Inc. 42,300 $ 1,099,800
- ------------------------------------------------------------------------------------------------------------
Planar Systems, Inc.(4) 200,000 4,200,000
- ------------------------------------------------------------------------------------------------------------
Proxima Corp.(4) 95,000 2,458,125
- ------------------------------------------------------------------------------------------------------------
Symbol Technologies, Inc.(4) 197,600 6,076,200
------------
24,806,125
- ------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--9.5%
- ------------------------------------------------------------------------------------------------------------
7th Level, Inc.(4) 235,000 1,938,750
- ------------------------------------------------------------------------------------------------------------
Aspen Technologies, Inc.(4) 135,000 2,666,250
- ------------------------------------------------------------------------------------------------------------
Cornerstone Imaging, Inc.(4) 197,000 3,570,625
- ------------------------------------------------------------------------------------------------------------
Davidson & Associates, Inc.(4) 80,000 2,680,000
- ------------------------------------------------------------------------------------------------------------
FTP Software, Inc.(4) 235,000 7,461,250
- ------------------------------------------------------------------------------------------------------------
HBO & Co. 260,000 11,310,000
- ------------------------------------------------------------------------------------------------------------
McAfee Associates, Inc.(4) 250,800 7,273,200
- ------------------------------------------------------------------------------------------------------------
Microtec Research, Inc.(4) 300,000 3,750,000
- ------------------------------------------------------------------------------------------------------------
National Instruments Corp.(4) 156,000 2,808,000
- ------------------------------------------------------------------------------------------------------------
Oracle Systems Corp.(4) 126,600 3,956,250
- ------------------------------------------------------------------------------------------------------------
Pairgain Technologies, Inc.(4) 100,000 2,387,500
- ------------------------------------------------------------------------------------------------------------
Project Software & Development, Inc.(4) 99,500 2,437,750
- ------------------------------------------------------------------------------------------------------------
Simula, Inc. 85,000 1,742,500
- ------------------------------------------------------------------------------------------------------------
Softkey International, Inc.(4) 250,000 6,812,500
- ------------------------------------------------------------------------------------------------------------
SPSS, Inc.(4)(5) 335,000 4,187,500
------------
64,982,075
- ------------------------------------------------------------------------------------------------------------
ELECTRONICS--3.2%
- ------------------------------------------------------------------------------------------------------------
Advanced Technology Materials, Inc.(4) 172,200 1,226,925
- ------------------------------------------------------------------------------------------------------------
Credence Systems Corp.(4) 75,000 2,343,750
- ------------------------------------------------------------------------------------------------------------
Fusion Systems Corp.(4) 150,000 4,387,500
- ------------------------------------------------------------------------------------------------------------
Integrated Silicon Solution, Inc.(4) 100,000 3,500,000
- ------------------------------------------------------------------------------------------------------------
Lam Research Corp.(4) 50,000 2,237,500
- ------------------------------------------------------------------------------------------------------------
Novellus Systems, Inc.(4) 30,000 1,860,000
- ------------------------------------------------------------------------------------------------------------
Sanmina Corp.(4) 200,000 6,500,000
------------
22,055,675
- ------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-
TECHNOLOGY--4.0%
- ------------------------------------------------------------------------------------------------------------
Arch Communications Group, Inc.(4) 220,000 4,290,000
- ------------------------------------------------------------------------------------------------------------
DSP Communications, Inc.(4) 76,000 1,007,000
- ------------------------------------------------------------------------------------------------------------
Glenayre Technologies, Inc.(4) 172,500 7,848,750
- ------------------------------------------------------------------------------------------------------------
Intertel Communications, Inc.(4) 150,000 1,625,625
- ------------------------------------------------------------------------------------------------------------
Intertel Communications, Inc.(2)(4) 22,500 243,844
- ------------------------------------------------------------------------------------------------------------
LCI International, Inc.(4) 284,100 7,066,988
- ------------------------------------------------------------------------------------------------------------
Periphonics Corp. 131,200 2,132,000
- ------------------------------------------------------------------------------------------------------------
PriCellular Corp., Cl. A(4) 200,000 1,425,000
- ------------------------------------------------------------------------------------------------------------
ProNet, Inc.(4) 105,000 1,903,126
------------
27,542,333
------------
Total Common Stocks (Cost $404,501,432) 512,147,209
</TABLE>
9 Oppenheimer Discovery Fund
<PAGE> 10
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
==========================================================
==================================================
<S> <C> <C>
PREFERRED STOCKS--0.8%
- ------------------------------------------------------------------------------------------------------------
AK Steel Holding Corp., 7% Cv. Stock Appreciation Income Linked Securities 75,000 $ 2,156,250
- ------------------------------------------------------------------------------------------------------------
Silicon Video Corp., $2.50 Cv., Series D(2) 1,200,000 3,000,000
------------
Total Preferred Stocks (Cost $5,306,250) 5,156,250
</TABLE>
<TABLE>
<CAPTION>
UNITS
==========================================================
==================================================
<S> <C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- ------------------------------------------------------------------------------------------------------------
China Aerospace International Holdings Wts., Exp. 12/95 2,400,000 17,070
- ------------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc. Wts., Exp. 12/97 40,110 0
- ------------------------------------------------------------------------------------------------------------
Windmere Corp. Wts., Exp. 1/98 238 0
- ------------------------------------------------------------------------------------------------------------
Xoma Corp. Wts., Exp. 6/95 6,914 380
------------
Total Rights, Warrants and Certificates (Cost $263,061) 17,450
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
==========================================================
==================================================
<S> <C> <C>
REPURCHASE AGREEMENTS--21.3%
- ------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets, 6.25%, dated
3/31/95, to be repurchased at $146,676,354 on 4/3/95, collateralized by
U.S. Treasury Nts., 4.75%--8.875%, 5/15/96--10/31/99, with a value of
$127,920,028 and U.S. Treasury Bonds, 8.125%--12.50%, 8/14/14--8/15/19,
with a value of $21,771,292 (Cost $146,600,000) $146,600,000 146,600,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $585,818,515) 101.5% 697,712,427
- ------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (1.5) (10,474,142)
------------ ------------
NET ASSETS 100.0% $687,238,285
============ ============
</TABLE>
(1) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $25,839,938 or 3.76% of the Fund's net
assets, at March 31, 1995.
(2) Identifies issues considered to be illiquid--See Note 5 of Notes to
Financial Statements.
(3) Interest or dividend is paid in kind.
(4) Non-income producing security.
(5) Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended March 31, 1995.
The aggregate fair value of all securities of affiliated companies as of March
31, 1995 amounted to $4,487,500. Transactions during the period in which the
issuer was an affiliate are as follows:
<TABLE>
<CAPTION>
BALANCE SEPTEMBER 30, 1994 GROSS ADDITIONS GROSS REDUCTIONS BALANCE
MARCH 31, 1995
-------------------------- -------------------- ------------------- ----------------------
SHARES COST SHARES COST SHARES COST SHARES COST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SPSS, Inc. 300,000 $2,400,000 35,000 $566,875 -- $ -- 335,000 $2,966,875
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Discovery Fund
<PAGE> 11
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
==========================================================
=====================================================
<S> <C>
ASSETS
Investments, at value (including repurchase agreements of $146,600,000)
(cost $585,818,515)--see accompanying statement $697,712,427
- ---------------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 6,081,861
Shares of beneficial interest sold 1,324,413
Interest and dividends 594,335
- ---------------------------------------------------------------------------------------------------------------
Other 43,150
------------
Total assets 705,756,186
==========================================================
=====================================================
LIABILITIES
Bank overdraft 3,383,290
- ---------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 11,166,033
Shares of beneficial interest redeemed 2,568,604
Transfer and shareholder sevicing agent fees--Note 4 533,543
Distribution and service plan fees--Note 4 384,430
Trustees' fees 54,405
Dividends 317
Other 427,279
------------
Total liabilities 18,517,901
==========================================================
=====================================================
NET ASSETS $687,238,285
==========================================================
=====================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $566,554,298
- ---------------------------------------------------------------------------------------------------------------
Accumulated net investment loss (800,281)
- ---------------------------------------------------------------------------------------------------------------
Accumulated net realized gain from investment and written options transactions 9,590,356
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 111,893,912
------------
Net assets $687,238,285
==========================================================
=====================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of $643,286,833 and
18,190,715 shares of beneficial interest outstanding) $35.36
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $37.52
- ---------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$41,548,192 and 1,184,578 shares of beneficial interest outstanding) $35.07
- ---------------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$2,403,260 and 67,817 shares of beneficial interest outstanding) $35.44
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Discovery Fund
<PAGE> 12
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Six Months Ended March 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
==========================================================
====================================================
<S> <C>
INVESTMENT INCOME
Interest $ 3,817,986
- --------------------------------------------------------------------------------------------------------------
Dividends 387,190
-----------
Total income 4,205,176
==========================================================
====================================================
EXPENSES
Management fees--Note 4 2,272,080
- --------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4
Class A 717,286
Class B 158,109
- --------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 1,300,345
- --------------------------------------------------------------------------------------------------------------
Shareholder reports 246,585
- --------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 156,600
- --------------------------------------------------------------------------------------------------------------
Legal and auditing fees 24,427
- --------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 2,972
Class B 5,342
Class Y 696
- --------------------------------------------------------------------------------------------------------------
Other 5,428
-----------
Total expenses 4,889,870
==========================================================
====================================================
NET INVESTMENT LOSS (684,694)
==========================================================
====================================================
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
AND OPTIONS WRITTEN
Net realized gain from:
Investments 12,111,437
Closing of option contracts written--Note 6 807,864
-----------
Net realized gain 12,919,301
- --------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 13,052,932
-----------
Net realized and unrealized gain on investments and options written 25,972,233
==========================================================
====================================================
Net Increase in Net Assets Resulting From Operations $25,287,539
===========
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer Discovery Fund
<PAGE> 13
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1995 SEPTEMBER 30,
(UNAUDITED) 1994
==========================================================
=======================================================
<S> <C> <C>
OPERATIONS
Net investment loss $ (684,694) $ (2,044,185)
- -----------------------------------------------------------------------------------------------------------------
Net realized gain on investments and options written 12,919,301 28,310,742
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 13,052,932 (71,924,513)
------------ ------------
Net increase (decrease) in net assets resulting from operations 25,287,539 (45,657,956)
==========================================================
=======================================================
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net realized gain on investments and options written:
Class A ($1.617 and $1.00 per share, respectively) (27,415,478) (15,359,681)
Class B ($1.617 per share) (1,382,429) --
Class Y ($1.617 per share) (40,545) --
==========================================================
=======================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from Class A beneficial
interest transactions--Note 2 33,370,395 88,455,074
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B beneficial
interest transactions--Note 2 14,870,487 25,739,503
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class Y beneficial
interest transactions--Note 2 2,123,459 190,922
==========================================================
=======================================================
NET ASSETS
Total increase 46,813,428 53,367,862
- -----------------------------------------------------------------------------------------------------------------
Beginning of period 640,424,857 587,056,995
End of period (including accumulated net investment losses ------------ ------------
of $800,281 and $115,587, respectively) $687,238,285 $640,424,857
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer Discovery Fund
<PAGE> 14
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31,
1995 YEAR ENDED SEPTEMBER 30,
(UNAUDITED) 1994 1993 1992 1991 1990
==========================================================
=========================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $35.81 $39.90 $27.62 $26.03 $17.97 $24.51
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.03) .26 (.13) (.17) .06 .16
Net realized and unrealized gain (loss)
on investments and options written 1.20 (3.35) 12.41 3.05 8.87 (4.84)
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations 1.17 (3.09) 12.28 2.88 8.93 (4.68)
- -------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income -- -- -- -- (.19) (.30)
Distributions from net realized gain on
investments and options written (1.62) (1.00) -- (1.29) (.68) (1.56)
------ ------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.62) (1.00) -- (1.29) (.87) (1.86)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.36 $35.81 $39.90 $27.62 $26.03 $17.97
====== ====== ====== ====== ======
======
==========================================================
=========================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 3.71% (7.91)% 44.46% 11.28% 51.88%
(20.34)%
==========================================================
=========================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $643,287 $613,740 $587,057 $294,010 $117,110 $50,357
- -------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $603,467 $588,642 $451,016 $218,065 $ 75,083 $54,454
- -------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 18,191 17,139 14,713 10,647 4,499 2,802
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (.18)%(4) (.34)% (.54)% (.62)% .22% .83%
Expenses 1.51%(4) 1.32% 1.27% 1.52% 1.42% 1.53%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 41.1% 83.3% 85.2% 67.9% 158.1% 234.6%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS Y
-------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED PERIOD ENDED PERIOD
MARCH 31, ENDED MARCH 31, ENDED
1995 SEPT. 30, 1995 SEPT. 30,
(UNAUDITED) 1994(2) (UNAUDITED) 1994(1)
==========================================================
===============================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $35.65 $35.65 $35.81 $34.89
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.13) .03 (.07) .11
Net realized and unrealized gain (loss)
on investments and options written 1.17 (.03) 1.32 .81
------ ------ ------ ------
Total income (loss) from investment
operations 1.04 -- 1.25 .92
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income -- -- -- --
Distributions from net realized gain on
investments and options written (1.62) -- (1.62) --
------ ------ ------ ------
Total dividends and distributions
to shareholders (1.62) -- (1.62) --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.07 $35.65 $35.44 $35.81
====== ====== ====== ======
==========================================================
===============================================
TOTAL RETURN, AT NET ASSET VALUE(3) 3.35% (1.93)% 3.94% 3.20%
==========================================================
===============================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $41,548 $26,491 $2,403 $ 194
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $31,669 $12,435 $1,003 $ 39
- ---------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 1,185 743 68 5
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (.89)%(4) (1.06)%(4) .40%(4) (.13)%(4)
Expenses 2.25%(4) 2.36%(4) 1.08%(4) 1.41%(4)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 41.1% 83.3% 41.1% 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. 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. Total returns are not annualized for
periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the six
months ended March 31, 1995 were $224,844,248 and $220,398,301, respectively.
See accompanying Notes to Financial Statements.
14 Oppenheimer Discovery Fund
<PAGE> 15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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. No such plan has been adopted for
Class Y shares. 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 the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term "non-money market" debt securities are valued by a portfolio
pricing service approved by the Board of Trustees. Such securities which cannot
be valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or under consistently applied procedures established by the Board of
Trustees to determine fair value in good faith. Short-term "money market type"
debt securities having a remaining maturity of 60 days or less are valued at
cost (or last determined market value) adjusted for amortization to maturity of
any premium or discount. Forward contracts are valued based on the closing
prices of the forward currency contract rates in the London foreign exchange
markets on a daily basis as provided by a reliable bank or dealer. Options are
valued based upon the last sale price on the principal exchange on which the
option is traded or, in the absence of any transactions that day, the value is
based upon the last sale price on the prior trading date if it is within the
spread between the closing bid and asked prices. If the last sale price is
outside the spread, the closing bid or asked price closest to the last reported
sale price is used.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the six months
ended March 31, 1995, a provision of $12,680 was made for the Fund's projected
benefit obligations, and a payment of $2,280 was made to a retired trustee,
resulting in an accumulated liability of $128,141 at March 31, 1995.
15 Oppenheimer Discovery Fund
<PAGE> 16
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of the reclassification of net operating losses. The character
of the distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year that the income
or realized gain (loss) was recorded by the Fund. Effective 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 determin ed in
accordance with income tax regulations.
- --------------------------------------------------------------------------------
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>
SIX MONTHS ENDED MARCH 31, 1995 YEAR ENDED SEPTEMBER 30, 1994(1)
------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 6,402,989 $ 217,189,983 10,323,810 $ 381,892,840
Distributions reinvested 821,890 26,423,762 384,457 14,724,695
Redeemed (6,172,878) (210,243,350) (8,282,662) (308,162,461)
---------- ------------- ---------- -------------
Net increase 1,052,001 $ 33,370,395 2,425,605 $ 88,455,074
========== ============= ==========
=============
- ------------------------------------------------------------------------------------------------------
Class B:
Sold 778,338 $ 26,450,016 961,766 $ 33,185,516
Distributions reinvested 42,037 1,343,501 -- --
Redeemed (378,780) (12,923,030) (218,783) (7,446,013)
---------- ------------- ---------- -------------
Net increase 441,595 $ 14,870,487 742,983 $ 25,739,503
========== ============= ==========
=============
- ------------------------------------------------------------------------------------------------------
Class Y:
Sold 67,827 $ 2,311,937 5,405 $ 190,967
Distributions reinvested 1,260 40,545 -- --
Redeemed (6,674) (229,023) (1) (45)
---------- ------------- ---------- -------------
Net increase 62,413 $ 2,123,459 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 INVESTMENTS
At March 31, 1995, net unrealized appreciation on investments of $111,893,912
was composed of gross appreciation of $135,546,444, and gross depreciation of
$23,652,532.
16 Oppenheimer Discovery Fund
<PAGE> 17
==========================================================
======================
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 state regulatory limit on Fund
expenses.
For the six months ended March 31, 1995, commissions (sales charges
paid by investors) on sales of Class A shares totaled $1,424,597, of which
$459,186 was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and by an affiliated
broker/dealer. Sales charges advanced to broker/dealers by OFDI on sales of the
Fund's Class B shares totaled $603,196, of which $64,677 was paid to an
affiliated broker/dealer. During the six months ended March 31, 1995, OFDI
received contingent deferred sales charges of $34,757 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 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 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 six months ended March 31, 1995, OFDI
paid $52,285 and $186, respectively, to an affiliated broker/dealer as
reimbursement for Class A and Class B personal service and maintenance expenses
and retained $153,957 as reimbursement for Class B sales commissions and service
fee advances, as well as financing costs.
==========================================================
======================
5. ILLIQUID SECURITIES
At March 31, 1995, investments in securities included issues that are illiquid
or restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase) in illiquid or
restricted securities. The aggregate value of these securities subject to this
limitation at March 31, 1995 was $7,014,737, which represents 1.02% of the
Fund's net assets. Information concerning these securities is as follows:
<TABLE>
<CAPTION>
VALUATION
PER UNIT AS OF
SECURITY ACQUISITION DATE COST PER UNIT MARCH 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IntelCom Group, Inc., 7% Cv. Sub. Nts., 10/30/98 10/26/93--10/27/93 $ 99.75 $70.84
- -------------------------------------------------------------------------------------------------------------------
IntelCom Group, Inc., 8% Cv. Sub. Debs., 9/24/98 9/24/93 $100.00 $73.55
- -------------------------------------------------------------------------------------------------------------------
Intertel Communications, Inc. 6/9/93 $ 5.50 $10.84
- -------------------------------------------------------------------------------------------------------------------
PerSeptive Biosystems, Inc., 8.25% Cv. Sub. Debs., 8/15/00 8/19/94 $100.00 $72.50
- -------------------------------------------------------------------------------------------------------------------
Silicon Video Corp., $2.50 Cv., Series D 3/31/95 $ 2.50 $ 2.50
</TABLE>
Pursuant to guidelines adopted by the Board of Trustees, certain unregistered
securities are determined to be liquid and are not included within the 10%
limitation specified above.
17 Oppenheimer Discovery Fund
<PAGE> 18
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
- --------------------------------------------------------------------------------
6. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write covered call options on
portfolio securities in order to produce incremental earnings or protect against
changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call
options to hedge against adverse movements in the value of portfolio holdings.
When an option is written, the Fund receives a premium and becomes obligated to
sell or purchase the underlying security at a fixed price, upon exercise of the
option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
In this report, securities designated to cover outstanding call
options are noted in the Statement of Investments. Shares subject to call,
expiration date, exercise price, premium received and market value are detailed
in a footnote to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written put option activity for the six months ended March 31, 1995 was as
follows:
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF
PUT OPTION ACTIVITY OPTIONS PREMIUMS
- ------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at September 30, 1994 13,000 $ 2,540,764
- ------------------------------------------------------------------------------
Options canceled in closing purchase transactions (13,000) (2,540,764)
------- -----------
Options outstanding at March 31, 1995 -- $ --
======= ===========
</TABLE>
<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
