OPPENHEIMER
[Convertible Securities Fund]
Prospectus Dated April [28, 1998] [Oppenheimer Convertible Securities Fund is a
diversified, open-end] mutual fund that seeks a high level of total return on
its assets through a combination of current income and capital appreciation. The
Fund intends to seek its objective by investing primarily in convertible fixed
income securities. There can be no assurance that the Fund will achieve its
objective.
The Fund invests a substantial portion of its assets in high-yield, lower
rated bonds which are commonly referred to as "junk bonds." Investments of this
type are subject to greater risk of loss of principal and interest. Purchasers
should carefully assess 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 refer to "Investment Risks" for
a discussion of 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 April
[28, 1998] Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
(logo)OppenheimerFunds
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-1-
<PAGE>
Contents
A B O U T T H E F U N D
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
Investment Risks
Investment Policies and Strategies
How the Fund Is Managed
Performance of the Fund
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class M Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
A-1 Appendix A: Description of Securities Ratings
B-1 Appendix B: Sales Charge Waivers on Purchases of Class M Shares
for Accounts Established Prior to March 11, 1996
C-1 Appendix C: Special Sales Charge Arrangements for Shareholders of
the Fund Who Were Shareholders of the Former Quest for
Value Funds
-2-
<PAGE>
A B O U T T H E F U N D
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
calculations for Class A shares, Class B shares, Class C shares and Class M
shares are based on the Fund's expenses during its last fiscal year which
ended December 31, [1997]. On March 11, 1996, the Fund redesignated as "Class
M shares" its Class A shares which had been outstanding prior to that date and
redesignated as "Class A shares" its Class Y shares which had been outstanding
prior to that date.
o Shareholder Transaction Expenses are charges you pay when you buy or sell
shares of the Fund. Please refer to "About Your Account" starting on page 30
for an explanation of how and when these charges apply.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class A Class B Class C Class M
Shares Shares Shares Shares
-------------------------------------------------------------------------
Maximum Sales Charge on 5.75% None None 3.25%
Purchase (as a % of
offering price)
-------------------------------------------------------------------------
Maximum Contingent Deferred None(1) 5% in the 1% if None
Sales Charge (as a % of the first year shares are
purchase price declining to redeemed
or redemption 1% in the within
proceeds) sixth year and12 months of
eliminated purchase(2)
thereafter(2)
-------------------------------------------------------------------------
Maximum Sales Charge on None None None None
Dividends Reinvested
-------------------------------------------------------------------------
Exchange Fee None None None None
-------------------------------------------------------------------------
Redemption Fee [(3) None(3) None(3) None(3) None(3)]
</TABLE>
(1) If you invest $1 million or more ($500,000 or more for purchases by
["Retirement] Plans[,"] as [defined] in ["Class] A Contingent Deferred Sales
Charge["] on page 35 in Class A shares[,] you may have to pay a sales charge
of up to 1% if you sell your shares within [12] calendar months [(18 months for
shares purchased prior to May 1, 1997)] from the end of the calendar month
[during] which you purchased those shares. See ["How] to Buy Shares - Buying
Class A Shares[," below.]
[(2) For more information on contingent deferred sales charges, see "How to Buy
Shares --] Buying Class B Shares["] and ["How] to Buy Shares -[-] Buying Class C
Shares[" below.
(3) There is a $10 transaction fee for redemptions paid by Federal Funds wire,
but not for redemptions paid by ACH transfer through AccountLink.]
o 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, OppenheimerFunds, Inc. (which is
referred to in this Prospectus as the "Manager"). The rates of the Manager's
fees are set forth in "How the Fund is Managed" below. The Fund has other
regular expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds the Fund's portfolio securities, audit fees and legal
expenses. Those expenses are detailed in the Fund's Financial Statements in the
Statement of Additional Information.
Annual Fund Operating Expenses (As a Percentage of Average Net Assets):
Class A Class B Class C Class M
Shares Shares Shares Shares
--------------------------------------------------------------
Management Fees [0.47% 0.47% 0.47% .047%]
---------------------------------------------------------------
12b-1 Plan Fees 0.25% 1.00% 1.00% 0.75%
---------------------------------------------------------------
Other Expenses [0.23% 0.25% .023% 0.24%]
---------------------------------------------------------------
Total Fund Operating
Expenses [0.95% 1.72% 1.70% 1.46%]
[The numbers in the chart above are based on the Fund's expenses in its]
fiscal year ended December 31, [1997] . These amounts are shown as a percentage
of the average net assets of each class for that year.
The 12b-1 Distribution Plan Fees for Class A shares consist of service fees
of 0.25% of average net assets of that class. For Class B shares and Class C
shares, the 12b-1 Distribution Plan Fees consist of service fees and the
asset-based sales charge; in each instance the service fee is 0.25% of average
net assets of the class and the asset-based sales charge is 0.75% of average net
assets of the class. The Distribution Plan Fees for Class M shares consist of
service fees of 0.25% of average net assets and the asset-based sales charge of
0.50% of average net assets. 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 above chart, depending on a number of
factors, including the actual value of the Fund's assets represented by each
class of shares.
o Examples. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical examples shown below. Assume that
you make a $1,000 investment in each class of shares of the Fund, and that the
Fund's annual return is 5%, and that its operating expenses for each class are
the ones shown in the Annual Fund Operating Expenses table above. If you were to
redeem your shares at the end of each period shown below, your investment would
incur the following expenses by the end of 1, 3, 5 and 10 years:
1 Year 3 Years 5 Years 10 Years*
------ ------- ------- --------
Class A Shares $67 [$86 $107 $167]
Class B Shares [$67 $84 $113 $164]
Class C Shares $27 [$54 $92 $201]
Class M Shares [$47 $77 $110 $201]
If you did not redeem your investment, it would incur the following expenses:
1 Year 3 Years 5 Years 10 Years*
------ ------- ------- ---------
Class A Shares $67 [$86 $107 $167]
Class B Shares [$17 $54 $93 $164]
Class C Shares $17 [$54 $92 $201]
Class M Shares [$47 $77 $110 $201]
*In the first example, expenses include the Class A and Class M initial
sales charges and the applicable Class B or Class C contingent deferred sales
charges. In the second example, Class A and Class M expenses include the initial
sales charge, but Class B and Class C expenses do not include contingent
deferred sales charges. The Class B expenses in years 7 through 10 are based on
Class A expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Because of the effect of the
asset-based sales charge on Class B, Class C and Class M shares and the
contingent deferred sales charge on Class B and Class C shares, long-term Class
B, Class C and Class M shareholders could pay the economic equivalent of an
amount greater than the maximum front-end sales charge allowed under applicable
regulations. 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 - Buying Class B Shares" for more
information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns of the
Fund, all of which may be more or less than those shown.
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.
o What is the Fund's Investment Objective? The Fund's investment objective
is to seek a high level of total return on its assets through a combination of
current income and capital appreciation. The Fund intends to seek its objective
by investing primarily in convertible fixed income securities. There can be no
assurance that the Fund will achieve its objective.
o What Does the Fund Invest In? The Fund invests primarily in a portfolio
that consists of a variety of convertible fixed income securities which, in the
opinion of the Manager, will assist the Fund in achieving its investment
objective. Convertible securities include corporate bonds, notes and preferred
stock which can be converted into (exchanged for) common stock, and other
securities, such as warrants and options, which provide an opportunity for
equity participation.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in convertible [securities.] Many convertible [securities] are
lower rated, speculative securities commonly referred to as "junk bonds." See
"Investment Risks" for a more detailed description of the risks of investing in
lower rated securities. The balance of up to 35% of the total assets comprising
the Fund's portfolio may be invested in common stocks, non-convertible fixed
income securities, cash and money market securities, including repurchase
agreements. No more than 15% of the total assets of the Fund, however, may be
invested in non-dividend paying common stocks. If, at any time, the market value
of the Fund's investments in cash, common stocks and non-convertible securities
exceeds 35% of the market value of its total assets as a result of market
conditions or a call by an issuer of its convertible securities, the Fund will
(except when a temporary defensive position is deemed advisable) thereafter
invest only in convertible [securities] until the 65% standard is met. The Fund
will not be required to sell any of its securities to comply with the 65%
standard. These investments and investment methods are more fully described in
"Investment Objective and Policies" starting on page 14.
o Who Manages the Fund? The Fund's investment adviser is OppenheimerFunds,
Inc. The Manager (including [subsidiaries)] manages investment company
portfolios having over [$85] billion in assets at March 31, [1998]. The Manager
is paid an advisory fee by the Fund, based on its assets. The Fund's portfolio
manager, [Michael S. Rosen,] is employed by the Manager and is primarily
responsible for the selection of the Fund's securities. The Fund's Board of
Trustees, elected by shareholders, oversees the investment adviser and the
portfolio manager. Please refer to "How the Fund is Managed" starting on page
23 for more information about the Manager and its fees.
o How Risky is the Fund? All investments carry risks to some degree. The
Fund may invest all or any portion of its assets in high-yield, lower-rated
fixed-income securities. The primary advantage of high-yield securities is their
relatively higher investment return. However, such securities are considered
speculative and may be subject to greater market fluctuations and risks of loss
of income and principal and have less liquidity than investments in higher-rated
securities. Fixed-income securities are also subject to interest rate risks and
credit risks which can negatively impact the value of the security and the
Fund's net asset value per share. There are certain risks associated with
investments in foreign securities, including those related to changes in foreign
currency rates, that are not present in domestic securities. These changes
affect the value of the Fund's investments and its price per share.
In the Oppenheimer funds spectrum, the Fund is generally more conservative
than aggressive growth funds, but more aggressive than investment grade bond
funds. While the Manager tries to reduce risks by structuring the Fund's
portfolio to include a broad spectrum of 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 Risks" starting on page
15 for a more complete discussion of these risks.
o 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" starting on page 30 for more
details.
o Will I Pay a Sales Charge to Buy Shares? The Fund offers the individual
investor four classes of shares. All classes have the same investment portfolio,
but different expenses. Class A shares and Class M shares are offered with
front-end sales charges, starting at 5.75% and 3.25%, respectively, and reduced
for larger purchases. Class B shares 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 (Class B) or 12 months (Class C) of purchase. There
is also an annual asset-based sales charge on Class B shares, Class C shares and
Class M shares. Please review "How To Buy Shares" starting on page 30 for more
details, including a discussion about factors you and your financial advisor
should consider in determining which class may be appropriate for you.
o 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" starting on page 48. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How To Exchange Shares"
starting on page 50.
o How Has the Fund Performed? The Fund measures its performance by quoting
its yield and total returns, which measure historical performance. Those yields
and returns can be compared to the yields and 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-based
market indices, which we have done on pages 28 and 29. Please remember that past
performance does not guarantee future results.
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 Price
Waterhouse LLP, the Fund's independent [accountants], whose report on the Fund's
financial statements for the fiscal year ended December 31, [1997], is included
in the Statement of Additional Information. On March 11, 1996, the Fund
redesignated as "Class M shares" its Class A shares which had been outstanding
prior to that date and redesignated as "Class A shares" its Class Y shares which
had been outstanding prior to that date.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996(3) 1995(5)
==============================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $14.27 $13.96 $13.11
- ----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .71 .73 .54
Net realized and unrealized gain (loss) 1.93 .65 1.48
------ ------ ------
Total income (loss) from investment
operations 2.64 1.38 2.02
- ----------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.72) (.72) (.68)
Distributions from net realized gain (.87) (.35) (.49)
------ ------ ------
Total dividends and distributions to
shareholders (1.59) (1.07) (1.17)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $15.32 $14.27 $13.96
====== ====== ======
==============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(6) 18.77% 10.13% 15.54%
==============================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $192,212 $93,578 $2,502
- ----------------------------------------------------------------------------------------------
Average net assets (in thousands) $145,929 $41,617 $1,799
- ----------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.58% 5.11% 5.63%(8)
Expenses 0.95% 0.98%(7) 1.05%(7)(8)
Expenses (excluding interest)(9) 0.95% 0.97% 1.01%(8)
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(10) 78.5% 52.7% 57.5%
</TABLE>
1. Net of fees and expenses waived or reimbursed by Fielding Management Company,
Inc. (the former manager) and Rochester Fund Services, Inc. (the former
shareholder servicing agent), which amounted to $.07 per share. Without
reimbursement, the ratios would have been 6.79%, 2.82% and 2.75%, respectively.
2. Net of fees and expenses waived or reimbursed by Fielding Management Company,
Inc. (the former manager), which amounted to $.01 per share. Without
reimbursement, the ratios would have been 6.50%, 2.06% and 2.04%, respectively.
3. On January 4, 1996, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
4. For the period from March 11, 1996 (inception of offering) to December 31,
1996.
5. For the period from May 1, 1995 (inception of offering) to December 31, 1995.
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
2
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
- ------------------------------------------ -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996(3) 1995(5) 1997 1996(3)(4)
================================================================================
<S> <C> <C> <C> <C>
$14.29 $13.98 $13.11 $14.27 $14.03
- --------------------------------------------------------------------------------
.59 .62 .45 .59 .50
1.94 .65 1.51 1.93 .59
------ ------ ------ ------ ------
2.53 1.27 1.96 2.52 1.09
- --------------------------------------------------------------------------------
(.60) (.61) (.60) (.60) (.50)
(.87) (.35) (.49) (.87) (.35)
------ ------ ------ ------ ------
(1.47) (.96) (1.09) (1.47) (.85)
- --------------------------------------------------------------------------------
$15.35 $14.29 $13.98 $15.32 $14.27
====== ====== ====== ====== ======
================================================================================
17.93% 9.28% 15.09% 17.88% 7.74%
================================================================================
$383,755 $211,176 $34,465 $85,397 $38,312
- --------------------------------------------------------------------------------
$296,426 $113,784 $15,184 $62,343 $18,550
- --------------------------------------------------------------------------------
3.80% 4.31% 4.82%(8) 3.82% 4.32%(8)
1.72% 1.75%(7) 1.69%(7)(8) 1.70% 1.68%(7)(8)
1.72% 1.73% 1.64%(8) 1.70% 1.67%(8)
- --------------------------------------------------------------------------------
78.5% 52.7% 57.5% 78.5% 52.7%
</TABLE>
7. The expense ratios reflect the effect of gross expenses paid indirectly by
the Fund.
8. Annualized.
9. During the periods shown above, the Fund's interest expense was substantially
offset by the incremental interest income generated on bonds purchased with
borrowed funds.
10. 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 period
ended December 31, 1997 were $831,794,079 and $596,914,610, respectively.
Per share information has been determined based on average shares outstanding
for the period.
3
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED) CLASS M
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
1997 1996(3) 1995 1994
======================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $14.27 $13.96 $12.20 $13.16
- ------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .62 .65 .70 .68
Net realized and unrealized gain (loss) 1.94 .66 2.42 (.81)
------ ------ ------ ------
Total income (loss) from
investment operations 2.56 1.31 3.12 (.13)
- ------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.64) (.65) (.87) (.69)
Distributions from net realized gain (.87) (.35) (.49) (.14)
------ ------ ------ ------
Total dividends and distributions
to shareholders (1.51) (1.00) (1.36) (.83)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.32 $14.27 $13.96 $12.20
====== ====== ====== ======
======================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 18.19% 9.58% 26.00% (1.12)%
======================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $297,292 $274,043 $239,341 $126,691
- ------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $285,621 $264,936 $181,719 $106,829
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.05% 4.59% 5.12% 5.24%
Expenses 1.46% 1.58%(7) 1.58%(7) 1.66%
Expenses (excluding interest)(9) 1.46% 1.55% 1.56% 1.65%
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate(10) 78.5% 52.7% 57.5% 52.8%
</TABLE>
1. Net of fees and expenses waived or reimbursed by Fielding Management Company,
Inc. (the former manager) and Rochester Fund Services, Inc. (the former
shareholder servicing agent), which amounted to $.07 per share. Without
reimbursement, the ratios would have been 6.79%, 2.82% and 2.75%, respectively.
2. Net of fees and expenses waived or reimbursed by Fielding Management Company,
Inc. (the former manager), which amounted to $.01 per share. Without
reimbursement, the ratios would have been 6.50%, 2.06% and 2.04%, respectively.
3. On January 4, 1996, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
4. For the period from March 11, 1996 (inception of offering) to December 31,
1996.
5. For the period from May 1, 1995 (inception of offering) to December 31, 1995.
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1993 1992(2) 1991(1) 1990 1989 1988
================================================================================
<S> <C> <C> <C> <C> <C>
$11.43 $9.37 $7.88 $9.16 $9.03 $8.50
- --------------------------------------------------------------------------------
.59 .69 .65 .54 .57 .51
1.79 2.15 1.53 (1.26) .16 .56
------ ------ ------ ------ ------ ------
2.38 2.84 2.18 (.72) .73 1.07
- --------------------------------------------------------------------------------
(.65) (.78) (.69) (.56) (.60) (.54)
-- -- -- -- -- --
------ ------ ------ ------ ------ ------
(.65) (.78) (.69) (.56) (.60) (.54)
- --------------------------------------------------------------------------------
$13.16 $11.43 $9.37 $7.88 $9.16 $9.03
====== ====== ====== ====== ====== ======
================================================================================
21.23% 31.19% 28.50% (8.14)% 8.13% 12.43%
================================================================================
$69,375 $10,241 $6,403 $6,035 $8,423 $6,008
- --------------------------------------------------------------------------------
$36,923 $ 7,369 $6,059 -- -- --
- --------------------------------------------------------------------------------
4.70% 6.62% 7.60% 6.37% 6.17% 5.53%
1.78% 1.93% 2.01% 2.92% 2.52% 2.67%
1.75% 1.91% 1.94% 2.90% 2.43% 2.50%
- --------------------------------------------------------------------------------
88.7% 80.1% 48.6% 33.2% 54.5% 87.1%
</TABLE>
7. The expense ratios reflect the effect of gross expenses paid indirectly by
the Fund.
8. Annualized.
9. During the periods shown above, the Fund's interest expense was substantially
offset by the incremental interest income generated on bonds purchased with
borrowed funds.
10. 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 period
ended December 31, 1997 were $831,794,079 and $596,914,610, respectively.
Per share information has been determined based on average shares outstanding
for the period.
5
<PAGE>
INFORMATION ON BANK LOANS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount of debt
outstanding at
end of period
(in thousands) $ -- $ -- $9,120 $ -- $ -- $ -- $ -- $ -- $ -- $ 80
- ---------------------------------------------------------------------------------------------------------------
Average amount of
debt outstanding
throughout
each period
(in thousands) $ 468 $1,489 $ 769 $ 246 $ 213 $ 22 $ 45 $ 11 $ 47 $ 89
- ---------------------------------------------------------------------------------------------------------------
Average number of
shares outstanding
throughout
each period
(in thousands) 51,220 30,525 14,143 8,026 2,941 716 702 764 661 645
- ---------------------------------------------------------------------------------------------------------------
Average amount
of debt per share
outstanding
throughout
each period $0.01 $0.05 $0.05 $0.03 $0.07 $0.03 $0.06 $0.01 $0.07 $0.14
</TABLE>
6
Investment Objective and Policies
Objective. The Fund seeks a high level of total return on its assets through a
combination of current income and capital appreciation.
Investment Policies and Strategies. The Fund invests primarily in a portfolio
that consists of a variety of convertible fixed income securities which, in the
opinion of the Manager, will assist the Fund in achieving its investment
objective. Convertible securities include corporate bonds, notes and preferred
stock which can be converted into (exchanged for) common stock and other
securities which provide an opportunity for equity participation such as options
and warrants.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in convertible [securities]. Many convertible bonds are lower
rated, speculative securities commonly referred to as "junk bonds." See
"Investment Risks." The balance of up to 35% of the total assets comprising the
Fund's portfolio may be invested in common stocks, non-convertible fixed income
securities, cash and money market securities, including repurchase agreements.
No more than 15% of the total assets of the Fund, however, may be invested in
non-dividend paying common stocks. If, at any time, the market value of the
Fund's investments in cash, common stocks and non-convertible securities exceeds
35% of the market value of its total assets as a result of market conditions or
a call by an issuer of its convertible securities, the Fund will (except when a
temporary defensive position is deemed advisable) thereafter invest only in
convertible [securities] until the 65% standard is met. The Fund will not be
required to sell any of its securities to comply with the 65% standard.
o Can the Fund's Investment Objective and Policies Change? The investment
objective of the Fund is not a fundamental policy and, as such, may be changed
without shareholder approval. As a matter of policy, however, the Fund will not
change its objective without the approval of the majority of the Board of
Trustees. Although the Fund will seek to make investments in accordance with its
investment objective, there is no assurance that the Fund will achieve its
objective and there can be no guarantee that the value of an investment in Fund
shares might not decline.
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 Board of Trustees of the Fund may change non-
fundamental policies without shareholder approval, although significant changes
will be described in amendments or supplements to this Prospectus.
o Portfolio Turnover. ["Portfolio turnover" describes the rate at which the
Fund traded its portfolio securities during its last fiscal year. For example,
if a fund sold all of its securities during its last fiscal year, its portfolio
turnover rate would have been 100%. Portfolio turnover affects brokerage costs
the Fund pays. The Fund normally does not engage in substantial] short-term
trading to try to achieve its objective. [The Financial Highlights table above
shows the Fund's portfolio turnover rates during prior fiscal years.]
Investment Risks.
All investments carry risks to some degree, whether they are risks that market
prices of the investment will fluctuate (this is known as "market risk") or that
the underlying issuer will experience financial difficulties and may default on
its obligation under a fixed-income investment to pay interest and repay
principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the investment
techniques the Fund uses, the Fund is designed for investors who are investing
for the long term. It is not intended for investors seeking assured income or
preservation of capital. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased, and
in some cases by using hedging techniques, changes in overall market prices can
occur at any time, and because the income earned on securities is subject to
change, there is no assurance that the Fund will achieve its investment
objective. When you redeem your shares, they may be worth more or less than what
you paid for them.
o Credit Quality Considerations. The risks inherent in the Fund depend to a
larger degree upon the maturity and/or quality of securities in the Fund's
portfolio, as well as on market and general economic conditions. The Fund is
designed for investors who seek a higher total return than that offered by other
fixed income securities and who can accept greater levels of credit and other
risks associated with lower quality securities. The Fund may invest, without
limit, in convertible bonds which are in the lower rating categories of [a
nationally recognized statistical rating organization ("NRSRO")] (such as those
rated BB and below by Standard & [Poor's Ratings Group ("Standard & Poor's") or
Ba by Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Services,
Inc. ("Fitch") or Duff & Phelps, Inc. ("Duff & Phelps")], often referred to as
"junk bonds," or in convertible bonds which are unrated.
Certain risks are associated with applying credit ratings as a method for
evaluating high yield securities. Credit ratings evaluate the safety of
scheduled payments, not market value risk of high yield securities. Since credit
rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Manager seeks to monitor the issuers of high yield
securities in its portfolio to seek to determine if the issuers will have
sufficient cash flow and profits to meet required payments, and to attempt to
assure the liquidity of the securities so the Fund can meet redemption requests.
If, after purchase by the Fund, the rating of a portfolio security is lost or
reduced, the Fund would not be required to sell the security, but the Manager
would consider such a change in deciding whether the Fund should retain the
security in its portfolio. There is no guarantee that the Fund will achieve its
objective, nor can the Fund guarantee that payments of interest and principal on
portfolio securities will be timely made (or made at all).
o Special Risks of Lower Grade Securities. The Fund's investments in high
yield, lower[-]rated securities and unrated securities involve certain special
risk factors. Medium to lower[- ]rated and comparable unrated securities may
offer yields which are higher than higher[-]rated securities with comparable
maturities because the historical and/or expected future financial condition of
the issuers of such securities may not be as strong as that of other issuers.
Since medium to lower[-]rated and comparable unrated securities generally
involve greater risk of loss of income and principal than that of higher[-]rated
securities, investors should carefully consider the relative risks associated
with investments in securities which carry medium to lower[-]ratings and in
comparable unrated securities.
The high yield fixed income securities markets are relatively new, and
their growth during the 1980s paralleled a long economic expansion. The lower
ratings of high yield securities reflect the greater possibility that adverse
changes in the economic environment, the financial condition of their issuers or
both could impair the ability of their issuers to service payment obligations,
to meet projected business goals and/or to obtain additional financing. Under
such circumstances, the value of high yield securities may be more volatile and
the markets for such securities may be less liquid than those for higher-rated
securities. A real or anticipated economic downturn is, therefore, likely to
have a negative effect on the high yield securities markets and on the value of
the high yield securities in the Fund's portfolio. If the issuer of a fixed
income security owned by the Fund defaults (or threatens to default), the Fund
may incur additional expenses seeking recovery and protecting the interests of
its shareholders.
Based upon the weighted average ratings of total Fund assets during the
twelve months ending December 31, [1997], the Fund's portfolio included [(1)]
corporate bonds in the following [Standard & Poor's] rating categories or if
unrated, determined by the Manager to be of comparable quality to the category
indicated[: AAA 0.81%,AA 5.18%, A 13.53%, BBB 13.11%, BB 7.70%, B 16.19%, CCC
0.77%, and D 0.04%] for the Fund, and (2) all unrated bonds as a group comprised
[8.68%] of the Fund's assets.
o Marketability Considerations. Some issuers of convertible fixed income
securities do not seek ratings for their securities. Such unrated securities may
be considered for investment by the Fund when, in the opinion of the Manager,
the financial condition of the issuer of such securities and/or the protection
afforded by the terms of the securities themselves seem to limit the risk to the
Fund to a comparable degree to that of rated securities which are consistent
with the Fund's objective and policies. The market for these unrated securities
is usually less broad than the market for rated securities.
Some of the high yield securities owned by the Fund may be held by
relatively few institutional investors and may be thinly traded. This may have a
negative impact on the Fund's ability to accurately value such securities and
the Fund's assets, as well as on the Fund's ability to dispose of the
securities. Adverse publicity and investor perceptions of the high yield
securities market or of specific issuers, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield securities,
especially in a thinly traded market.
o Capitalization of Issuers. The Fund may invest in convertible securities
issued by companies which are in the small, medium and large size categories.
The Manager believes that investments in small capitalization companies may, in
many cases, offer greater opportunities for high total return than investments
in larger, more established companies, although investments may also be made in
convertible fixed income securities of larger companies which, in the opinion of
the Manager, appear to have high long-term total return potential. Investing in
smaller, newer issuers generally involves greater risks than investing in
larger, more established issuers. Companies in which the Fund is likely to
invest may have limited product lines, markets or financial resources and may
lack management depth. The securities issued by such companies may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market in general.
Investors should consult with their financial consultants as to what, if any,
portion of their assets might be appropriate for an investment in the Fund.
o Interest Rate Risk. Like all fixed income securities, the price of a
convertible security will be affected by interest rate fluctuations. A decline
in prevailing levels of interest rates generally increases the value of fixed
income securities in the Fund's portfolio, while an increase in interest rates
usually reduces the value of those securities. As a result, interest rate
fluctuations can be expected to affect the Fund's net asset value, but not the
actual income received by the Fund from its existing portfolio securities.
Because yields on convertible fixed income securities available for purchase by
the Fund vary over time, no specific yield on shares of the Fund can be assured.
o Foreign Securities. The Fund may invest up to 15% of its net assets in
securities of foreign issuers. There are special risks in investing in foreign
securities. Because the Fund may purchase securities denominated in foreign
currencies or traded primarily in foreign markets, a change in the value of a
foreign currency against the U.S. dollar will result in a change in the U.S.
dollar value of those foreign securities. Foreign issuers are not required to
use generally-accepted accounting principals that apply to U.S. issuers. If
foreign securities are not registered for sale in the U.S. under U.S. securities
laws, the issuer does not have to comply with disclosure requirements that U.S.
companies are subject to. The value of foreign investments may be affected by
other factors, including exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental, economic or monetary policy in the U.S.
or abroad, or other political and economic factors.
In addition, it is generally more difficult to obtain court judgments
outside the U.S. if the Fund were to sue a foreign issuer or broker. Additional
costs may be incurred because foreign brokerage commissions are generally higher
than U.S. rates, and there are additional custodial costs associated with
holding securities abroad.
[|X| Year 2000 Risks. Because many computer software systems in use today
cannot distinguish the year 2000 from the year 1900, the markets for securities
in which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failures of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. Data processing errors by corporate and government issuers of
securities could result in production problems and economic uncertainties, and
those issuers may incur substantial costs in attempting to prevent or fix such
errors, all of which could have a negative effect on the Fund's investment and
returns.]
Investment Policies and Strategies
The Fund may use the investment techniques and strategies described below. These
techniques involve certain risks. The Statement of Additional Information
contains more information about these practices, including limitations on their
use that are designed to reduce some of the risks.
o Convertible Securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issue within
a particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or
dividends paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (2) are
less subject to fluctuation in value than the underlying stock because they have
fixed income characteristics, and (3) provide the potential for capital
appreciation if the market price of the underlying common stock increases. See
the Statement of Additional Information for a further discussion of convertible
securities.
The Fund may invest in various types of recently developed derivative
convertible securities, such as mandatory conversion securities, equity-linked
debt securities and convertible preferred stock. Mandatory conversion
securities, which provide a relatively high level of current income, may be
purchased as possible alternatives to direct investments in either the related
common stocks or fixed income securities in order to seek the higher returns
which are consistent with the Fund's investment objective. Such securities may
combine some of the features of debt securities and equity securities, including
both common stock and preferred stock. Unlike the more traditional convertible
securities, these securities are characterized by a mandatory conversion feature
and an adjustable conversion ratio. One type of mandatory conversion security
which may be purchased by the Fund is the equity-linked debt security, a debt
security whose principal amount at maturity is dependent upon the performance of
a specified equity security. The performance of these securities is dependent
upon the performance of the linked equity security and may be influenced by
interest rate changes. Such securities also are subject to credit risk with
respect to the issuer of the debt security. Certain of these convertible
securities offer limited potential for capital appreciation and, in some
instances, may involve losses equal to the value of the security. The Fund also
may be exposed to counterparty risk if the issuing firm of such a security
experiences financial or other difficulties that render it unable to perform
according to the terms of the security. The market for such securities is
relatively new and, therefore, it is not possible to predict how they might
trade in the secondary markets or whether such markets will be liquid or
illiquid. For a further description of these securities and other risks
associated with them, see the Statement of Additional Information.
The Manager seeks to maximize total return by investing in convertibles of
companies of all market capitalizations. At one time or another, the Fund may
have a bias towards either small, medium or large capitalization companies based
on the Manager's perception of where the best returns will come from. The
potential for higher returns sought by the Fund are, in the opinion of the
Manager, generally obtainable from investments in bonds which are rated in the
lower rating categories of [NRSROs], including but not limited to Standard &
Poor's [, Moody's, Fitch, or Duff & Phelps, ]or another NRSRO or in bonds which
are unrated. Bonds which are rated Ba and lower by Moody's, or rated BB and
lower by [Standard & Poor's], Fitch or Duff & Phelps are commonly referred to as
"junk bonds". The Fund will not, however, invest in convertible fixed income
securities having a rating by an NRSRO of less than C or in convertible
securities which are in default at the time of purchase. Convertible securities
rated C by [Standard & Poor's] are described as having the highest degree of
speculation with respect to the capacity to pay interest and principal in
accordance with the terms of the obligation. Because investment in lower[-]rated
and unrated fixed income securities involves greater investment risk,
achievement of the Fund's investment objective will be more dependent on the
Manager's credit analysis than would be the case if the Fund were investing in
higher quality debt securities. Since the ratings of rating agencies are used
only as preliminary indicators of investment quality, the Manager employs its
own credit research and analyses from which it has developed a credit rating
system based upon comparative credit analyses of issuers within the same
industry. These analyses may take into consideration, among other things, the
issuer's financial soundness, its anticipated cash flow, interest or dividend
coverage, asset coverage, sinking fund provisions, responsiveness to changes in
interest rates and business conditions and liquidation value relative to the
market price of the security. Descriptions of the [Standard & Poor's], Moody's,
Fitch and Duff & Phelps rating categories are set forth in Appendix A to this
Prospectus.
Other Investment Techniques and Strategies. The Fund may also use the investment
techniques and strategies described below. These techniques involve certain
risks. The Statement of Additional Information contains more information about
these practices, including limitations on their use that may help to reduce some
of the risks.
o Loans of Portfolio Securities. As a fundamental policy, the Fund may lend
a portion of its portfolio securities to brokers, dealers, and other financial
institutions as a means of earning additional income on its portfolio assets.
Any such loans will be continuously secured by collateral consisting of cash,
securities of the U.S. Government and its agencies and instrumentalities or
approved bank letters of credit, or any combination thereof, which will be equal
to at least 102% of the market value of the securities loaned at the time the
loan is made and which will at all times thereafter equal at least 100% of the
market value of the loaned securities. Such loans will not be made if, as a
result thereof, the aggregate amount of all outstanding loans of the Fund's
portfolio securities would exceed the maximum percentage of its assets permitted
by law or applicable guidelines of the Securities and Exchange Commission
("SEC") or such lower amount as may be established by the Board of Trustees from
time to time (currently 10% of the Fund's net assets on the date prior to any
loan transaction). The Fund will receive interest on the securities loaned and
simultaneously earn either interest on the investment of the cash collateral or
fee income if the collateral for the loan does not consist of cash. However, the
Fund will normally pay lending fees and related expenses from the interest
earned on invested collateral. If the borrower of the securities fails
financially, there could be a risk of delay in recovery of the securities or
loss of rights in the collateral. The Fund will attempt to minimize such risks,
however, by making loans to only such borrowers which are believed by the Fund's
Manager to be of good financial standing.
o Repurchase Agreements. Under a repurchase agreement, the Fund may
purchase U.S. Government securities and concurrently enter into an agreement
with the seller which agrees to repurchase such securities at the Fund's cost
plus an agreed rate of interest within a specified time (normally seven days or
less). Repurchase agreements will be collateralized by the U.S. Government
securities, and the value of such collateral will be at least equal to the
repurchase price, including any such accrued interest. The Fund will only enter
into repurchase agreements where the custodian of the Fund has acquired actual
or constructive possession of the collateral, including transfer of U.S.
Government securities by book-entry in the Federal Reserve book-entry system. In
the event of a default or bankruptcy by a seller, the Fund may incur a loss, may
have difficulty in perfecting ownership of the collateral, and may incur
expenses in selling the collateral. o Temporary Investments. Temporary
investments may be made without limitation in periods of unusual market
conditions or when the Manager determines that convertible securities may not
best achieve the Fund's investment objective and a temporary defensive position
may be warranted. Such investments may be made in money market instruments
consisting of obligations of, or guaranteed as to principal and interest by, the
U.S. Government or its agencies or instrumentalities, certificates of deposit,
bankers' acceptances and other obligations of domestic banks having total assets
of at least $500 million and which are regulated by the U.S. Government, its
agencies or instrumentalities, commercial paper rated in the highest category by
an NRSRO and repurchase agreements with banks or broker-dealers in securities.
o Illiquid and Restricted Securities. The Fund may invest up to an
aggregate of 15% of its net assets in illiquid securities which may include, but
are not limited to, securities which have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), repurchase agreements with
remaining maturities of more than seven days, and securities for which market
quotations are not readily available. Securities which have not been registered
under the 1933 Act are deemed to be "restricted securities" because they cannot
be resold except in reliance upon an available exemption from the registration
requirements. Rule 144A under the 1933 Act permits certain resales of restricted
securities provided that such securities have been determined to be eligible for
resale under the provisions of Rule 144A ("Rule 144A Securities"). Rule 144A
Securities which are deemed to be liquid by the Fund's Manager pursuant to
certain guidelines and procedures as discussed in the Statement of Additional
Information are excluded from the Fund's 15% limitation on investments in
illiquid securities. The Manager monitors holdings of illiquid securities on an
ongoing basis [to determine whether to sell any] holdings to maintain adequate
liquidity. See the Statement of Additional Information for further information.
The Fund's policy with respect to illiquid securities is non-fundamental and, as
such, may be changed without shareholder approval.
Eurodollar convertible securities are generally traded on the European
exchanges, are not registered under the 1933 Act and may not be sold to U.S.
investors except in reliance upon an available exemption from the 1933 Act.
However, there exists a liquid institutional market for many of these Eurodollar
convertible securities which are convertible into securities which trade on a
U.S. exchange, and one or more U.S. broker-dealers may make a market in the
security. Eurodollar securities trade without limitation and are not considered
illiquid securities for purposes of the Fund's non-fundamental policy of
investing no more than an aggregate of 15% of its net assets in such securities.
Foreign Securities. The Fund may invest up to 15% of its net assets in
securities of foreign issuers which are generally denominated in foreign
currencies. Investments in securities of foreign issuers involve certain risks
not ordinarily associated with investments in the securities of domestic
issuers. Please refer to "Investment Risks" for a more detailed discussion of
these risks.
The Fund may purchase sponsored American Depository Receipts ("ADRs") or
U.S. dollar denominated securities of foreign issuers, which are not subject to
the 15% limitation on investments in securities of foreign issuers. ADRs are
receipts issued by U.S. banks or trust companies in respect of securities of
foreign issuers held on deposit for use in the U.S. securities markets. While
ADRs may not necessarily be denominated in the same currency as the securities
into which they may be converted, many of the risks associated with foreign
securities may also apply to ADRs, such as confiscatory taxation or
nationalization, and less comprehensive disclosure requirements for the
underlying securities.
o Borrowing for Leverage. As a fundamental policy, the Fund may borrow
money, but only from banks, in amounts up to 5% of its total assets for
temporary or emergency purposes, or to purchase additional portfolio securities.
Leveraging, or the purchase of securities with borrowed funds, will exaggerate
any increase or decrease in the market value of the Fund's portfolio. The
Investment Company Act of 1940 (the "Act") requires the Fund to maintain asset
coverage of at least 300% for all such borrowings and, should such asset
coverage at any time fall below 300%, the Fund would be required to reduce its
borrowings within three days to the extent necessary to meet the requirements of
the Act. The Fund might be required to sell securities at a time when it would
be disadvantageous to do so in order to reduce its borrowings. See "Other
Investment Restrictions" in the Statement of Additional Information.
o Warrants, Options and Short Sales. The Fund may invest up to 5% of the
value of its net assets at the time of purchase in warrants. It also may utilize
listed options trading and has limited such trading to (1) writing (i.e.,
selling) covered call options on stocks it owns and the underlying stock of its
existing convertible positions; (2) purchasing put options on stocks it owns and
underlying stock of existing convertible positions; and (3) entering into
closing purchase transactions with respect to certain of such options, provided
that all options written or purchased by the Fund are listed on a national
securities exchange. The Fund also has the ability to purchase put options in an
attempt to hedge its portfolio to reduce investment risks. The Fund's covered
call writing is generally intended to provide income to the Fund beyond the
level of income available from convertible securities alone. See the Statement
of Additional Information for a further discussion of these investment
strategies.
Other Investment Restrictions. Information about other investment restrictions
on the Fund's investment activities is set forth in the Statement of Additional
Information. Unless the Prospectus states that a percentage restriction applies
continuously, it applies only at the time the Fund makes an investment, and the
Fund need not sell securities to meet the percentage limits if the value of the
investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. Bond Fund Series (the "Trust") was organized in 1986
as a Massachusetts business trust consisting of one portfolio, the Fund. The
Trust 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 under
Massachusetts law for protecting the interests of shareholders. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. "Trustees and Officers
of the Fund" in the Statement of Additional Information names the Trustees and
provides more information about them and the officers of the Fund. Although the
Fund will not normally hold annual meetings of its shareholders, it may hold
shareholder meetings from time to time on important matters, and shareholders
have the right to call a meeting to remove a Trustee or to take other action
described in the Fund's Declaration of Trust.
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 M. 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. Please
refer to "How the Fund is Managed" in the Statement of Additional Information
[for more information] on voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handling 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 subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than [$85] billion as of March 31,
[1998], and with more than [4] million shareholder accounts. The Manager is
owned by Oppenheimer Acquisition Corp., a holding company that is owned in part
by senior officers of the Manager and controlled by Massachusetts Mutual Life
Insurance Company.
The management services provided to the Fund by the Manager, and the
services provided by the Distributor and the Transfer Agent to shareholders,
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated. That failure could
have a negative impact on handling securities trades, pricing and account
services. The Manager, Distributor and Transfer Agent have been actively working
on necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, because the services they provide
depend on the interaction of their computer systems with the computer systems of
brokers, information services and other parties, any failure on the part of the
computer systems of those third parties to deal with the year 2000 may also have
a negative effect on the services provided to the Fund.]
o Portfolio Manager. The Portfolio Manager of the Fund is Michael S. Rosen.
He has been the person primarily responsible for the day-to-day management of
the Fund's portfolio since the Fund's inception in 1986. Mr. Rosen is Vice
President of the Fund, and has also served as an officer and director of the
Fund's previous investment adviser.
o 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: 0.625% of the first $50 million of net assets, 0.500% of the next
$250 million of net assets and 0.4375% of net assets in excess of $300 million.
The Fund's management fee for its last fiscal year was [0.47%] of average annual
net assets.
The Fund pays expenses related to its daily operations, such as custodian
fees, [certain] Trustees' fees, transfer agency fees, legal and auditing costs.
Those expenses are paid out of the Fund's assets and are not paid directly by
shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other expenses paid
by the Fund is contained in the Statement of Additional Information.
There is also information about the Fund's brokerage policies and practices
in "Brokerage Policies of the Fund" in the Statement of Additional Information.
That section discusses how brokers and dealers are selected for the Fund's
portfolio transactions. When deciding which brokers to use, the Manager is
permitted by the Investment Advisory Agreement to consider whether brokers have
sold shares of the Fund or any other funds for which the Manager serves as
investment adviser.
o The Distributor. The Fund's shares are sold through dealers and brokers
that have a sales agreement with OppenheimerFunds Distributor, Inc., a
subsidiary of the Manager that acts as the Distributor. The Distributor also
distributes the shares of other Oppenheimer funds and is sub-distributor for
funds managed by a subsidiary of the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as the shareholder
servicing agent for the other Oppenheimer funds. Shareholders should direct
inquiries about their account to the Transfer Agent at the address and toll-free
numbers 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,"
"average annual total return" and "yield" to illustrate its performance. The
performance of each class of shares is shown separately, because the performance
of each class of shares will usually be different as a result of the different
kinds of expenses each class bears. These returns measure the performance of a
hypothetical investment in the Fund over various periods, and do not show the
performance of each shareholder's investment (which will vary if dividends and
distributions are received in cash or shares are sold or additional shares are
purchased). The Fund's performance information may help you see how well your
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.
o 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 and Class M shares,
normally the current maximum initial sales charge has been deducted. Total
returns may also be quoted "at net asset value," without including the sales
charge, and those returns would be reduced if sales charges were deducted. When
total returns are shown for Class B shares or Class C shares, the contingent
deferred sales charge that applies to the period for which total return is shown
has been deducted. They may also be shown based on the change in net asset
value, without including the effect of the contingent deferred sales charge, and
those returns would be reduced if sales charges were deducted.
o Yield. [Different types of yields may be quoted to show performance.]
Each class of shares calculates its [standardized] yield by dividing the
annualized net investment income per share on the portfolio during a 30-day
period by the maximum offering price on the last day of the period. The yield of
each class will differ because of the different expenses of each class of
shares. The yield data represents a hypothetical investment return on the
portfolio, and does not measure an investment return based on dividends actually
paid to shareholders. To show that return, a dividend yield may be calculated.
Dividend yield is calculated by dividing the dividends of a class [paid for] a
stated period by the maximum offering price on the last day of the period [and
annualizing the result. Yields] for Class A shares and Class M shares [normally]
reflect the deduction of the maximum initial sales charge, but may also be shown
[without deducting sales charges]. Yields for Class B, and Class C shares do not
reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the Fund's
performance during its last fiscal year ended December 31, [1997], followed by a
graphical comparison of the Fund's performance to an appropriate broad-based
market index.
o Management's Discussion of Performance. [During the fiscal year ended
December 31, 1997, the Fund's performance was positively affected by a number of
factors including the strong performance of the U.S. stock market.] The Fund's
investments in convertible securities [helped the Fund participate in much of
the rise in the U.S. Stock market while cushioning the Fund from some of the
downside risks. The Fund's investments in telecommunications and cable stocks
particularly helped the Fund's performance]. During the last year, the Fund
[limited its exposure the airline, energy and oil services securities because of
our belief that companies in those industries were already fully valued. That
limitation] negatively affected the [fund because those securities turned out to
be strong performers]. The Fund's portfolio holdings, allocations and strategies
are subject to change.
o Comparing the Fund's Performance to the Market. The chart below shows the
performance of a hypothetical $10,000 investment in Class A, Class B, Class C
and Class M shares of the Fund held until December 31, [1997]; in the case of
Class A and B shares, from the inception of the classes on May 1, 1995, in the
case of Class C shares, from the inception of the class on March 11, 1996 and in
the case of Class M shares, from December 31, [1987] through December 31,
[1997].
The performance of each class of the Fund's shares is compared to the
performance of the Goldman Sachs Convertible Bond 100 Index, an unmanaged index
of convertible securities. The performance of each class of the Fund's shares is
also compared to the S&P 500 Index, a broad-based index of equity securities
widely regarded as a general measurement of the performance of the U.S. equity
securities market, and the Lehman Brothers Aggregate Bond Index, a broad-based,
unmanaged index of publicly-issued nonconvertible investment grade debt of U.S.
issuers, widely recognized as a measure of the U.S. fixed-rate bond market.
Index performance reflects the reinvestment of dividends but does not consider
the effect of capital gains or transaction costs, and none of the data below
shows the effect of taxes. Also, the Fund's performance reflects the effect of
the Fund's business and operating expenses. While index comparisons may be
useful to provide a benchmark for the Fund's performance, it must be noted that
the Fund's investments are not limited to the securities in any one index.
Moreover, the index performance data does not reflect any assessment of the risk
of the investments included in the index.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer [Convertible Securities] Fund (Class A) and Goldman Sachs
Convertible Bond 100 Index, S&P 500 Index and the Lehman Brothers Aggregate Bond
Index
[graph]
Average Annual Total Return of Class A shares of the Fund at
[12/31/971]
1 Year Life
------------------------------------------------------------------
[11.94% 14.18%]
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer [Convertible Securities] Fund (Class B) and Goldman Sachs
Convertible Bond 100 Index, S&P 500 Index and the Lehman Brothers Aggregate Bond
Index
[graph]
Average Annual Total Return of Class B shares of the Fund at
[12/31/972]
1 Year Life
------------------------------------------------------------------
[12.93% 15.05%]
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer [Convertible Securities] Fund (Class C) and Goldman Sachs
Convertible Bond 100 Index, S&P 500 Index and the Lehman Brothers Aggregate Bond
Index
[graph]
[Average Annual] Total Return of Class C shares of the Fund at
[12/31/973
1 Year] Life
------------------------------------------------------------------
[16.88% 14.16%]
Class M Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer [Convertible Securities] Fund (Class [M)] and Goldman Sachs
Convertible Bond 100 Index, S&P 500 Index and the Lehman Brothers Aggregate Bond
Index [graph]
Average Annual Total Return of Class M shares of the Fund at
[12/31/974]
1 Year 5 Years 10 Years
------------------------------------------------------------------
[14.35% 13.61% 13.55%]
-----------------------
Total returns and ending account values in the graphs reflect change in share
value and include reinvestment of all dividends and capital gains distributions.
(1) The inception date of the Class A shares was 5/1/95. Class A returns and the
ending account value in the graph are shown net of the applicable 5.75% maximum
initial sales charge. [The performance information for the Indices in this graph
begins on April 30, 1995.]
(2) Class B shares of the Fund were first publicly offered on 5/1/95. Returns
are shown net of the applicable 5% and [3%] contingent deferred sales charge,
respectively, for the one-year period and for the life-of-class. The ending
account value in the graph is net of the applicable [3%] contingent deferred
sales charge. [The performance information for the Indices in this graph begins
on April 30, 1995.]
(3) Class C shares of the Fund were first publicly offered on 3/11/96. The
[average annual] total return for the Class C shares [for the 1-year period] is
shown net of the applicable 1% contingent deferred sales charge. [The
performance information for the Indices in this graph begins on February 29,
1996.] (4) Class M shares of the Fund were first publicly offered on 6/3/86.
Class M share returns and the ending account value in the graph are shown net of
the applicable 3.25% maximum initial sales charge. [The performance information
for the Indices in this graph begins on December 31, 1987.] Past performance is
not [predictive] of future performance. Graphs are not drawn to same scale.
-3-
<PAGE>
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors four different classes of shares.
The different classes of shares represent investments in the same portfolio of
securities but are subject to different expenses and will likely have different
share prices.
o 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
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge").
If you purchase Class A shares as part of an investment of at least $1 million
($500,000 for Retirement Plans) in shares of one or more Oppenheimer funds, you
will not pay an initial sales charge[,] but if you sell any of those shares
within [12] months of buying them [(18 months if the shares were purchased prior
to May 1, 1997)], you may pay a contingent deferred sales charge. The amount of
that sales charge will vary depending on the amount you invested. Sales charge
rates are described in "Buying Class A Shares" below.
o 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 varies depending
on how long you own your shares, as described in "Buying Class B Shares" below.
o 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%, as described in
"Buying Class C Shares" below.
o Class M Shares. If you buy Class M shares, you pay an initial sales
charge on investments up to $1 million. Purchase orders for $1 million or more
will [generally] be declined. Sales charge rates are described in "Buying Class
M Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial 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 and how long you plan to hold your
investment. If your goals and objectives change over time and you plan to
purchase additional shares, you should re-evaluate those factors to see if you
should consider another class of shares.
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 used the sales charge rates that apply
to [Class A, Class B, Class C and Class M shares,] and considered the effect of
the annual asset-based sales charge on Class B, Class C and Class M 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 of
shares 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.
o 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 or Class M 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.
o Investing for the Short Term. If you have a short-term investment horizon
(that is, you plan to hold your shares for less than six years), you should
probably consider purchasing 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 6 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 three years or more. Investors who are considering whether to
purchase Class A shares or Class M shares may want to consider the effect of the
initial sales charge applicable to the amount invested and the effect of the
asset-based sales charge applicable to Class M shares over the anticipated
length of the investment.
For investors who invest $1 million or more, in most cases Class A shares
will be the most advantageous choice, no matter how long you intend to hold your
shares. For that reason, the Distributor normally will not accept purchase
orders of $500,000 or more of Class B shares or $1 million or more of Class C or
Class M shares from a single investor. Of course, these examples are based on
approximations of the effect of current sales charges and expenses on a
hypothetical investment over time, using the assumed annual performance return
stated above, and therefore should not be relied on as rigid guidelines.
o 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 assumptions stated above and therefore you should analyze your options
carefully.
o 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) may 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. For example,
the exchange privileges available to Class M Shareholders are limited. See "How
to Exchange Shares." 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. Additionally, the dividends payable to Class
B, Class C and Class M shareholders will be reduced by certain expenses borne by
those classes that are not borne by Class A, such as the Class B, Class C and
Class M asset-based sales charges described below and in the Statement of
Additional Information.
o How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the Class B and Class C contingent deferred sales charges and the
purpose of asset-based sales charges which are applicable to Class B, Class C
and Class M shares are the same as the purpose of the front-end sales charge on
sales of Class A shares and Class M shares: to compensate the Distributor for
commissions it pays to dealers and financial institutions for selling shares.
[The Distributor may pay additional periodic compensation from its own resources
to securities dealers or financial institutions based upon the value of shares
of the Fund owned by the dealer or financial institution for its own account or
for its customers.]
How Much Must You Invest? Subject to certain exceptions, 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:
o With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial
plans and military allotment plans, you can make initial and subsequent
investments for as little as $25; and subsequent purchases of at least $25 can
be made by telephone through AccountLink.
o Under pension, profit-sharing and 401(k) 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.
o There is no minimum investment requirement if you are buying shares by
reinvesting dividends from the Fund or other Oppenheimer funds (a list of them
appears in the Statement of Additional Information, or you can ask your dealer
or call the Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
o 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. The Distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. When you buy
shares, be sure to specify Class A, Class B, Class C or Class M shares. If you
do not choose, your investment will be made in Class A shares.
o Buying Shares Through Your Dealer. Your dealer will place your order with
the Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, we recommend that you discuss your investment
first with a financial advisor, to be sure it is appropriate for you.
o Buying Shares Through Federal Funds Wire: Shares may be purchased by
Federal Funds wire. The minimum investment is $2,500. You must first call the
Distributor's Wire Department at 1-800-525-7041 to notify the Distributor of the
wire, and receive further instructions.
o 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 to
your bank account.
Shares are purchased for your account through AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH transfer
to buy shares. You can provide those instructions automatically, under an Asset
Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. You should request AccountLink
privileges on the application or dealer settlement instructions used to
establish your account. Please refer to "AccountLink" below for more details.
o Asset Builder Plans. You may purchase shares of the Fund (and up to four
other Oppenheimer funds) automatically each month from your account at a bank or
other financial institution under an Asset Builder Plan with AccountLink.
Details are in the Statement of Additional Information.
[|X|] 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, or the order is received and transmitted to the Distributor
by an entity authorized by the Fund to accept purchase or redemption orders. The
Fund has authorized the Distributor, certain broker-dealers and agents or
intermediaries designated by the Distributor or those broker-dealers to accept
orders]. In most cases, to enable you to receive that [day's] offering price,
the Distributor or [an authorized entity] 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 [normally your order must be transmitted] 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[, in its sole discretion,]
may reject any purchase order for the [Fund's] shares.
Special Sales Charge Arrangements for Certain Persons. Appendix C to this
Prospectus sets forth conditions for waiver of, or exemption from, sales charges
or the special sales charge rates that apply to purchases of shares of the Fund
(including purchases by exchange) by a person who was a shareholder of one of
the Former Quest for Value Funds (as defined in that Appendix).
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. Special minimum investment
requirements may apply. In some cases, reduced sales charges may be available,
as described below. Out of the amount you invest, the Fund receives the net
asset value to invest for your account. The sales charge varies depending on the
amount of your purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as commission. The current sales charge
rates and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Front-End Front-End
Sales Charge Sales Charge Commission
as Percentage as Percentage as Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
---------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
----------------------------------------------------------------------------
$25,000 or more but less
than $50,000 5.50% 5.82% 4.75%
---------------------------------------------------------------------------
$50,000 or more but less
than $100,000 4.75% 4.99% 4.00%
----------------------------------------------------------------------------
$100,000 or more but less
than $250,000 3.75% 3.90% 3.00%
--------------------------------------------------------------------------
$250,000 or more but less
than $500,000 2.50% 2.56% 2.00%
----------------------------------------------------------------------------
$500,000 or more but less
than $1 million 2.00% 2.04% 1.60%
</TABLE>
The Distributor reserves the right to reallow the entire sales charge to
dealers. If that occurs, the dealer may be considered an "underwriter" under
Federal securities laws.
[|X|] Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds in the following cases:
o Purchases aggregating $1 million or more;
o Purchases by a retirement plan qualified under section 401(a) if the
retirement plan has total plan assets of $500,000 or more[.]
o Purchases by a retirement plan qualified under [sections] 401(a) or
401(k) of the Internal Revenue Code, by a non-qualified deferred compensation
plan, employee benefit plan, group retirement plan (see "How to Buy Shares -
Retirement Plans" in the Statement of Additional Information for further
details), an employee's 403(b)(7) custodial plan account, SEP IRA, SARSEP, or
SIMPLE plan (all of these plans are collectively referred to as "Retirement
Plans")[,] 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; or
o Purchases by an OppenheimerFunds Rollover IRA if the purchases are made
(1) through a broker, dealer, bank or registered investment adviser that has
made special arrangements with the Distributor for these purchases, or (2) by a
direct rollover of a distribution from a qualified retirement plan if the
administrator of that plan has made special arrangements with the Distributor
for those purchases.
The Distributor pays dealers of record commissions on those purchases in an
amount equal to (i) 1.0% for non-Retirement Plan accounts, and (ii) for
Retirement Plan accounts, 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[, calculated on a calendar
year basis]. That commission will be paid only on those purchases that were not
previously subject to a front-end sales charge and dealer commission. No sales
commission will be paid to the dealer, broker or financial institution on Class
A shares purchased with the redemption proceeds of shares of a mutual fund
offered as an investment option [in a Retirement Plan in which Oppenheimer funds
are also offered as investment options] under a special arrangement with the
Distributor if the purchase occurs more than 30 days after the addition of the
Oppenheimer funds as an investment option to the Retirement Plan.
If you redeem any of those shares [purchased prior to May 1, 1997,] 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. [A Class A contingent deferred
sales charge may be deducted from the proceeds of any of those shares purchased
on or after May 1, 1997 that are redeemed within 12 months of the end of the
calendar month of their purchase.] That sales charge may be equal to 1.0% of the
lesser of (1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital [gains]
distributions) or (2) the original offering price (which is the original net
asset value) of the redeemed shares. However, the Class A contingent deferred
sales charge will not exceed the aggregate amount of the commissions the
Distributor paid to your dealer on all Class A shares of all Oppenheimer funds
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 [12 months (18 months for shares
purchased prior to May 1, 1997)] of the end of the calendar month of the
purchase of the exchanged shares, the [contingent deferred] sales charge will
apply.
[|X|] 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.
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:
o Right of Accumulation. To qualify for the lower sales charge rates that
apply to larger purchases of Class A shares or Class M shares, you and your
spouse can add together Class A and Class B and Class M 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
and Class M shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A or Class M shares. You
can also include Class A, Class B and Class M shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred sales charge
to reduce the sales charge rate for current purchases of Class A or Class M
shares, provided that you still hold your investment in one of the Oppenheimer
funds. The [Distributor will add the value, at current offering price, of the]
shares you previously purchased [and currently own to the value of current
purchases to determine the sales charge rate that applies]. The Oppenheimer
funds 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.
o Letter of Intent. Under a Letter of Intent, if you purchase Class A
shares[,] Class B and/or Class M shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A or Class M shares. The total amount of your intended
purchases of Class A, Class B and Class M shares will determine the reduced
sales charge rate for the Class A or Class M 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.
o 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.
[In order to receive a waiver of the Class A contingent deferred sales charge,
you must notify the Transfer Agent as to which conditions apply.]
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:
o the Manager or its affiliates;
o 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;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o 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;
o 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);
o dealers, brokers or registered investment advisors that have entered into
an agreement with the Distributor providing specifically for the use of shares
of the Fund in particular investment products made available to their clients
(those clients may be charged a transaction fee by their dealer, broker or
advisor for the purchase or sale of Fund shares);
o (1) investment advisors and financial planners who [have entered into an
agreement for this purpose with the Distributor and who] charge an advisory,
consulting or other fee for their services and buy shares for their own accounts
or the accounts of their clients, (2) Retirement Plans and deferred compensation
plans and trusts used to fund those Plans (including, for example, plans
qualified or created under sections 401(a), 403(b) or 457 of the Internal
Revenue Code), and "rabbi trusts" that buy shares for their own accounts, in
each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of such investment advisors or financial
planners [(that have entered into an agreement for this purpose with the
Distributor)] who buy shares for their own accounts may also purchase shares
without sales charge but only if their accounts are linked to a master account
of their investment advisor or financial planner [on] the books and records of
the broker, agent or financial intermediary with which the Distributor has made
such special arrangements (each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares);
o directors, trustees, officers or full-time employees of OpCap Advisors or
its Affiliates, their relatives or any trust, pension, profit sharing or other
benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment advisor (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts;
o any unit investment trust that has entered into an appropriate agreement
with the Distributor;
o qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements are
consummated and share purchases [commenced] by December 31, 1996.
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:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o 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;
o shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than Oppenheimer Cash
Reserves) or unit investment trusts for which reinvestment arrangements have
been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in the
past [30 days] from a mutual fund (other than a fund managed by the Manager or
any of its subsidiaries) on which an initial sales charge or contingent 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; or
o shares purchased with the proceeds of maturing principal of units of any
Qualified Unit Investment Liquid Trust Series.
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:
o to make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time [of purchase of shares (prior to May 1, 1997) the dealer
agreed] in writing to accept the [dealer's] portion of the [sales] commission 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);
o [if, at the time of purchase of shares (if purchased during the period
May 1, 1997 through December 31, 1997) the dealer agreed in writing to accept
the dealer's portion of the sales commission in installments of 1/12th of the
commission per month (and no further commission will be payable if the shares
are redeemed within 12 months of purchase);]
o for distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes: (1) following
the death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must occur after the
participant's account was established); (2) to return excess contributions; (3)
to return contributions made due to a mistake of fact;(4) hardship withdrawals,
as defined in the plan;(5) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code: (6) to meet the minimum distribution
requirements of the Internal Revenue Code; (7) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue Code;
(8) for retirement distributions or loans to participants or beneficiaries; (9)
separation from service; (10) participant-directed redemptions to purchase
shares of mutual fund (other than a fund managed by the Manger or its
subsidiary) offered as an investment option in a Retirement Plan in which
Oppenheimer funds are also offered as investment options under a special
arrangement with the Distributor; or (11) plan termination or "in-service
distributions", if the redemption proceeds are rolled over directly to an
OppenheimerFunds IRA;
o for distributions from Retirement Plans with 500 or more eligible
participants, except distributions due to termination of [all of] the
[Oppenheimer funds] as an investment option for the Plan; or
o for all distributions from certain 401(k) plan programs sponsored by
broker-dealers that have entered into a special agreement with the Distributor
[allowing this waiver].
o Service Plan and Agreement for Class A Shares. The Fund has adopted a
Service Plan and Agreement 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
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). The contingent deferred sales
charge is not imposed on the amount of your account value represented by an
increase in net asset value over the initial purchase price. The Class B
contingent deferred sales charge is paid to the Distributor to [compensate for]
its expenses of providing distribution-related services to the Fund in
connection with the sales 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
below in "Waivers of Class B and Class C Sales Charges."
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 on Redemptions in that Year
In Which Purchase Order Was (As % of Amount Subject to Accepted
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.
For redemptions of Class B shares purchased on or before March 31, 1996 in
accounts established on or before March 8, 1996, the following contingent
deferred sales charges (as a percentage of the amount subject to the charge)
will apply with respect to the number of years which have elapsed since the
beginning of the month in which the purchase order was accepted: 0-1 years,
3.5%; 1-2 years, 3.0%, 2-3 years, 2.5%; 3-4 years, 2.0%; 4-5 years, 1.5%; 5-6
years, 1.0%, 6 years and thereafter, 0%. Upon an exchange of such shares, the
contingent deferred sales charge schedule of the class of shares of the Fund
into which the exchange was made will be applicable.
o Automatic Conversion of Class B Shares. Seventy-two 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, Class C and Class M Shares" in the Statement of Additional
Information.
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 contingent deferred sales charge will be based on the lesser
of the net asset value of the redeemed shares at the time of the redemption or
the original offering price (which is the original net asset value). 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 [compensate for] its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months and (3) shares held the longest during the 12-month period.
All purchases are considered to have been made on the first regular business day
of the month in which the purchase was made.
Distribution And Service Plans and Agreements for Class B and Class C Shares.
The Fund has adopted Distribution and Service Plans and Agreements for Class B
and Class C shares to compensate the Distributor for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the Plans,
the Fund pays the Distributor an annual "asset-based sales charge" of 0.75% per
year on Class B and Class C shares. The Distributor also receives a service fee
of 0.25% per year under each plan.
Under each Plan, both fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The asset-based sales charge allows
investors to buy Class B or Class C shares without a front-end sales charge
while allowing the Distributor to compensate dealers that sell those shares. The
asset-based sales charge and service fees increase Class B and Class C expenses
by up to 1.00% of average net assets per year of the respective class.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the 0.25% service fees to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares have
been held for a year, the Distributor pays the service fees to dealers on a
quarterly basis.
The Distributor currently pays sales commissions of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
[The] total amount paid by the Distributor to the dealer at the time of [sale]
of Class B shares is therefore 4.00% of the purchase price. The [Fund pays] the
asset-based sales charge [to the Distributor for its services rendered in
connection with the distribution of Class B shares. Those payments, retained by
the Distributor, 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 B shares. If a dealer has a special agreement with the
Distributor, the Distributor may pay the Class B service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commission and
service fee advance at the time of purchase].
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares 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 therefore 1.00% of the purchase price. The
Distributor retains the asset-based sales charge during the first year Class C
shares are outstanding to recoup the sales commissions it has paid, the advances
of [the] service fee payments it has made and its financing costs and other
expenses. 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. [If a dealer has a special agreement with the Distributor,
the Distributor may pay the Class C service fee and the asset- based sales
charge to the dealer quarterly in lieu of paying the sales commission and
service fee advance at the time of purchase.]
The Distributor's actual expenses in selling Class B and Class C shares may
be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plans for Class B and Class C shares. At December 31, [1997], the end of
the Class B Plan year, the Distributor had incurred unreimbursed expenses in
connection with the sale of Class B shares of [$11,326,716(equal to 2.95%] of
the Fund's net assets represented by Class B shares on that date). At December
31, [1997], the end of the Class C Plan Year, the Distributor had incurred
unreimbursed expenses in connection with the sale of Class C shares of
[$886,036] (equal to [1.04%] of the Fund's net assets represented by Class C
shares on that date). If either Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the Plan was terminated.
o 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 Class B and Class C shares
redeemed in certain circumstances as described below. The reasons for this
policy are described in "Reduced Sales Charges" in the Statement of Additional
Information. [In order to receive a waiver of the Class B or Class C contingent
deferred sales charge, you must notify the Transfer Agent as to which conditions
apply.]
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 if the Transfer Agent is notified that these conditions
apply to the redemption:
o 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);
o redemptions from accounts other than Retirement Plans following the death
or disability of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is also the sole
beneficiary (the death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration);
o returns of excess contributions to Retirement Plans;
o distributions from Retirement Plans to make "substantially equal periodic
payments" as permitted in Section 72(t) of the Internal Revenue Code that do not
exceed 10% of the account value annually, measured from the date the Transfer
Agent receives the request); or
o distributions from OppenheimerFunds prototype 401(k) plans [and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans] (1)
for loans to participants or beneficiaries; (2) for hardship withdrawals; (3)
under a Qualified Domestic Relations Order, as defined in the Internal Revenue
Code; (4) to meet minimum distribution requirements as defined in the internal
Revenue Code; (5) to make "substantially equal periodic payments" as described
in Section 72(t) of the Internal Revenue Code; [(6)] for separation from
service; or [(7) for loans to participants or beneficiaries; or]
o distributions from certain 401(k) plan programs sponsored by
broker-dealers that have entered into a special agreement with the Distributor.
Waivers for Shares Sold or Issued in Certain Transactions. The contingent
deferred sales charge is also waived on Class B and Class C shares in the
following cases:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
o shares issued in plans of reorganization to which the Fund is a party;
and
o shares redeemed in involuntary redemptions as described below.
Buying Class M Shares. Class M shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, with respect to
certain accounts established prior to March 11, 1996, purchases are not subject
to an initial sales charge, and the offering price will be the net asset value.
See Appendix B. Special minimum investment requirements may apply. In some
cases, reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for your
account. The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor and allocated to
your dealer as a commission. The current sales charge rates and commissions paid
to dealers and brokers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Front-End Front-End
Sales Charge as Sales Charge as Commission as a
a Percentage of a Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
----------------------------------------------------------------------------
Less than $250,000 3.25% 3.36% 3.00%
----------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.25% 2.30% 2.00%
----------------------------------------------------------------------------
$500,000 or more but
less than $1,000,000 1.25% 1.27% 1.00%
</TABLE>
Purchases of $1,000,000 or more will generally not be accepted. Investors
considering an investment of $1,000,000 or more may want to consider purchasing
Class A shares of the Fund. 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.
The Fund offers several methods by which investors may aggregate purchases
to reduce the applicable sales load on Class A or Class M shares. These methods,
which include rights of accumulation and letters of intent, are explained above
in the section entitled "How to Buy Shares - Buying Class A Shares."
o Distribution and Service Plan for Class M Shares. The Fund has adopted a
Distribution and Service Plan for Class M shares to reimburse the Distributor
for its expenses incurred in connection with the distribution of Class M shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an annual
"asset-based sales charge" of up to 0.50% per year on Class M shares that are
outstanding. The Distributor also receives a service fee of up to 0.25% per
year. Both fees are computed on the average annual net assets of Class M shares,
determined as of the close of each regular business day. The Distributor uses
the service fee to compensate dealers for providing personal services for
accounts that hold Class M shares. The Distributor may pay a portion of the
asset-based sales charge which it receives from the Fund to provide additional
compensation to dealers who sell Class M shares. The asset-based sales charge
and service fee increase Class M expenses by 0.75% of average net assets per
year.
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 call the Transfer
Agent for more information.
AccountLink privileges should be requested 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.
o 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.
o 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.
o 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.
o Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
o 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.
[Shareholder Transactions by Fax. Requests for certain account transactions may
be sent to the Transfer Agent by fax (telecopier). Please call 1-800-525-7048
for information about which transactions are included. Transaction requests
submitted by fax are subject to the same rules and restrictions as written and
telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. Information about the Fund, including your
account balance, daily share prices, market and Fund portfolio information, may
be obtained by visiting the OppenheimerFunds Internet Web Site, at the following
Internet address: http://www.oppenheimerfunds.com. Additionally, certain account
transactions may be requested by any shareholder listed in the registration on
an account as well as by the dealer representative of record through a special
section of that Web Site. To access that section of the web site you must first
obtain a personal identification number ("PIN") by calling OppenheimerFunds
PhoneLink at 1-800-533-3310. If you do not wish to have Internet account
transactions capability for your account, please call our customer service
representative at 1-800-525-7048. To find out more information about those
transactions and procedures, please visit the Web Site.]
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o Automatic Withdrawal Plans. If your Fund account is $5,000 or more, you
can establish an Automatic Withdrawal Plan to receive payments of at least $50
on a monthly, quarterly, semi-annual or annual basis. The checks may be sent to
you or sent automatically to your bank account on AccountLink. You may even set
up certain types of withdrawals of up to $1,500 per month by telephone. You
should consult the Statement of Additional Information for more details.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer funds 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, Class B or
Class M shares of the Fund, you have up to 6 months to reinvest all or part of
the redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies to redemptions of Class A
or Class M shares purchased subject to an initial sales charge or 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:
o Individual Retirement Accounts including rollover IRAs, for individuals
and their spouses [and SIMPLE IRAs offered by employers]
o 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
o SEP-IRAs (Simplified Employee Pension Plans) for small business owners or
people with income from self-employment, including SAR/SEP-IRAs
o Pension and Profit-Sharing Plans for self-employed persons and small
business owners
o 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 by selling (redeeming) some or
all of your shares on any regular business day. Your shares will be sold at the
next net asset value calculated after your order is received 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.
o 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.
o 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):
o You wish to redeem more than $50,000 worth of shares and receive a check
o The redemption check is not payable to all shareholders listed on the
account statement
o The redemption check is not sent to the address of record on your account
statement
o Shares are being transferred to a Fund account with a different owner or
name
o Shares are redeemed by someone other than the owners (such as an
Executor)
o 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:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling o The
signatures of all registered owners exactly as the account is registered,
and
o Any special requirements or documents requested by the Transfer Agent to
assure proper authorization of the person asking to sell shares.
Use the following address Send courier or [express mail]
for requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
Selling Shares By Telephone. You and your dealer representative of record may
also sell your shares by telephone. To receive the redemption price on a regular
business day, your call must be received by the Transfer Agent by the close of
[The] New York Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. Shares held in an OppenheimerFunds retirement plan or
under a share certificate may not be redeemed by telephone.
o To redeem shares through a service representative, call 1-800-852-8457
o To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds wired to that bank account.
o 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. This service is
not available within 30 days of changing the address on an account.
o Telephone Redemptions Through AccountLink [or by Wire]. There are no
dollar limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH 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.
You may also have the Transfer Agent send redemption proceeds of $2,500 or
more by Federal Funds wire to a designated commercial bank account. The bank
must be a member of the Federal Reserve wire system. There is a $10 fee for each
Federal Funds wire. To place a wire redemption request, call the Transfer Agent
at 1-800- 852-8457. the wire will normally be transmitted on the next bank
business day after the shares are redeemed. There is a possibility that the wire
may be delayed up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of shares
that have been redeemed and are awaiting transmittal by wire. To establish wire
redemption privileges on an account that is already established, please contact
the Transfer Agent for instructions.]
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 call your dealer for
additional information. 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 Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge.
o Shares of the fund selected for exchange must be available for sale in
your state of residence
o The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege
o You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares every regular business day
o You must meet the minimum purchase requirements for the fund you purchase
by exchange
o Before exchanging into a fund, you should obtain and read its prospectus
Except with respect to exchanges of Class M shares, which may be exchanged
only for Class A shares as described in the following paragraph, shares of a
particular class may be exchanged only for shares of the same class in the other
Oppenheimer funds. For example, you can exchange Class A shares of this Fund
only for Class A shares of another fund. At present, Oppenheimer Money Market
Fund, Inc. offers only one class of shares, which are considered "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.
The Fund is currently the only Oppenheimer fund which offers Class M
shares. Except as described herein there may be no exchanges of any class of
shares of any Oppenheimer fund into Class M shares of the Fund. Class M shares
may be exchanged for Class A shares of Oppenheimer funds. Except for Class A
shares of either Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash
Reserves which were acquired upon the exchange of Class M shares of the Fund, no
exchanges of any class of shares of any Oppenheimer fund into Class M shares are
permitted. 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:
o 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."
o 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 Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or by calling a service
representative at 1-800-525-7048. Exchanges of shares involve a redemption of
the shares of the fund you own and a purchase of shares of the other fund.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and purchased from the other
fund in the exchange transaction on the same regular business day on which the
Transfer Agent receives an exchange request that 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 7 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 disposition of securities at a time or price
disadvantageous to the Fund.
o 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.
o 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.
o 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.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will be
exchanged.
Shareholder Account Rules And Policies
o Net Asset Value Per Share is determined for each class of shares as of
the close of The New York Stock Exchange, which is normally 4:00 P.M. but may be
earlier on some days, on each day the Exchange is open by dividing the value of
the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset value. In
general, securities values are based on market value. There are special
procedures for valuing illiquid and restricted securities, obligations for which
market values cannot be readily obtained, and call options and hedging
instruments. These procedures are described more completely in the Statement of
Additional Information.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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, Class C and Class M shares. Therefore, the redemption value of
your shares may be more or less than their original cost.
o 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 [federal funds wire or] certified check[,] or arrange to have
your bank provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped, and in some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of share
purchase orders.
o 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.
o "Backup Withholding" of Federal income tax may be applied at the rate of
31% from [taxable] dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a [correct and properly] certified
Social Security or Employer Identification Number when you sign your
application, or if you [underreport your income to the] Internal Revenue Service
.
o 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 charge when redeeming certain Class A, Class B and
Class C shares.
o 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
Income Dividends. The Fund receives income in the form of interest and dividends
paid by its investments. This income, less the expenses incurred in the Fund's
operations, is referred to as net investment income. Income dividends are
declared and recorded each day based on estimated net investment income. Such
dividends are paid quarterly. Investors earn such dividends beginning on the day
payment for shares is received to the day prior to the settlement date of
redemption. For federal income tax purposes, all distributions declared in the
fourth quarter of any calendar year are deemed paid in that calendar year even
if they are distributed in January of the following year. Any net gain the Fund
may realize from transactions in securities held less than the period required
for long term capital gain recognition (taking into account any carryover of
capital losses from previous years), while technically a distribution from
capital gain, is taxed as an income dividend under the Internal Revenue Code of
1986, as amended (the "Code").
Capital Gains. If, during any fiscal year, the Fund realizes a net gain on
transactions in securities held for more than one year, it has a net long term
capital gain. After deduction of the amount of any net short term loss, the
balance may be used to offset any carryover of capital losses from previous
years, or, if there is no loss carryover, will be paid out to shareholders as a
capital gain distribution. Capital gain distributions, if any, will be paid to
shareholders of record prior to the end of each calendar year.
Because the value of Fund shares is based directly on the amount of its net
assets, rather than on the principle of supply and demand, any distribution of
income or capital gain will result in a decrease in the value of Fund shares
equal to the amount of the distribution.
All dividends and capital gain distributions are paid in additional full
and fractional shares at net asset value for each shareholder's account unless
otherwise requested on the Account Application or by notifying the Fund in
writing or by telephone. Notice will be effective for the current dividend or
distribution only if it is received by the Fund at least five business days
before the record date. Notice received thereafter will be effective commencing
with the next dividend or distribution. Income dividends and capital gain
distributions will be credited to a shareholder's account in additional shares
valued at the closing net asset value (without a sales load).
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:
o 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.
o 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.
o 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.
o Reinvest Your Distributions in Another Oppenheimer Fund Account. You can
reinvest all distributions in the same class of shares of another Oppenheimer
fund 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 income 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. [So that the Fund will not have
to pay taxes on the amounts it distributes to shareholders as dividends and
capital gains, the Fund intends to manage its investments so that it will
qualify as a "regulated investment company" under the Internal Revenue Code,
although it reserves the right not to qualify in a particular year.]
o "Buying a Dividend": 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[, respectively].
o Taxes on Transactions: Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. A capital gain or loss is the
difference between the price you paid for the shares and the price you [receive]
when you [sell] them.
o 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.
-4-
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER [CONVERTIBLE SECURITIES FUND]
Graphic material included in Prospectus of Oppenheimer
[Convertible Securities Fund]: "Comparison of Total Return of
Oppenheimer [Convertible Securities Fund, the S&P 500, the] Goldman Sachs
Convertible [Bond 100 Index and the Lehman Brothers Aggregate] Bond Index -
Change in Value of a $10,000 Hypothetical Investment"
Linear graphs will be included in the Prospectus of
Oppenheimer [Convertible Securities] Fund (the "Fund") depicting the initial
account value and subsequent account value of a hypothetical $10,000 in the
Fund in Class A, Class B, Class C and Class M shares of the Fund held until
December 31, [1997]; in the case of Class A and B shares, from the inception
of the classes on May 1, 1995, in the case of Class C shares, from the
inception of the class on March 11, 1996 and in the case of Class M shares,
from December 31, [1987] through December 31, [1997]. The graphs will compare
such values with the same investments over the same time periods with The
Goldman Sachs Convertible Bond [100 Index, the Lehman Brothers Aggregate Bond
Index and the S&P 500] Index. Set forth below are the relevant data points
that will appear on the linear graphs. Additional information with respect to
the foregoing, including a description of [the indices], is set forth in the
Prospectus under "Performance of the Fund -- Comparing the Fund's Performance
to the Market"
Fiscal Year Oppenheimer [Convertible] Goldman Sachs
(Period) Ended [Securities Fund] Class A(1) Convertible Bond Index
5/1/95 $ 9,425 $10,000
12/31/95 [$10,889] $11,480
12/31/96 $11,993 $13,058
[12/31/97 $14,244 $15,641]
[Lehman Brothers The S&P 500 Index(1)
Aggregate Bond Index(1)]
5/1/95 $10,000 $10,000
[12/31/95 $11,123 $12,177
12/31/96 $11,527 $14,970
12/31/97 $12,640 $19,963
Fiscal Year Oppenheimer Convertible Goldman Sachs
(Period) Ended Securities Fund Class B(2) Convertible Bond Index
5/1/95 $10,000 $10,000]
12/31/95 $11,509 $11,480
12/31/96 [$12,577 $13,058
12/31/97 $14,533 $15,641
Lehman Brothers The S&P 500 Index(2)
Aggregate Bond Index(2)
5/1/95 $10,000 $10,000
12/31/95 $11,123 $12,176
12/31/96 $11,527 $14,970
12/31/97 $12,640 $19,963]
Fiscal Year Oppenheimer [Convertible] Goldman Sachs
(Period) Ended [Securities Fund] Class [C(3)] Convertible Bond Index
3/11/96 $10,000 $10,000
12/31/96 $10,675 $10,874
[12/31/97 $12,701 $13,024
Lehman Brothers The S&P 500 Index(3)
Aggregate Bond Index(3)
3/11/96 $10,000 $10,000
12/31/96 $10,477 $11,781
12/31/97 $11,488 $15,710]
Fiscal Year Oppenheimer [Convertible] Goldman Sachs
(Period) Ended [Securities Fund] Class M[(4)] Convertible Bond Index
[12/31/87 $ 9,675 $10,000
12/31/88 $10,878 $11,336
12/31/89 $11,763 $12,179
12/31/90 $10,805 $10,927
12/31/91 $13,884 $13,954
12/31/92 $18,214 $16,416
12/31/93 $22,083 $19,227
12/31/94 $21,834 $18,296
12/31/95 $27,513 $23,327
12/31/96 $30,148 $26,534
12/31/97 $35,632 $31,782
Lehman Brothers The S&P 500 Index(4)
Aggregate Bond Index(4)
12/31/87 $10,000 $10,000
12/31/88 $10,789 $11,656
12/31/89 $12,356 $15,343
12/31/90 $13,463 $14,866
12/31/91 $15,618 $19,386
12/31/92 $16,774 $20,861
12/31/93 $18,409 $22,958
12/31/94 $17,872 $23,261
12/31/95 $21,174 $31,991
12/31/96 $21,943 $39,331
12/31/97 $24,061 $52,449]
- ----------------------
(1) Class A shares of the Fund were first publicly offered on May 1, 1995.[ The
performance information for the Indices in this graph begins on April 30, 1995.
(2) Class B] shares of the Fund were first publicly offered on [May 1,1995. The
performance information for the Indices in this graph begins on April 30, 1995.
(3) Class C shares of the Fund were first publicly offered on July 11, 1995. The
performance information for the Indices in this graph begins on February 29,
1996. (4) Class M shares of the Fund were first publicly offered on July 3,
1986. The performance information for the Indices in this graph begins on
December 31, 1987.]
-5-
<PAGE>
Appendix A
Description of Securities Ratings
o Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and to carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, the changes that can be
expected are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as with "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than those of
"Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
The investments in which the Fund will principally invest will be in the
lower-rated categories described below.
Baa: Bonds which are rated "Baa" are considered medium grade obligations, i. e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are speculative in a
high degree and are often in default or have other marked shortcomings.
C: Bonds which are rated "C" are the lowest rated class of bonds and can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
o Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and indicates an
extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to adverse effects of change in
circumstances and economic conditions. The investments in which the Fund will
principally invest will be in the lower-rated categories, described below.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the "A" category.
BB, B CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "CC" the highest degree.
While such bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C: Bonds on which no interest is being paid are rated "C".
D: Bonds rated "D" are in payment default and payment of interest and/or
repayment of principal is in arrears.
o Fitch Investors Service, Inc.
Investment Grade Bond Ratings
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
Speculative Grade Bond Ratings
BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflect the obligor's limited margin of safety
and the need for reasonable business and economic activity through out the life
of the issue.
CCC Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD and D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA," "DDD," "DD," or "D" categories.
o Duff & Phelps' Ratings
Long-Term Debt and Preferred Stock
AAA Highest credit quality. The risk factors are negligible, being only slightly
more than for risk-free US Treasury debt.
AA+, AA & AA- High credit quality protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB & BBB- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB- Below investment grade but deemed to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within the category.
B+, B & B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic
industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arrearages.
-6-
<PAGE>
Appendix B
Sales Charge Waivers on Purchases of Class M Shares for
Accounts Established Prior to March 11, 1996
The Fund may sell Class M shares at net asset value to investors who satisfy the
following criteria and who, prior to March 11, 1996, had established accounts,
pursuant to which such investors were permitted to purchase the Fund's then
outstanding Class A shares at net asset value: (a) the Manager or its
affiliates, (b) present or former officers, directors, trustees and employees
(and their "immediate families" as defined in the Statement of Additional
Information) of the Fund, the Manager and its affiliates, and retirement plans
established by them for their employees, (c) registered management investment
companies, or separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose, (d) 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, (e) 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), (f) 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 on the
purchase of Fund shares), and (g) 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 administrative services.
-7-
<PAGE>
APPENDIX C
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares of the Fund described elsewhere in this Prospectus
are modified as described below for those shareholders of (i) Quest for Value
Fund, Inc., Quest for Value Growth and Income Fund, Quest for Value Opportunity
Fund, Quest for Value Small Capitalization Fund and Quest for Value Global
Equity Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became the
investment advisor to those funds, and (ii) Quest for Value U.S. Government
Income Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for Value
National Tax-Exempt Fund and Quest for Value California Tax- Exempt Fund when
those funds merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the Oppenheimer funds
that was one of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for Value Funds
into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
o Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
o Purchases by Groups, Associations and Certain Qualified Retirement Plans.
The following table sets forth the initial sales charge rates for Class A shares
purchased by a "Qualified Retirement Plan" through a single broker, dealer or
financial institution, or by members of "Associations" formed for any purpose
other than the purchase of securities if that Qualified Retirement Plan or that
Association purchased shares of any of the Former Quest for Value Funds or
received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995. For this purpose only, a "Qualified Retirement Plan" includes
any 401(k) plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a single
employer.
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
----------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
----------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
----------------------------------------------------------------
For purchases by Qualified Retirement plans and Associations having 50 or
more eligible employees or members, there is no initial sales charge on
purchases of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on pages [35] to [36] of this
Prospectus.
Purchases made under this arrangement qualify for the lower of the sales
charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge rate
that applies under the Rights of Accumulation described above in the Prospectus.
In addition, purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they qualified to
purchase shares of any of the Former Quest For Value Funds by virtue of
projected contributions or investments of $1 million or more each year.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations, or as eligible employees in Qualified Retirement Plans
also may purchase shares for their individual or custodial accounts at these
reduced sales charge rates, upon request to the Fund's Distributor.
o Waiver of Class A Sales Charges for Certain Shareholders Class A shares
of the Fund purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of Funds
on February 28, 1991 and who acquired shares of any of the Former Quest for
Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the following investors
who were shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the Employee Retirement
Income Security Act of 1974 and regulations adopted under that law.
o Participants in Qualified Retirement Plans that purchased shares of any
of the Former Quest For Value Funds pursuant to a special "strategic alliance"
with the distributor of those funds. The Fund's Distributor will pay a
commission to the dealer for purchases of Fund shares as described above in
"Class A Contingent Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
o Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, B or C shares of the Fund acquired by merger of a Former
Quest for Value Fund into the Fund or by exchange from an Oppenheimer fund that
was a Former Quest for Value Fund or into which such fund merged, if those
shares were purchased prior to March 6, 1995: in connection with (i)
distributions to participants or beneficiaries of plans qualified under Section
401(a) of the Internal Revenue Code or from custodial accounts under Section
403(b)(7) of the Code, Individual Retirement Accounts, deferred compensation
plans under Section 457 of the Code, and other employee benefit plans, and
returns of excess contributions made to each type of plan, (ii) withdrawals
under an automatic withdrawal plan holding only either Class B or C shares if
the annual withdrawal does not exceed 10% of the initial value of the account,
and (iii) liquidation of a shareholder's account if the aggregate net asset
value of shares held in the account is less than the required minimum value of
such accounts.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the Fund or by
exchange from an Oppenheimer fund that was a Former Quest For Value Fund or into
which such fund merged, if those shares were purchased on or after March 6,
1995, but prior to November 24, 1995: (1) distributions to participants or
beneficiaries from Individual Retirement Accounts under Section 408(a) of the
Internal Revenue Code or retirement plans under Section 401(a), 401(k), 403(b)
and 457 of the Code, if those distributions are made either (a) to an individual
participant as a result of separation from service or (b) following the death or
disability (as defined in the Code) of the participant or beneficiary; (2)
returns of excess contributions to such retirement plans; (3) redemptions other
than from retirement plans following the death or disability of the
shareholder(s) (as evidenced by a determination of total disability by the U.S.
Social Security Administration); (4) withdrawals under an automatic withdrawal
plan (but only for Class B or C shares) where the annual withdrawals do not
exceed 10% of the initial value of the account; and (5) liquidation of a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the required minimum account value. A shareholder's account
will be credited with the amount of any contingent deferred sales charge paid on
the redemption of any Class A, B or C shares of the Fund described in this
section if within 90 days after that redemption, the proceeds are invested in
the same Class of shares in this Fund or another Oppenheimer fund.
-8-
<PAGE>
[Oppenheimer Convertible Securities Fund ]
350 Linden Oaks
Rochester, New York 14625-2807
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
[OppenheimerFunds Internet Web Site
http://www.oppenheimerfunds.com]
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent [Accountants]
Price Waterhouse LLP
[950 17th Street, Suite 2500]
[Denver, Colorado 80202]
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N. W.
Washington, D.C. 20036-5891
No dealer, salesperson or another person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or the Statement of Additional Information, and if given or made,
such information and representations must not be relied upon as having been
authorized by the Fund, OppenheimerFunds, Inc., OppenheimerFunds Distributor,
Inc. or any affiliate thereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any state to any person to whom it is unlawful to make such an offer in
such state.
[insert logo
Printed on recycled paper
PR0345.001.0498]
-9-
<PAGE>
Bond Fund Series
Oppenheimer Convertible Securities Fund
350 Linden Oaks, Rochester, New York 14625
1-800-525-7048
Statement of Additional Information dated April 28, 1998
This Statement of Additional Information of Bond Fund Series- Oppenheimer
Convertible Securities Fund (the "Fund") is not a Prospectus. This document
contains additional information about the Fund and supplements information in
the Prospectus dated April 28, 1998 It should be read together with the
Prospectus, which may be obtained by writing to OppenheimerFunds Services, the
Fund's Transfer Agent, at P.O. Box 5270, Denver, Colorado 80217 or by calling
the Transfer Agent at the toll-free number shown above.
CONTENTS
Page
About the Fund
Investment Objective and Policies............................................2
Investment Policies and Strategies......................................2
Other Investment Techniques and Strategies..............................6
Other Investment Restrictions..........................................11
How the Fund is Managed.....................................................14
Organization and History...............................................14
Trustees and Officers of the Fund......................................16
The Manager and Its Affiliates.........................................22
Brokerage Policies of the Fund..............................................25
Performance of the Fund.....................................................27
Distribution and Service Plans..............................................34
About Your Account
How To Buy Shares...........................................................37
How To Sell Shares .........................................................48
How To Exchange Shares......................................................53
Dividends, Capital Gains and Taxes..........................................56
Additional Information About the Fund.......................................57
Financial Information About the Fund
Independent Auditors' Report................................................58
Financial Statements........................................................59
Appendix A Corporate Industry Classifications ...............A-1
-1-
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies of the
Fund are described in the Prospectus. Set forth below is supplemental
information about those policies and the types of securities in which the Fund
invests, as well as the strategies the Fund may use to try to achieve its
objective. Capitalized terms used in this Statement of Additional Information
have the same meaning as those terms have in the Prospectus.
The Fund seeks a high level of total return on its assets through a
combination of current income and capital appreciation. The Fund invests
primarily in a portfolio which consists of a variety of fixed income securities,
including convertible securities, which in the opinion of OppenheimerFunds, Inc.
(the "Manager") will assist the Fund in achieving its investment objective.
Convertible securities include corporate bonds, notes and preferred stock which
can be converted into (exchanged for) common stock or other securities which
provide an opportunity for participation. The Fund invests a substantial portion
of its assets in high-yield, lower rated bonds which are commonly referred to as
"junk bonds." Investments of this type are subject to greater risk of loss of
principal and interest. High yield bonds generally offer a higher yield to
maturity than bonds with higher ratings as compensation for holding an
obligation perceived to be of greater risk. The high yield opportunity has been
the result of wide yield spreads between high yield obligations and high grade
obligations, with actual losses resulting from default remaining low relative to
the values of outstanding high yield bonds. In addition to offering higher
absolute returns, high yield securities have greater potential than high-grade
bonds for better relative performance if their credit quality improves.
The Manager evaluates the investment merits of fixed-income securities
primarily through the exercise of its own investment analysis. This may include
consideration of the financial strength of the issuer, including its historic
and current financial condition, the trading activity in its securities, present
and anticipated cash flow, estimated current value of assets in relation to
historical cost, the issuer's experience and managerial expertise,
responsiveness to changes in interest rates and business conditions, debt
maturity schedules, current and future borrowing requirements, and any change in
the financial condition of the issuer and its continuing ability to meet its
future obligations. The Manager also may consider anticipated changes in
business conditions, levels of interest rates of bonds as contrasted with levels
of cash dividends, industry and regional prospects, the availability of new
investment opportunities, and the general economic, legislative and monetary
outlook for specific industries, the nation and the world.
o Convertible Fixed Income Securities. Convertible securities are fixed
income securities which may be exchanged for or converted into the underlying
common stock of the issuer at the option of the holder during a specified period
of time. Convertible securities may take the form of convertible preferred
stock, convertible bonds or notes, or other fixed income securities with stock
purchase warrants, or a combination of the features of several of these
securities. Because of the conversion feature, the price of a convertible
security will normally vary in some proportion to changes in the price of the
underlying common stock. Convertible fixed income securities are generally
characterized by less price volatility than the common stocks into which they
are convertible because of their comparatively higher yields. The investment
characteristics of each convertible security vary widely, and such versatility
permits the Fund to use convertible securities in different ways in pursuing its
investment objective of high total return. For example, the Fund may invest in
convertible securities which provide a relatively high level of income, with
less appreciation potential as well as those with high appreciation potential
and a relatively low level of income or convertible securities which provide
some combination of both income and appreciation potential.
Convertible bonds and convertible preferred stocks are fixed income
securities that retain the investment characteristics of fixed income securities
until they have been converted. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Convertible securities are
senior securities, and therefore, have a claim to assets of the corporation
prior to the holders of common stock upon liquidation. Convertible securities,
however, are generally subordinated to similar non-convertible securities of the
same company. The interest income and dividends from convertible bonds and
preferred stocks provide a stable stream of income with yields which are
generally higher than common stocks, but lower than non-convertible securities
of similar quality.
As with all fixed income securities, various market forces influence the
market value of convertible securities, including changes in the level of
interest rates. As the level of interest rates increases, the market value of
convertible securities may decline and, conversely, as interest rates decline,
the market value of convertible securities may increase. The unique investment
characteristic of convertible securities, the right to be exchanged for the
issuer's common stock, causes the market value of convertible securities to
increase when the value of the underlying common stock increases. Since
securities prices fluctuate, however, there can be no assurance that the market
value of convertible securities will increase. Convertible securities generally
will not reflect quite as great a degree of capital appreciation as the
underlying stock. When the underlying common stock is experiencing a decline,
the value of the convertible security tends to decline to a level approximating
the yield-to-maturity basis of straight non-convertible debt of similar quality,
often called "investment value," and may not experience the same decline as the
underlying common stock.
Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a fixed
income security with a possibility of capital appreciation due to the conversion
privilege. There can be no assurance that the underlying common stock will
appreciate enough for this premium to be recovered by the Fund on any particular
convertible security.
o Investment Risks of Fixed-Income Securities. All fixed-income securities
are subject to two types of risks: credit risk and interest rate risk. Credit
risk relates to the ability of the issuer to meet interest or principal payments
on a security as they become due. Generally, higher yielding lower-grade bonds
are subject to credit risk to a greater extent than lower yielding, investment
grade bonds. Interest rate risk refers to the fluctuations in value of
fixed-income securities resulting solely from the inverse relationship between
price and yield of outstanding fixed-income securities. An increase in
prevailing interest rates will generally reduce the market value of already-
issued fixed-income investments, and a decline in interest rates will tend to
increase their value. In addition, debt securities with longer maturities, which
tend to produce higher yields, are subject to potentially greater changes in
their prices from changes in interest rates than obligations with shorter
maturities. Fluctuations in the market value of fixed-income securities after
the Fund buys them will not affect the interest payable on those securities, nor
the cash income from such securities. However, those price fluctuations will be
reflected in the valuations of these securities and therefore the Fund's net
asset values.
As stated in the Prospectus, the fixed-income securities in which the Fund
will principally invest will be in those in the lower rating categories or in
those which are unrated. The Fund may invest in securities rated as low as "C"
by a nationally recognized statistical rating organization ("NRSRO") or in bonds
which are unrated. The Manager will not rely solely on the ratings assigned by
rating services and may invest, without limit, in unrated securities which
offer, in the opinion of the Manager, yields and risks comparable to those of
rated securities in which the Fund may invest. The Fund will not invest in
securities which are in default at the time of purchase. Because investment in
lower rated and unrated fixed income securities involves greater investment
risk, achievement of the Fund's investment objectives will be more dependent
upon the Manager's credit analysis than would be the case if the Fund were
investing in higher quality debt securities.
Some of the principal risks of high yield securities include: (i) limited
liquidity and secondary market support, (ii) substantial market price volatility
resulting from changes in prevailing interest rates, (iii) subordination of the
holder's claims to the prior claims of banks and other senior lenders in
bankruptcy proceedings, (iv) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates, whereby
the holder might receive redemption proceeds at times when only lower-yielding
portfolio securities are available for investment, (v) the possibility that
earnings of the issuer may be insufficient to meet its debt service, and (vi)
the issuer's low creditworthiness and potential for insolvency during periods of
rising interest rates and economic downturn. Some high yield bonds pay interest
in kind rather than in cash.
As a result of the limited liquidity of high yield securities, their
prices have at times experienced significant and rapid decline when a
significant number of holders of high yield securities simultaneously decided to
sell them. A decline is also likely in the high yield bond market during an
economic downturn. An economic downturn or an increase in interest rates could
severely disrupt the market for high yield securities and adversely affect the
value of outstanding securities and the ability of the issuers to repay
principal and interest. In addition, in recent years there have been several
Congressional attempts to limit the use or limit tax and other advantages of
high yield bonds. If enacted, such proposals could adversely affect the value of
these securities and consequently the Fund's net asset value per share. For
example, federally insured savings and loan associations have been required to
divest their investments in high yield securities.
o Convertible Preferred Stock. The Fund may invest in a type of convertible
preferred stock that is an equity security with certain characteristics of both
a debt security and a call option. These securities can be considered
"derivative" securities because of their imbedded option component. These stock
instruments trade under a variety of acronyms. They typically provide for a
three-year period prior to conversion to common stock (although they are
callable by the issuer prior to conversion) and pay a cumulative, fixed dividend
that is senior to, and expected to be in excess of, the dividends paid on the
common stock of the same issuer. At the mandatory conversion date, the preferred
stock is converted into not more than one share of the issuer's common stock at
the "call price" that was established at the time the preferred stock was
issued. Generally, the call price is 30% to 45% above the price of the issuer's
common stock at the time the preferred stock is issued and may be subject to
downward adjustment over time. If the price per share of the related common
stock on the mandatory conversion date is less than the call price, the holder
of the preferred stock will nonetheless receive only one share of common stock
for each share of preferred stock (plus cash in the amount of any accrued but
unpaid dividends). At any time prior to the mandatory conversion date, the
issuer may redeem the preferred stock upon issuing to the holder a number of
shares of common stock equal to the call price of the preferred stock in effect
on the date of redemption divided by the market value of the common stock, with
such market value typically determined one or two trading days prior to the date
notice of redemption is given. The issuer must also pay the holder of the
preferred stock cash in an amount equal to any accrued but unpaid dividends on
the preferred stock.
This convertible preferred stock is subject to the same market risk as the
common stock of the issuer, except to the extent that such risk is mitigated by
the higher dividend paid on the preferred stock. The opportunity for equity
appreciation afforded by an investment in such convertible preferred stock,
however, is limited, because in the event the market value of the issuer's
common stock increases to or above the call price of the preferred stock, the
issuer may (and would be expected to) call the preferred stock for redemption at
the call price. This convertible preferred stock is also subject to credit risk
with regard to the ability of the issuer to pay the dividend established upon
issuance of the preferred stock. Generally, convertible preferred stock is less
volatile than the related common stock of the issuer.
Other Investment Techniques and Strategies
o Warrants. The Fund has adopted as a fundamental policy that it may
invest up to 15% of the value of its net assets at the time of purchase in
warrants (other than those that have been acquired in units or attached to other
securities). This fundamental policy is currently limited by an operational
policy which provides that the Fund may not invest more than 5% of the value of
the Funds' net assets in warrants, valued at market. Included within that
amount, but not to exceed 2% of the value of the Funds' net assets, may be
warrants which are not listed in the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value for purposes of the limitation imposed by the operational
policy. A warrant basically is an option to purchase common stock at a specific
price (usually at a premium above the market value of the optioned common stock
at issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual. However, many
warrants have expiration dates after which they are worthless unless such
warrants are exercised or sold before expiration. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire worthless. Warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the market
price of a warrant may tend to be greater than the percentage increase or
decrease in the market price of the optioned common stock.
o Fund's Use of Listed Options. The Fund will limit options trading
activity to: (1) writing (i.e., selling) covered call options on stocks and the
underlying stock of existing convertible positions; (2) purchasing put options
on stocks; and (3) entering into closing purchase transactions with respect to
certain of such options, provided that all options traded by the Fund are listed
on a national securities exchange.
The Fund will write covered call options in an attempt to increase its
income. The Fund may also purchase put options on stock in order to attempt to
hedge its portfolio and to reduce investment risks. Hedging strategies are
defensive in nature and capital gain potential is forsaken in advancing markets
for a reduction of risk in declining markets. No assurances can be made that
these options hedging strategies will result in successful investments by the
Fund.
o Characteristics of Listed Options. Because listed options can be employed
in a variety of ways to pursue a variety of investment objectives, it follows
that the risks and potential rewards of options trading depend in large measure
on the manner in which the options are used. Listed options are puts and calls
on common stock. A call option conveys the right to buy and a put option conveys
the right to sell. Although put options and call options are generally traded on
the same underlying securities, it should be clearly understood that call
options and put options are separate and distinct investment securities. The
purchase or sale of a call in no way involves a put. The purchase or sale of a
put in no way involves a call.
The option contract has a duration period of up to nine months and
precisely identifies the underlying security. Options traded on options
exchanges (the "Exchanges"), have standardized the terms of options contracts.
An options contract has four specifications: (1) the type (put or call); (2) the
underlying common stock name; (3) the expiration date; and (4) the exercise or
strike price. Option contracts give their holder the right to buy or sell a
stated number of shares, usually 100,
of a particular underlying common stock, at a fixed price (called the strike
price) for a predetermined period of time (called the expiration period). An
option is a wasting asset; that is, it has only an initial value that declines
as time passes. It may expire having no value, or the holder may have to
exercise it in order to recover some value before expiration. Of course, the
holder may sell the option in the listed option market before expiration.
Although an option is a security, it derives its value from the underlying
common stock. The option price fluctuates as the price of the underlying stock
rises or falls. Splits and stock dividends in the underlying stock affect the
terms of listed options, although cash dividends do not.
o Covered Call Option Writing. A call option gives the purchaser of the
option the right to buy, and imposes on the writer the obligation to sell, the
underlying security at the exercise price during the option period. The Fund may
write "covered" call options, that is, options on securities the Fund holds in
its portfolio or has an immediate right to acquire, without additional
consideration, upon conversion or exchange of securities currently held in its
portfolio. For writing a call option, the Fund is paid a sales price or premium.
If the call option expires unexercised, the Fund realizes a gain equal to the
amount of the premium received upon writing the option, less transaction costs.
So long as the obligation of a writer continues, he may be assigned an exercise
notice by the broker-dealer through whom such a call option was sold, requiring
him to deliver the underlying security against payment of the exercise price.
This obligation terminates upon expiration of the call option, or at such
earlier time at which the writer effects a closing purchase transaction (i.e.,
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option already written). Once a writer has been
assigned an exercise notice with respect to a call option, he will thereafter be
unable to effect a closing purchase transaction with respect to that option. In
return for the premium it receives, so long as the Fund's obligation as a writer
continues, it will forego the opportunity to profit from any price increase in
the underlying stock above the exercise price.
The Fund will write covered call options for hedging purposes in order to
protect against possible declines in the market values of the stocks or
convertible securities held in its portfolio. If, for example, the market price
of a common stock underlying a convertible security held by a Fund declines and
the convertible security also declines in value, such decline will be offset in
part (or wholly) by the receipt of the premium on covered call options written
by the Fund on such stock. However, if the market price of the underlying common
stock increases and the convertible security held by a Fund also increases in
value, such increases will be offset in part (or wholly) by any loss resulting
from the cancellation of the Fund's position through closing purchase
transactions on covered call options written by the Fund or the opportunity loss
if the option is exercised. The main risk of any covered call writing strategy
is that the common stock/covered call "package" (such as that embedded in a
mandatory conversion security) will under perform the common stock alone should
the stock's price rise substantially above the strike price of the call option.
The Fund may not sell any covered call options if, as a result of such
sale, the aggregate value of its securities underlying such options (valued at
the lower of the option price or market price) would exceed 25% of its net
assets. This limitation may not be changed by the Fund without shareholder
approval. To secure its obligation to deliver the underlying security, the Fund,
as the writer of a call option, is required to deposit in escrow with its
Custodian the underlying common stock or a security immediately convertible into
the underlying common stock in accordance with the rules of the Options Clearing
Corporation and of the various Exchanges.
o Purchase of Put Options. The Fund will also purchase put options in an
attempt to hedge its portfolio and to reduce investment risks. When a
convertible security is purchased because the Manager believes the market price
of such security may rise, the Manager may nonetheless wish to protect the
holdings of such security against a decline in market value by purchasing a put
option on the common stock underlying such security. A put option gives the
purchaser the right to sell the underlying common stock at the put exercise
price regardless of any decline in the underlying stock's market price.
Thus, the purchase of a put option when used as a defensive measure
provides profits should the underlying common stock decline, which would be of
use to offset losses from the corresponding decline in the value of the
convertible security held. The reduction in loss that this defensive strategy
provides is limited to the profit made on the put option transaction, less the
premium paid for the put option, less the transaction costs incurred in
connection with the put. Should the underlying common stock, and consequently
the convertible securities held, increase in value, the profit realized would be
reduced by the cost of the purchase of the put options.
o Risks of Transactions in Stock Options. An option position may be closed
out by the Fund only on an Exchange which provides a secondary market for an
option of the same series. Although the Fund will generally purchase or write
only those options for which there is an active secondary market, there is no
assurance that a liquid secondary market on an Exchange will exist for any
particular option or at any particular time. Absence of a liquid secondary
market on an Exchange may result from a variety of economic, market and
regulatory factors including the suspension of trading or an insufficient amount
of trading interest. For example, if trading were suspended in an option
purchased or written by the Fund, the Fund would not be able to close out the
option. If the Fund, as a covered call option writer, is unable to effect a
closing purchase transaction in a secondary market, the Fund will not be able to
sell the underlying common stock until the option expires or until it delivers
the underlying common stock upon exercise. Similarly, in the absence of a liquid
secondary market, the Fund, as the purchaser of a put option, would be able to
realize a profit or limit a loss on such option only by exercising such option
and, in the case of a put option on stock, by incurring additional transaction
costs on the disposition of the underlying security.
The Exchanges have established limitations governing the maximum number of
calls and puts of each class which may be held or written by an investor or
group of investors acting in concert (regardless of whether the options are
written on the same or different Exchanges or are held or written in one or more
accounts or through one or more brokers). An Exchange may order the liquidation
of positions found to be in violation of these limits. The Manager does not
anticipate that such limits will affect the Fund's option trading activities.
o Mandatory Conversion Securities. In addition to the more traditional
convertible securities in which the Fund may invest as described in the
Prospectus, the Fund may also invest in more recently developed varieties of
convertible securities which are referred to herein as "mandatory conversion
securities." Such securities may combine several of the features of debt
securities and equity securities, including both preferred stock and common
stock. Unlike the more traditional convertible securities, however, many of
these securities are characterized by a mandatory conversion feature and an
adjustable conversion ratio. Thus, many of these securities offer limited
potential for capital appreciation and, in some instances, involve unlimited
potential for loss of capital. These securities are designed and marketed by
major investment banking firms and trade in the marketplace under various
acronyms which are proprietary to the investment banking firm. The Fund may be
exposed to counterparty risk to the extent it invests in "synthetic mandatory
conversion securities," which are issued by investment banking firms and are
unsecured obligations of the issuing firm. Should the issuing firm of such a
security experience financial difficulty, its ability to perform according to
the terms of the security may become impaired. The mandatory conversion
securities which may be purchased by the Fund include, but are not limited to,
the so-called equity-linked debt securities and certain varieties of convertible
preferred stock. The market for these securities is relatively new.
o Equity-linked Debt Securities. The Fund may purchase debt securities
whose principal amount at maturity is dependent upon the performance of a
specified equity security. Equity-linked debt securities differ from ordinary
debt securities in that the principal amount received at maturity is not fixed,
but is based on the price of the linked equity security at the time the debt
security matures. Such debt securities usually mature in three to four years,
and during the years to maturity pay interest at a favorable fixed rate.
Although the debt securities are typically adjusted for diluting events such as
stock splits, stock dividends and certain other events affecting the market
value of the linked equity security, the debt securities are not adjusted for
subsequent issuances of the linked equity security for cash. Such an issuance
could adversely affect the price of the debt security. In general, however, such
debt securities are less volatile than the equity securities to which they are
linked.
Other Investment Restrictions
Specific investment restrictions help the Fund limit investment risks for
shareholders. The following investment restrictions are fundamental investment
policies of the Fund and cannot be changed without approval of a majority of the
outstanding voting securities of the Fund (defined for purposes of the
Prospectus and this Statement as the lesser of: (i) 67% of the shares present or
represented by proxy at a meeting at which more than 50% of the outstanding
shares are present or represented by proxy; or (ii) more than 50% of the
outstanding shares). These restrictions provide that the Fund may not do any of
the following:
o The Fund may not invest more than 25% of the value of the Fund's total
assets in the securities of any one issuer or any group of issuers in the same
industry, which restriction will not, however, prevent it from investing more
than 25% of such Fund's total assets in securities of the United States
Government, its agencies or instrumentalities.
o The Fund may not make any investment if, as a result thereof, less than
50% of the Fund's total assets would be in cash, cash items, U.S. Government
securities, and securities of issuers in which its investment is limited to not
more than 5% of the value of the Fund's total assets and not more than 10% of
the outstanding voting securities of any issuer.
o The Fund may not purchase securities on margin, but the Fund may obtain
unsecured loans to purchase securities and may also borrow amounts equivalent to
up to 5% of the Fund's net assets for temporary, extraordinary or emergency
purposes. The aggregate of all unsecured loans, however, may not exceed 50% of
the Fund's total assets.
o The Fund may not make short sales on securities or maintain a short
position, unless at all times when a short position is open, the Fund owns an
equal amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short; no more
than 10% of the Fund's total assets will be held as collateral for such short
sales at any one time.
o The Fund may not engage in the purchase and sale of put and call options
or in writing such options except as set forth herein and in the Prospectus.
o The Fund may not invest in warrants other than warrants acquired by the
Fund as part of a unit or attached to securities at the time of purchase, and
other than the investment of no more than 15% of the value of its net assets in
warrants valued at the lower of cost or market (of which not more than 5% of the
Fund's net assets may be invested in warrants not listed on the New York or
American Stock Exchange).
o The Fund may not make loans, provided that this policy does not prohibit
the Fund from (1) making loans of its portfolio securities, (2) purchasing
notes, bonds or other evidences of indebtedness or making deposits with banks
and other financial institutions, and (3) entering into repurchase agreements.
o The Fund may not purchase or sell real estate, or real estate mortgage
loans provided, however, that the Fund may invest not more than 5% of its total
assets in marketable securities of real estate investment trusts.
o The Fund may not deal in commodities or commodities contracts.
o The Fund may not purchase or retain securities of any issuer if any of
its officers and trustees, or any of the officers and directors of the Manager
(as hereinafter defined) or Distributor (as hereinafter defined), own
individually beneficially more than 0.5% of the outstanding securities of such
issuer, or if all of those persons together own more than 5% of that issuer's
securities.
o The Fund may not invest more than 5% of the value of its total assets in
securities of any company (including its predecessors) that has not been in
business for at least three consecutive years.
o The Fund may not issue any securities which are senior to shares of the
Fund.
o The Fund may not underwrite securities of other issuers.
o The Fund may not acquire securities of any other investment company, if
as a result of such acquisition, the Fund would own in the aggregate: (i) more
than 3% of the voting stock of such investment company; (ii) securities of such
investment company having an aggregate value in excess of 5% of the value of the
total assets of the Fund; or (iii) securities of such investment company and of
any other investment companies (but excluding treasury stock of those funds)
having an aggregate value in excess of 10% of the total assets of the Fund.
However, none of these limitations is applicable to a security received as a
dividend or as a result of an offer of exchange, a merger or plan of
reorganization.
The percentage limitations on investments which are set forth herein are
applied at the time an investment is made. No violation of the percentage
limitation will occur unless the limitation is exceeded immediately after an
investment is made and as a result thereof.
o Operational Policies. The following restrictions are operational
investment policies of the Fund. While these operating investment policies are
not fundamental policies and do not require shareholder approval to be changed
and may be changed by the Board of Trustees, the Fund has, as a matter of
policy, agreed not to change these policies without prior notice to its
shareholders. These operating policies provide that the Fund may not do any of
the following:
o The Fund may not invest in any issuer for the purpose of exercising
control or management of that issuer, unless approved by the Fund's Board of
Trustees.
o The Fund may not invest any part of its total assets in interests in
oil, gas, or other mineral exploration or development programs, although it may
invest in securities of companies which invest in or sponsor such programs. The
Fund may not invest in oil, gas or other mineral leases.
o The Fund may not invest more than 5% of the value of the Fund's assets
in warrants, valued at the lower of cost or market. Included within that amount,
but not to exceed 2% of the value of the Fund's net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.
o For purposes of the first Fundamental Investment Restriction described
above, the Fund's policy with respect to concentration of investments shall be
interpreted as prohibiting the Fund from making an investment in the securities
of any one issuer or group of issuers in the same industry if, upon making the
proposed investment, 25% or more of the value of its (total) assets would be
invested in such industry.
o As a non-fundamental policy, the Fund may not invest more than 15% of
the value of the Fund's net assets in Illiquid Securities. An additional
operational policy of the Fund provides that certain "restricted securities," as
defined in the section entitled "Illiquid Securities" in the prospectus, may be
excluded from the Fund's 15% limitation on investments in Illiquid Securities.
Rule 144A under the Securities Act of 1933, as amended, permits certain resales
of unregistered securities (i.e., restricted securities) provided that such
securities have been determined to be eligible for resale under the provisions
of Rule 144A. The Fund's Board of Trustees has adopted guidelines and procedures
to be utilized by the investment adviser for determining the liquidity of such
Rule 144A securities and for monitoring the investment adviser's implementation
of the guidelines and procedures. Such determination will be based upon all
relevant factors including, among other things: (1) the unregistered nature of a
Rule 144A security; (2) the frequency of trades and quotes for the security; (3)
the number of dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the security;
and (5) the nature of the security and the nature of marketplace trades,
including, the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer.
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 Act or
other applicable law, or when a shareholder meeting is called by the Trustees.
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 Act.
Each share of the Fund represents an interest in the Fund proportionately
equal to the interest of each other share of the same class and entitles the
holder to one vote per share (and a fractional vote for a fractional share) on
matters submitted to their vote at shareholders' meetings. Shareholders of the
Fund vote together in the aggregate on certain matters at shareholders'
meetings, such as the election of Trustees and ratification of appointment of
auditors for the Fund. Shareholders of a particular series or class vote
separately on proposals which affect that series or class, and shareholders of a
series or class which is not affected by that matter are not entitled to vote on
the proposal.
The Trustees are authorized to create new series and classes of series.
The Trustees may reclassify unissued shares of the Fund or its series or classes
into additional series or classes of shares. The Trustees may also divide or
combine the shares of a class into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest of a shareholder in the
Fund. Shares do not have cumulative voting rights or preemptive or subscription
rights. Shares may be voted in person or by proxy.
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.
The Fund is currently the only series of a business trust organized under
the laws of the Commonwealth of Massachusetts in 1986. From 1990 through April
30, 1993, the Fund's name was Rochester Convertible Fund, at which time the name
of the trust was changed to Rochester Fund Series and the name of the Fund was
changed to The Bond Fund For Growth. On March 8, 1996, the name of the trust was
changed to Bond Fund Series and the name of the Fund was changed to Oppenheimer
Bond Fund for Growth. Subsequently, on April 28, 1998, the Fund's name was
changed to Oppenheimer Convertible Bond Fund.
Trustees and Officers of the Fund. The Fund's Trustees and officers, one of
which is the Fund's portfolio manager, are listed below, together with their
principal occupations and business affiliations during the past five years.
The address of each is Two World Trade Center, New York, New York 10048,
except as noted. All of the Trustees are also trustees of Rochester Fund
Municipals and Limited Term New York Municipal Fund (collectively, with the
Fund, the "Oppenheimer Rochester Funds"). With the exception of Mr. Cannon, all
of the Trustees are also trustees or directors of Oppenheimer Quest Growth &
Income Value Fund, Oppenheimer Quest Officers Value Fund, Oppenheimer Quest
Opportunity Value Fund, Oppenheimer Quest Small Cap Fund, Oppenheimer Quest
Value Fund, Inc, Oppenheimer Quest Global Value Fund, Inc. and Oppenheimer Quest
Capital Value Fund, Inc. (collectively, the "Oppenheimer Quest Funds"). Ms.
Macaskill (in her capacity as President), Messrs. Donohue, Bowen, Zack, Bishop
and Farrar, respectively, hold the same offices with the Oppenheimer Rochester
Funds and the Oppenheimer Quest Funds as with the Fund. As of April 17, 1998 the
Trustees and officers of the Fund as a group owned less than 1% of the
outstanding shares of the of each class of the Fund. The foregoing does not
include shares held of record by an employee benefit plan for employees of the
Manager for which one of the officers below, Mr. Donohue, is a trustee, other
than the shares beneficially owned under that plan by the officers of the Fund
listed below.
Bridget A. Macaskill, Chairman of the Board of Trustees and President*; Age 49
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView Asset Management Corporation ("HarbourView"), an
investment adviser subsidiary of the Manager; Chairman and a director of
Shareholder Services, Inc. ("SSI") (since August 1994), and Shareholder
Financial Services, Inc. ("SFSI") (September 1995), transfer agent subsidiaries
of the Manager; President (since September 1995) and a director (since October
1990) of Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding
company; President (since September 1995) and a director (since November 1989)
of Oppenheimer Partnership Holdings, Inc. ("OPHI"), a holding company subsidiary
of the Manager; a director of Oppenheimer Real Asset Management, Inc. (since
July 1996); President and a director (since October 1997) of OppenheimerFunds
International Ltd., an offshore fund manager subsidiary of the Manager ("OFIL")
and Oppenheimer Millennium Funds plc (since October 1997); President and a
director of other Oppenheimer funds; a director of the NASDAQ Stock Market, Inc.
and of Hillsdown Holdings plc (a U.K. food company); formerly an Executive Vice
President of the Manager.
John Cannon, Trustee; Age 68
620 Sentry Parkway West Suite 220, Blue Bell, PA 19422 Independent Consultant;
Chief Investment Officer, CDC Associates, a registered investment adviser;
Director, Neuberger & Berman Income Managers Trust, Neuberger & Berman Income
Funds and Neuberger Berman Trust, 1995-Present; formerly Chairman and Treasurer,
CDC Associates, 1993-February, 1996; prior thereto, President, AMA Investment
Advisers, Inc., a mutual fund investment adviser, 1976-1991; Senior Vice
President AMA Investment Advisers, Inc., 1991-1993.
Paul Y. Clinton, Trustee; Age 67
39 Blossom Avenue, Osterville, Massachusetts 02655
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; Trustee of Capital Cash Management Trust, a money-market fund
and Narragansett Tax-Free Fund, a tax-exempt bond fund; Director of OCC Cash
Reserves, Inc. and Trustee of OCC Accumulation Trust, all of which are open-end
investment companies. Formerly: Director, External Affairs, Kravco Corporation,
a national real estate owner and property management corporation; President of
Essex Management Corporation, a management consulting company; a general partner
of Capital Growth Fund, a venture capital partnership; a general partner of
Essex Limited Partnership, an investment partnership; President of Geneve Corp.,
a venture capital fund; Chairman of Woodland Capital Corp., a small business
investment company; and Vice President of W.R. Grace & Co.
- ---------------
* Trustee who is an "interested person" of the Fund
Thomas W. Courtney, Trustee; Age 64
833 Wyndemere Way, Naples, Florida 34105
Principal of Courtney Associates, Inc. (venture capital firm); former General
Partner of Trivest Venture Fund (private venture capital fund); former President
of Investment Counseling Federated Investors, Inc.; Trustee of Cash Assets
Trust, a money market fund; Director of OCC Cash Reserves, Inc., and Trustee of
OCC Accumulation Trust, all of which are open-end investment companies; former
President of Boston Company Institutional Investors; Trustee of Hawaiian
Tax-Free Trust and Tax Free Trust of Arizona, tax-exempt bond funds; Director of
several privately owned corporations; former Director of Financial Analysts
Federation.
Lacy B. Herrmann, Trustee; Age 68
380 Madison Avenue, Suite 2300, New York, New York 10017 Chairman and Chief
Executive Officer of Aquila Management Corporation, the sponsoring organization
and Manager, Administrator and/or Sub-Adviser to the following open-end
investment companies, and Chairman of the Board of Trustees and President of
each: Churchill Cash Reserves Trust, Aquila Cascadia Equity Fund, Pacific
Capital Cash Assets Trust, Pacific Capital U.S. Treasuries Cash Assets Trust,
Pacific Capital Tax-Free Cash Assets Trust, Prime Cash Fund, Narragansett
Insured Tax-Free Income Fund, Tax-Free Fund For Utah, Churchill Tax-Free Fund of
Kentucky, Tax-Free Fund of Colorado, Tax-Free Trust of Oregon, Tax- Free Trust
of Arizona, Hawaiian Tax-Free Trust, and Aquila Rocky Mountain Equity Fund; Vice
President, Director, Secretary, and formerly Treasurer of Aquila Distributors,
Inc., distributor of the above funds; President and Chairman of the Board of
Trustees of Capital Cash Management Trust ("CCMT"), and an Officer and
Trustee/Director of its predecessors; President and Director of STCM Management
Company, Inc., sponsor and adviser to CCMT; Chairman, President and a Director
of InCap Management Corporation, formerly sub-adviser and administrator of Prime
Cash Fund and Short Term Asset Reserves; Director of OCC Cash Reserves, Inc.,
and Trustee of OCC Accumulation Trust, both of which are open-end investment
companies; Trustee Emeritus of Brown University.
George Loft, Trustee; Age 83
51 Herrick Road, Sharon, Connecticut 06069
Private Investor; Director of OCC Cash Reserves, Inc., and Trustee of OCC
Accumulation Trust, both of which are open-end investment companies.
Andrew J. Donohue, Secretary; Age 47
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of the Distributor; Executive Vice President, General Counsel and
a director of HarbourView, SSI, SFSI and Oppenheimer Partnership Holdings, Inc.
(since September 1995) and MultiSource Services, Inc. (a broker-dealer) (since
December 1995); President and a director of Centennial (since September 1995);
President, General Counsel and a director of Oppenheimer Real Asset Management,
Inc. (since July 1996); General Counsel (since May 1996) and Secretary (since
April 1997) of OAC; A director of OFIL and Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
George C. Bowen, Treasurer; Age 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President (since September 1987) and Treasurer (since March 1985) of
the Manager; Vice President (since June 1983) and Treasurer (since March 1985)
of the Distributor; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView; Senior Vice President (since February 1992),
Treasurer (since July 1991)and a director (since December 1991) of Centennial;
President, Treasurer and a director of Centennial Capital Corporation (since
June 1989); Vice President and Treasurer (since August 1978) and Secretary
(since April 1981) of SSI; Vice President, Treasurer and Secretary of SFSI
(since November 1989); Treasurer of OAC (since June 1990); Treasurer of OPHI
(since November 1989); Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc. (since July 1996); Chief Executive Officer, Treasurer and a
director of MultiSource Services, Inc., a broker-dealer (since December 1995); a
director or trustee and an officer of other Oppenheimer funds.
Robert Bishop, Assistant Treasurer; Age 39
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Scott T. Farrar, Assistant Treasurer; Age 32
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Robert G. Zack, Assistant Secretary; Age 49
Senior Vice President (since May 1985) and Associate General Counsel (since May
1981) of the Manager, Assistant Secretary of SSI (since May 1985), and SFSI
(since November 1989); Assistant Secretary of Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
Michael S. Rosen, Vice President and Portfolio Manager; Age 37 350 Linden Oaks,
Rochester, NY 14625 Vice President of the Manager (since January 1996);
President of Rochester Division; Formerly Vice President of Rochester Fund
Services, Inc., President and Director of Rochester Fund Distributors, Inc.,
Vice President and a director of Fielding Management Company, Inc., Rochester
Capital Advisors, Inc. and Rochester Tax Managed Fund, Inc. (June 1983-January
1996).
Ted Everett, Assistant Vice President and Assistant Portfolio Manager; Age 31
Assistant Vice President of the Manager (since January 1996); formerly Portfolio
Manager at Fielding Management Company (July 1993-January 1996), an intern at
West Merchant Bank (June 1992- September 1992).
Adele A. Campbell, Assistant Treasurer; Age 34
350 Linden Oaks, Rochester, New York 14625
Assistant Vice President of the Manager (1996-Present); Formerly Assistant Vice
President of Rochester Fund Services, Inc. (1994- 1996), Assistant Manager of
Fund Accounting, Rochester Fund Services (1992-1994), Audit Manager for Price
Waterhouse, LLP (1991-1992).
o Remuneration of Trustees. All officers of the Fund and Ms. Macaskill, a
Trustee and President, are officers or directors of the Manager and receive no
salary or fee from the Fund. The following table sets forth the aggregate
compensation received by the non-interested Trustees from (i) the Fund during
its fiscal year ended December 31, 1997 and (ii) the other Oppenheimer Rochester
Funds and the Oppenheimer Quest Funds, paid during the calendar year ended
December 31, 1997.
-2-
<PAGE>
Pension or
Retirement
Aggregate Benefits Total
Compensation Accrued as Compensation
from the Part of Fund From Fund
Name of Person Fund(1) Expenses(2) Complex(3)
John Cannon $7,388 $ 0 $23,100
Paul Y. Clinton $7,227 $ 0 $68,379
Thomas W. Courtney$7,227 $ 0 $68,379
Lacy B. Herrmann $6,677 $ 0 $63,154
George Loft $7,227 $ 0 $68,379
- ---------------------
(1)During the fiscal year ended December 31, 1997. (2)The Board of Rochester
Fund Municipals has adopted a Retirement Plan for Independent Trustees of that
Fund. Under the terms of the Retirement Plan, as amended and restated on October
16, 1995, an eligible Trustee (an Independent Trustee who has served as such for
at least three years prior to retirement) may receive an annual benefit equal to
the product of $1500 multiplied by the number of years of service as an
Independent Trustee up to a maximum of nine years. The maximum annual benefit
which may be paid to an eligible Trustee under the Retirement Plan is $13,500.
The Retirement Plan will be effective for all eligible Trustees who have dates
of retirement occurring on or after December 31, 1996. Subject to certain
exceptions, retirement is mandatory at age 72 in order to qualify for the
Retirement Plan. Although the Retirement Plan permits Eligible Trustees to elect
early retirement at age 63, retirement benefits are not payable to Eligible
Trustees who elect early retirement until age 65. The Retirement Plan provides
that no Independent Trustee who is elected as a Trustee of Rochester Fund
Municipals after September 30, 1995, will be eligible to receive benefits
thereunder. Mr. Cannon is the only current Independent Trustee who may be
eligible to receive benefits under the Retirement Plan. Because each Trustee's
retirement benefits will depend on the amount of the Trustee's length of
service, the amount of those benefits cannot be determined at this time, nor can
the Fund estimate the number of years of credited service that will be used to
determine those benefits. (3) For the purpose of the chart above, "Fund Complex"
includes Limited Term New York Municipal Fund, Rochester Fund Municipals,
Oppenheimer Quest Growth & Income Fund, Oppenheimer Quest Officers Value Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap Value
Fund, Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Oppenheimer Quest Value Fund, Inc. and Oppenheimer MidCap Fund.
Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables Trustees to elect to
defer receipt of all or a portion of the annual fees they are entitled to
receive from the Fund. Under the plan, the compensation deferred by a Trustee is
periodically adjusted as though an equivalent amount had been invested in shares
of one or more Oppenheimer funds selected by the Trustee. The amount paid to the
Trustee under the plan will be determined based upon the performance of the
selected funds. Deferral of Trustees' fees under the plan will not materially
affect the Fund's assets, liabilities or net income per share. The plan will not
obligate the Fund to retain the services of any Trustee or to pay any particular
level of compensation to any Trustee. Pursuant to an Order issued by the
Securities and Exchange Commission, the Fund may invest in the funds selected by
the Trustee under the plan for the limited purpose of determining the value of
the Trustee's deferred fee account.
Major Shareholders. The Fund currently offers four classes of shares of
beneficial interest: Class A shares, Class B shares, Class C shares and Class M
shares. The different classes of shares represent investments in the same
portfolio of securities, but are subject to different expenses and are likely to
have different share prices. On March 11, 1996, the Fund redesignated as Class M
shares its Class A shares, which had been outstanding prior to that date,
redesignated as Class A shares its Class Y shares, which had been outstanding
prior to that date and authorized the issuance of Class C shares. As of April
17, 1998, no person owned of record or was known by the Fund to own beneficially
5% or more of the Fund as a whole or the Fund's then outstanding Class A, Class
B, Class C or Class M shares, except Merrill Lynch Pierce Fenner & Smith Inc.
("Merrill Lynch"), 4800 Deer Lake Drive East, 3rd Floor, Jacksonville, Florida
32246-6484, which was the record owner of 8,736,115.592 Class B shares (equal to
30.84% of the Class B shares then outstanding); 2,524,587.006 Class C shares
(equal to 37.75% of the Class C shares then outstanding); and 4,890,971.731
Class M shares (equal to 25.25% of the Class M shares then outstanding). The
Manager has been advised that such shares were held by Merrill Lynch for the
benefit of its customers.
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 serve as officers of the Fund and one of
whom (Ms. Macaskill) serves as a Trustee 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.
|X| Portfolio Management. The Portfolio Manager of the Fund is Michael S.
Rosen, a Vice President of the Manager. He is the person principally responsible
for the day-to-day management of the Fund's portfolio. Mr. Rosen's background is
described in the Prospectus under "Portfolio Manager." Other members of the
Manager's Equity Portfolio Department, particularly Edward Everett, an assistant
portfolio manager for the Fund, provides the Portfolio Manager with counsel and
support in managing the Fund's portfolio.
o The Investment Advisory Agreement. The Investment Advisory Agreement
between the Manager and the Fund which was entered into on January 4, 1996
("Advisory Agreement") 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 the composition of proxy
materials and registration statements for continuous public sale of shares of
the Fund. For these services, the Manager will receive from the Fund an annual
fee, computed and payable monthly as a percentage of average daily net assets,
as follows: average daily net assets up to $50 million, 0.625%; average daily
net assets on the next $250 million, 0.50%; and average daily net assets in
excess of $300 million, 0.4375%.
Expenses not expressly assumed by the Manager under the Advisory Agreement
or by the Distributor 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. For the Fund's fiscal years ended December 31, 1995 and 1996, the
management fees paid by the Fund to its previous investment adviser, Fielding
Management Company, Inc., were $1,030,091 and $16,104, respectively. During the
Fund's fiscal years ended December 31, 1996 and 1997, the management fees paid
by the Fund to OppenheimerFunds, Inc., its current Investment Adviser, were
$2,132,110 and $3,705,530, respectively.
The Investment Advisory Agreement contains no expense limitation. However,
because of state regulations limiting fund expenses that previously applied, the
Manager had voluntarily undertaken that the Fund's total expenses in any fiscal
year (including the investment advisory fee but exclusive of taxes,
interest, brokerage commissions, distribution plan payments and any
extraordinary non-recurring expenses, including litigation) would not exceed the
most stringent state regulatory limitation applicable to the Fund. Due to
changes in federal securities laws, such state regulations no longer apply and
the Manager's undertaking is therefore inapplicable and has been withdrawn.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties thereunder, the Manager shall not be liable for any loss
sustained by reason of good faith errors or omissions on its part with respect
to any matters to which the Advisory 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. 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.
o 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 shares of the Fund's Class A, Class B, Class C and Class M 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 December 31, 1996 and
1997, the aggregate sales charges on sales of the Fund's Class A shares were
$1,744,103 and $1,867,289, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $571,488 and $564,844,
respectively. During the Fund's fiscal years ended December 31, 1996 and 1997,
the contingent deferred sales charges collected on the Fund's Class B shares
were $142,078 and $444,782, respectively, [all of which the Distributor
retained]. During the period from May 1, 1995, the inception of the Class B,
through December 31, 1995, the contingent deferred sales charge collected by
Rochester Fund Distributors, Inc. on the redemption of Class B shares totaled
$5,001. During the Fund's fiscal years ended December 31, 1996 and 1997, the
contingent deferred sales charges collected on the Fund's Class C shares were
$10,119 and $26,261, respectively, [all of which was retained by the
Distributor]. During the Fund's fiscal years ended December 31, 1996 and 1997,
the aggregate sales charges on sales of the Fund's Class M shares were
$1,939,722 and $760,191, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $125,679 and $96,399,
respectively. During the Fund's fiscal year ended December 31, 1995, the
aggregate amount of sales charge on sales of the Fund's Class M shares was
$2,744,786, of which Rochester Fund Distributors, Inc., the Fund's previous
principal underwriter, retained $228,970. For additional information about
distribution of the Fund's shares and the payments made by the Fund to the
Distributor in connection with such activities, please refer to "Distribution
and Service Plans," below.
o The Transfer Agent. OppenheimerFunds Services, a division of the
Manager, serves as the Fund's Transfer Agent. The Transfer Agent is responsible
for maintaining shareholder accounting records, and for shareholder servicing
and administrative functions. The Transfer Agent is compensated on the basis of
a fixed fee per account and as a percentage of the Fund's average daily net
assets. The compensation paid by the Fund for such services under a comparable
arrangement with Rochester Fund Services, Inc., the Fund's previous shareholder
services agent, for the fiscal year ended December 31, 1995 was $245,510. The
compensation paid by the Fund for such services for the fiscal years ended
December 31, 1996 was $484,088, of which $3,246 was paid to Rochester Fund
Services, the Fund's prior transfer agent and $480,842 was paid to
OppenheimerFunds Services. The compensation paid by the Fund to the Transfer
Agent for such services during the Fund's fiscal year ended December 31, 1997
was $873,562.
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 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.
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 that which would have
been charged by another qualified broker 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. In either case, brokerage is allocated
under the supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market are
generally done with principals or market makers. As stated in the prospectus,
the portfolio securities of the Fund are generally traded on a net basis and, as
such, do not involve the payment of brokerage commissions. It is the policy of
the Manager to obtain the best net results in conducting portfolio transactions
for the Fund, taking into account such factors as price (including the
applicable dealer spread) and the firm's general execution capabilities. Where
more than one dealer is able to provide the most competitive price, both the
sale of Fund shares and the receipt of research may be taken into consideration
as factors in the selection of dealers to execute portfolio transactions for the
Fund. The transaction costs associated with such transactions consist primarily
of the payment of dealer and underwriter spreads. Brokerage commissions are paid
primarily for effecting transactions in listed securities and or for certain
fixed-income agency transactions, in the secondary market, otherwise 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 in one
or more of the advisory accounts of the Manager and its affiliates. 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. 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 Act, and who have no direct or indirect
financial interest in the operation of the Advisory Agreement or the
Distribution Plans described below) annually review 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. Total brokerage commissions
paid by the Fund (not including any spreads or concessions on principal
transactions on a net trade basis) for the fiscal years ended December 31, 1995,
1996 and 1997 were approximately $86,680, $184,835 and $374,622, respectively.
A change in securities held by the Fund is known as "portfolio turnover."
The Fund's options hedging and income strategies may increase the portfolio
turnover of the Fund. Therefore, the portfolio turnover of the Fund may be
higher than other investment companies not utilizing such options trading
techniques. As portfolio turnover increases, the Fund can be expected to incur
brokerage commission expenses and transaction costs which will be borne by the
Fund. In any particular year, however, market conditions could result in
portfolio activity at a greater or lesser rate than anticipated. For the fiscal
years ended December 31, 1995, 1996 and 1997 the Fund's portfolio turnover rates
were and 57.51%, 52.67% and 78.50%, respectively.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, from time to
time the "standardized yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value" of an investment in a class of shares of the
Fund may be advertised. An explanation of how these total returns are calculated
for each class and the components of those calculations is set forth below. The
Fund currently offers four classes of shares of beneficial interest: Class A
shares, Class B shares, Class C shares and Class M shares. The different classes
of shares represent investments in the same portfolio of securities, but are
subject to different expenses and are likely to have different share prices. On
March 11, 1996, the Fund redesignated as "Class M shares" its Class A shares,
which had been outstanding prior to that date and redesignated as "Class A
shares" its Class Y shares, which had been outstanding prior to that date. Class
B shares were first publicly offered on May 1, 1995. Class C shares were first
publicly offered on March 11, 1996.
The Fund's advertisements of its performance data with respect to any class
must, under applicable rules of the Securities and Exchange Commission, include
the average annual total returns for that 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, and its returns and share
prices are not guaranteed and normally 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 each class of 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.
o Yields.
o Standardized Yield. The Fund's standardized "yield" (referred to as
"yield") is shown for a class of shares for a stated 30-day period. It is not
based on actual distributions paid by the Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments for that period. It may therefore differ from
the "dividend yield" for the same class for the same class of shares, described
below. It is calculated using the following formula set forth in rules adopted
by the Securities and Exchange Commission that apply to all funds that quote
yields designed to assure uniformity in the way that all funds calculate their
yields:
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield for a 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized yield for
a period occurs at a constant rate for a six-month period and is annualized at
the end of the six-month period. Additionally, because each class of shares is
subject to different expenses, it is likely that the standardized yields of the
Fund's classes of shares will differ for any 30-day period. For the 30-day
period ended December 31, 1997, the standardized yields for the Fund's classes
were as follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 4.47% 4.21%
Class B: 3.69% N/A
Class C: 3.70% N/A
Class M: 3.88% 3.76%
o Dividend Yield. The Fund may quote a "dividend yield" for each class of
its shares. Dividend yield is based on the dividends paid on shares of a class
during the actual dividend period. To calculate dividend yield, the dividends of
a class declared during a stated period are added together and the sum is
multiplied by 12 (to annualize the yield) and divided by the maximum offering
price on the last day of the dividend period. The formula is shown below:
Dividend Yield of the Class =
Dividends of the Class
----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A and Class M shares includes the
current maximum initial sales charge for each respective class. The maximum
offering price for Class B and Class C shares is the net asset value per share,
without considering the effect of contingent deferred sales charges. The Class A
and Class M dividend yield may also be quoted without deducting the maximum
initial sales charge.
The dividend yields for the 30-day dividend period ended December 31, 1997
were as follows:
Without Deducting Sales Charge With Sales Charge Deducted
Class A: 5.72% 5.39%
Class B: 4.80% N/A
Class C: 4.83% N/A
Class M: 5.12% 4.96%
Total Return Information. As described in the Prospectus, from time to time the
"average annual total return," "cumulative total return," "average annual total
return at net asset value" and "total return at net asset value" of an
investment in a class of shares of the Fund may be advertised. An explanation of
how these total returns are calculated for each class and the components of
those calculations is set forth below.
The Fund's advertisements of its performance data must, under applicable
rules of the Securities and Exchange Commission, include the average annual
total returns for each advertised 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 each class of 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.
o 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 )
o 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 and Class M shares, the
current maximum sales charges of 5.75% and 3.25%, respectively (as a percentage
of the offering price) are deducted from the initial investment ("P") (unless
the return is shown at net asset value, as described below). For Class B shares,
payment of a contingent deferred sales charge of 5.0% for the first year, 4.0%
for the second year, 3.0% for the third year, 3.0% for the fourth year, 2.0% for
the fifth year and 1.0% for the sixth year, and none thereafter, is applied, as
described in the Prospectus. For Class C shares, the payment of the 1%
contingent deferred sales charge for the first 12 months is applied as described
in the Prospectus. Total returns also assume that all dividends and capital
gains distributions during the period are reinvested to buy additional shares at
net asset value per share, and that the investment is redeemed at the end of the
period.
The average annual total returns on an investment in Class A shares of the
Fund for the one year period ended December 31, 1997 and for the period from May
1, 1995 through December 31, 1997, were 11.94% and 14.18%, respectively. The
cumulative "total return" on Class A shares for the period from May 1, 1995
through December 31, 1997 was 42.44%. The average annual total returns for Class
B shares for the one year period ended December 31, 1997 and for the period from
May 1, 1995 through December 31, 1997, were 12.93% and 15.05% respectively. The
cumulative "total return" on Class B shares for the period from May 1, 1995
through December 31, 1997 was 45.33%. The cumulative total return of Class C
shares for the period from March 11, 1996 (date of first public offering of
Class C shares) through December 31, 1997 was 27.01%. The average annual total
returns on an investment in Class M shares of the Fund for the one, five and ten
year periods ended December 31, 1997 were 14.35%, 13.61% and 13.55%,
respectively. The cumulative "total return" on Class M shares for the period
from June 3, 1986 through December 31, 1997 was 221.76%.
o 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, Class C or Class M 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
one year period ended December 31, 1997 and for the period from May 1, 1995
through December 31, 1997, were 18.77% and 51.13%, respectively. The cumulative
total returns at net asset value for Class B shares for the one year period
ended December 31, 1997 and for the period from May 1, 1995 through December 31,
1997, were 17.93% and 48.33% respectively. The cumulative total return of Class
C shares at net asset value for the period from March 11, 1996 (date of first
public offering of Class C shares) through December 31, 1997 was 27.01%. The
cumulative total returns at net asset value on an investment in Class M shares
of the Fund for the one, five and ten year periods ended December 31, 1997 and
for the period from June 3, 1986 through December 31, 1997, were 18.19%, 95.63%
and 232.57%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B, Class C or Class M shares. However,
when comparing total return of an investment in Class A, Class B, Class C or
Class M shares of the Fund with that of other alternatives, investors should
understand that as the Fund invests in high yield securities, its shares are
subject to greater market risks than shares of funds having other investment
objectives and that the Fund is designed for investors who are willing to accept
greater risk of loss in the hopes of realizing greater gains.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B, Class C or Class M shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely- recognized independent service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. The performance of the Fund's classes are ranked against
(i) all other funds (excluding money market funds), (ii) all other high current
yield or fixed income funds and (iii) all other such 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 star ranking of the performance
of its Class A, Class B, Class C and Class M shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds, based on risk-adjusted total
investment returns. Investment return measures a fund's or class' one, three,
five and ten-year average annual total returns (depending on the inception of
the fund or class) in excess of 90-day U.S. Treasury bill returns after
considering the fund's sales charges and expenses. Risk measures a fund's or
class' performance below 90- day U.S. Treasury bill returns. Risk and investment
return are combined to produce star rankings reflecting performance relative to
the average fund in the 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%). The current star ranking is the fund's or class' 3-year ranking or
its combined 3- and 5-year ranking (weighted 60%/40%, respectively, or its
combined 3-, 5- and 10-year ranking (weighted 40%, 30% and 30%, respectively),
depending on the inception of the fund or class. Rankings are subject to change
monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar Category. In addition to its star ranking, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
The total return on an investment in the Fund's Class A, Class B, Class C
or Class M shares may be compared with performance for the same period of
comparable indices, including but not limited to The First Boston Convertible
Securities Index and the Goldman Sachs 100 Convertible Index. Both indices serve
as a standard of comparison and measurement of market opportunities for
convertible funds and illustrates the unique and dynamic characteristics of the
convertible securities market. The First Boston Convertible Securities index is
calculated at each month end. The Goldman Sachs 100 Convertible Index is
comprised of 100 convertible securities. Index performance does not reflect any
commissions or expenses that would be incurred if an investor individually
purchased or sold the securities represented in an Index.
Investors may also wish to compare the return on the Fund's Class A, Class
B, Class C or Class M shares to the returns on fixed income investments
available from banks and thrift institutions, such as certificates of deposit,
ordinary interest-paying checking and savings accounts, and other forms of fixed
or variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed by the FDIC or
any other agency and will fluctuate daily, while bank depository obligations may
be insured by the FDIC and may provide fixed rates of return, and Treasury bills
are guaranteed as to principal and interest by the U.S. Government.
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 OppenheimerFunds' services to those of
other mutual fund families selected by the rating or ranking services and may be
based upon the opinions of the rating or ranking service itself, based on its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
The performance of the Fund's Class A, Class B, Class C or Class M 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.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for Class B, Class C and Class M shares of the Fund under Rule
12b-1 of the Investment Company Act, pursuant to which the Fund makes payments
to the Distributor in connection with the distribution and/or servicing of the
shares of that class, as described in the Prospectus. Each Plan has been
approved by a vote of (i) the Board of Trustees of the Fund, including a
majority of the Independent Trustees, cast in person at a meeting called for the
purpose of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class. For the Distribution
and Service Plan for Class C shares, that vote was cast by the Manager as the
sole initial holder of Class C shares of the Fund.
In addition, under the Plans, the Manager and the Distributor, in their
sole discretion, from time to time, may use their own resources (which, 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 to Recipients from their own resources.
Unless terminated as described below, each Plan continues in effect from
year to year but only as long as such continuance is specifically approved at
least annually by the Fund's Board of Trustees, including the Independent
Trustees, by a vote cast in person at a meeting called for the purpose of voting
on such continuance. Each 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 Act) of the outstanding shares of that class. No
Plan may be amended to increase materially the amount of payments to be made
unless such amendment is approved by 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 by a Securities and Exchange
Commission rule 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" (as defined in the Act), of the Class A
and Class B shares voting separately by class. All material amendments must be
approved by the Board and 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. Those reports, including the allocations on which they are based, will
be subject to the review and approval of the Independent Trustees in the
exercise of their fiduciary duty. Each Plan further provides that while it is in
effect, the selection and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund is committed to the discretion of the
Independent Trustees. This does not prevent the involvement of others in such
selection and nomination if the final decision on selection or nomination is
approved by a majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any quarter
if the aggregate net asset value of all Fund shares held by the Recipient for
itself and its customers, did not exceed a minimum amount, if any, that may be
determined from time to time by a majority of the Fund's Independent Trustees.
The Board of Trustees has set the fees at the maximum rate and set no minimum
amount of the assets.
For the fiscal year ended December 31, 1997, payments under the Plan for
Class A shares totaled $340,094, all of which was paid by the Distributor to
Recipients, including $32,539 paid to MML Investor Services, Inc., 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.
For the fiscal year ended December 31, 1997, payments under the Plan for
Class M shares totaled $2,129,479 of which $732,265 was retained and $8,871 was
paid to MML Investor Services, Inc., an affiliate of the Distributor. Any
unreimbursed expenses incurred by the Distributor with respect to Class M shares
for any fiscal year may not be recovered in subsequent years. Payments received
by the Distributor under the Plan for Class M 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 allows the service fee payments to be paid
by the Distributor to Recipients in advance for the first year Class B and Class
C shares are outstanding, and thereafter on a quarterly basis, as described in
the Prospectus. The services rendered by Recipients in connection with personal
services and the maintenance of Class B and Class C shareholder accounts may
include but shall not be limited to, the following: answering routine inquiries
from the Recipient's customers concerning the Fund, assisting in the
establishment and maintenance of accounts or sub-accounts in the Fund and
processing share redemption transactions, making the Fund's investment plans and
dividend payment options available, and providing such other information and
services in connection with the rendering of personal services and/or the
maintenance of accounts, as the Distributor or the Fund may reasonably request.
The advance payment is based on the net asset value of the Class B and Class C
shares sold. An exchange of shares does not entitle the Recipient to an advance
service fee payment. In the event Class B or Class C 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 year ended
December 31, 1997 totaled $2,961,198, of which $2,652,820 was retained by the
Distributor and $3,297 was paid to an affiliate of the Distributor. Payments
made under the Class C Plan during the fiscal year ended 1997 totaled $622,555,
of which $461,741 was retained by the Distributor and $3,302 was paid to an
affiliate of the Distributor.
Although the Class B and Class C Plans permit the Distributor to retain
both the asset-based sales charges and the service fees on such shares, or to
pay Recipients the service fee on a quarterly basis, without payment in advance,
the Distributor presently intends to pay the service fee to Recipients in the
manner described above. A minimum holding period may be established from time to
time under the Class B Plan and the Class C Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B Plan and
the Class C Plan are subject to the limitations imposed by the Conduct Rules of
the National Association of Securities Dealers, Inc., on payments of asset-based
sales charges and service fees.
Asset-based sales charge payments are designed to permit an investor to
purchase shares of the Fund without paying a front-end sales load and at the
same time permit the Distributor to compensate Recipients in connection with the
sale of Class B and Class C shares of the Fund. The Distributor retains the
asset- based sales charge on Class B shares. As to Class C shares, the
Distributor retains the asset-based sales charge during the first year shares
are outstanding, and pays the asset-based sales charge as an ongoing commission
to the dealer on Class C shares outstanding for a year or more. Under the Class
B and Class C Plans, the asset-based sales charge is paid to compensate the
Distributor for its services, described below, to the Fund.
The Class B and Class C Plans provide for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution expenses are
more or less than the amounts paid by the Fund 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 and pays service fees as
described in the Prospectus, (ii) may finance such commissions and/or the
advance of the service fee payment to Recipients under those Plans, or may
provide such financing from its own resources, or from an affiliate, (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), state "blue sky" registration fees and certain other
distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B, Class C and Class M Shares.
The availability of four classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor depending on
the amount of the purchase, the length of time the investor expects to hold
shares and other relevant circumstances. 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 another.
The four classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class may have different
shareholder privileges and features. The net income attributable to Class B,
Class C and Class M shares and the dividends payable on Class B, Class C and
Class M shares will be reduced by incremental expenses borne by those classes,
including the asset-based sales charge to which Class B, Class C and Class M
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 M 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 unaffiliated Trustees, (v) custodian expenses, (vi)
share issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such expenses
include (i) Distribution and/or Service Plan fees, (ii) incremental transfer and
shareholder servicing agent fees and expenses, (iii) registration fees and (iv)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per share Class
A, Class B, Class C and Class M shares of the Fund are determined as of the
close of business of The New York Stock Exchange (the "NYSE") on each day that
the NYSE is open, by dividing the Fund's net assets attributable to a class by
the number of shares of that class that are outstanding. The NYSE normally
closes at 4:00 P.M., but may close earlier on some other days (for example, in
case of weather emergencies or days falling before a holiday). The NYSE's most
recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Martin Luther King Jr. 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 portion of
its assets in foreign securities primarily listed on foreign exchanges which may
trade on Saturdays or customary U.S. business holidays on which the NYSE is
closed. Because the Fund's price and net asset value will not be calculated on
those days, the Fund's net asset values per share 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 U.S.
securities exchange or on the Automated Quotation System ("NASDAQ") of the
Nasdaq Stock Market, Inc. for which last sale information is regularly reported
are valued at the last reported sale price on the principal exchange for such
security or NASDAQ that day (the "Valuation Date") or, in the absence of sales
that day, at the last reported sale price preceding the Valuation Date if it is
within the spread of the closing "bid" and "asked" prices on the Valuation Date
or, if not, the closing "bid" price on the Valuation Date; (ii) equity
securities traded on a foreign securities exchange are valued generally 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 at its last trading session on or immediately preceding the
Valuation Date, or, if unavailable, at the mean between "bid" and "asked" prices
obtained from the principal exchange or two active market makers in the security
on the basis of reasonable inquiry; (iii) a non-money market fund will value (x)
debt instruments that had a maturity of more than 397 days when issued, (y) debt
instruments that had a maturity of 397 days or less when issued and have a
remaining maturity in excess of 60 days, and (z) non-money market type debt
instruments that had a maturity of 397 days or less when issued and have a
remaining maturity of sixty days or less, at the mean between "bid" and "asked"
prices determined by a pricing service approved by the Fund's Board of Trustees
or, if unavailable, obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry; (iv) money market-type debt
securities held by a non-money market fund that had a maturity of less than 397
days when issued and have a remaining maturity of 60 days or less, and debt
instruments held by a money market fund that have a remaining maturity of 397
days or less, shall be valued at cost, adjusted for amortization of premiums and
accretion of discount; and (v) securities (including restricted securities) not
having readily-available market quotations are valued at fair value determined
under the Board's procedures.
If the Manager is unable to locate two active market makers willing to give
quotes (see (ii) and (iii) above), the security may be priced at the mean
between the "bid" and "asked" prices provided by a single active market maker
(which in certain cases may be the "bid" price if no "asked" price is available)
provided that the Manager is satisfied that the firm rendering the quotes is
reliable and that the quotes reflect the current market value.
The Manager may use pricing services approved by the Board of Trustees to
price U.S. Government securities, corporate debt securities or mortgage-backed
securities for which last sale information is not generally available. The
pricing service, when valuing such securities, may use "matrix" comparisons to
the prices for comparable instruments on the basis of quality, yield, maturity
and other special factors involved. The Manager will monitor the accuracy of the
pricing services, which may include comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Trading in securities on European and Asian exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange.
Events affecting the values of foreign securities traded in securities markets
that occur between the time their prices are determined and the close of the New
York Stock 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 is likely to
effect a material change in the value of such security. Foreign currency,
including forward contracts, will be valued at the closing price in the London
foreign exchange market that day as provided by a reliable bank, dealer or
pricing service. The values of securities denominated in foreign currency will
be converted to U.S. dollars at the closing price in the London foreign exchange
market that day as provided by a reliable bank, dealer or pricing service.
Puts, calls and futures are valued at the last sales price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing "bid" and
"ask" prices on the principal exchange or on NASDAQ on the valuation date, or,
if not, value shall be the closing "bid" price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between "bid" and "ask"
prices obtained by the Manager from two active market makers. If the Manager is
unable to locate two active market makers willing to give quotes, the security
may be priced at the mean between the "bid" and "asked" prices provided by a
single active market maker (which in certain cases may be the "bid" price if no
"asked" price is available) provided that the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect the current market
value.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House transfer to
buy 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 three 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 and Class M shares under Right of
Accumulation and Letters of Intent because of the economies of sales efforts and
expenses realized by the Distributor, dealers and brokers making such sales. No
sales charge is imposed in certain 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, parents,
grandparents, parents-in-law, brothers and sisters, aunts, uncles, nieces,
nephews, sons-and daughters-in-law, siblings, a sibling's spouse and a spouse's
siblings. Relations by virtue of a remarriage (step-children, step-parents,
etc.) are included.
o 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 Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer Discovery Fund
Oppenheimer Developing Markets Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Multiple Strategies Fund
Oppenheimer MidCap Fund
Oppenheimer International Small Company Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Real Asset Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer International Growth Fund
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer LifeSpan Growth Fund
Oppenheimer Convertible Securities Fund
Limited Term New York Municipal Fund
Rochester Fund Municipals
Oppenheimer World 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.
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).
o Letters of Intent. A Letter of Intent (referred to as a "Letter") is an
investor's statement in writing to the Distributor of the intention to purchase
Class A shares and Class M shares of the Fund (and Class A and Class B shares of
other Oppenheimer funds) during a 13-month period (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 of shares which, when added to the
investor's holdings of shares of those funds, will equal or exceed the amount
specified in the Letter. Purchases made by reinvestment of dividends or
distributions of capital gains and purchases made at net asset value without
sales charge do not count toward satisfying the amount of the Letter. A Letter
enables an investor to count the Class A and Class B shares purchased under the
Letter to obtain the reduced sales charge rate on purchases of Class A shares
and Class M shares of the Fund (and Class A shares and Class B shares of other
Oppenheimer funds) that applies under the Right of Accumulation to current
purchases of Class A shares or Class M shares. Each purchase of Class A shares
or Class M 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 Oppenheimer funds 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.
o Terms of Escrow That Apply to Letters of Intent.
(1) Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended purchase amount is $50,000, the
escrow shall be shares valued in the amount of $2,500 (computed at the 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 M shares sold with a front-end sales charge (c) Class B
shares of other Oppenheimer funds acquired subject to a contingent deferred
sales charge, and (d) Class A shares or Class B shares acquired in exchange for
either (i) Class A shares of one of the other Oppenheimer funds that were
acquired subject to a Class A initial or contingent deferred sales charge or
(ii) Class B shares of one of the other Oppenheimer funds that were acquired
subject to a contingent deferred sales charge.
(6) Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares," and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan 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 Oppenheimer funds. If you make payments from your
bank account to purchase shares of the Fund, your bank account will be
automatically debited normally four to five business days prior to the
investment dates selected in the Account Application. Neither the Distributor,
the Transfer Agent nor the Fund shall be responsible for any delays in
purchasing shares resulting from delays in ACH transmission. 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.
Retirement Plans. In describing certain types of employee benefit plans that may
purchase Class A shares without being subject to the Class A contingent deferred
sales charge, the term "employee benefit plan" means any plan or arrangement,
whether or not "qualified" under the Internal Revenue Code, including, medical
savings accounts, payroll deduction plans or similar plans in which Class A
shares are purchased by a fiduciary or other person for the account of
participants who are employees of a single employer or of affiliated employers,
if the Fund account is registered in the name of the fiduciary or other person
for the benefit of participants in the plan.
The term "group retirement plan" means any qualified or non-qualified
retirement plan (including 457 plans, SEPs, SARSEPs, 403(b) plans other than
public school 403(b) plans, and SIMPLE plans) for employees of a corporation or
a sole proprietorship, members and employees of a partnership or association or
other organized group of persons (the members of which may include other
groups), if the group or association has made special arrangements with the
Distributor and all members of the group or association participating in or who
are eligible to participate in the plan(s) purchase Class A shares of the Fund
through a single investment dealer, broker, or other financial institution
designated by the group. "Group retirement plan" also includes qualified
retirement plans and non-qualified deferred compensation plans and IRAs that
purchase Class A shares of the Fund through a single investment dealer, broker,
or other financial institution, if that broker-dealer has made special
arrangements with the Distributor enabling those plans to purchase Class A
shares of the Fund at net asset value but subject to a contingent deferred sales
charge.
In addition to the discussion in the Prospectus relating to the ability of
Retirement Plans to purchase Class A shares at net asset value in certain
circumstances, there is no initial sales charge on purchases of Class A shares
of any one or more of the Oppenheimer funds by a Retirement Plan in the
following cases:
(i) the recordkeeping for the Retirement Plan is performed on a daily
valuation basis by Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch")
and, on the date the plan sponsor signs the Merrill Lynch recordkeeping service
agreement, the Retirement Plan has $3 million or more in assets invested in
mutual funds other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM") that are made available pursuant to a Service
Agreement between Merrill Lynch and the mutual fund's principal underwriter or
distributor and in funds advised or managed by MLAM (collectively, the
"Applicable Investments"); or
(ii) the recordkeeping for the Retirement Plan is performed on a daily
valuation basis by an independent record keeper whose services are provided
under a contract or arrangement between the Retirement Plan and Merrill Lynch.
On the date the plan sponsor signs the Merrill Lynch record keeping service
agreement, the Plan must have $3 million or more in assets, excluding assets
held in money market funds, invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by the
Merrill Lynch plan conversion manager on the date the plan sponsor signs the
Merrill Lynch record keeping service agreement.
If a Retirement Plan's records are maintained on a daily valuation basis
by Merrill Lynch or an independent record keeper under a contract or alliance
arrangement with Merrill Lynch, and if on the date the plan sponsor signs the
Merrill Lynch record keeping service agreement the Retirement Plan has less than
$3 million in assets, excluding money market funds, invested in Applicable
Investments, then the Retirement Plan may purchase only Class B shares of one or
more of the Oppenheimer funds. Otherwise, the Retirement Plan will be permitted
to purchase Class A shares of one
or more of the Oppenheimer funds. Any of those Retirement Plans that currently
invest in Class B shares of the Fund will have their Class B shares be converted
to Class A shares of the Fund once the Plan's Applicable Investments have
reached $5 million.
Any redemptions of shares of the Fund held by Retirement Plans whose
records are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch that are currently
invested in Class B shares of the Fund shall not be subject to the Class B CDSC.
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.
o Involuntary Redemptions. The Fund's Board of Trustees has the right to
cause the involuntary redemption of the shares held in any account if the
aggregate net asset value of those shares is less than $200 or such lesser
amount as the Board may fix. The Board of Trustees will not cause the
involuntary redemption of shares in an account if the aggregate net asset value
of the shares has fallen below the stated minimum solely as a result of market
fluctuations. Should the Board elect to exercise this right, it may also fix, in
accordance with the 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.
o Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Directors 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 it portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be made as
of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (i) Class A shares, (ii)
Class B shares, (iii) Class C shares that were subject to the Class C contingent
deferred sales charge when redeemed, or (iv) Class M 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 (the
"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 any 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 or Class C
contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 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 maintaining a plan account in their own name) in OppenheimerFunds-
sponsored prototype pension, profit-sharing or 401(k) plans may not directly
redeem or exchange shares held for their account under those plans. The employer
or plan administrator must sign the request. Distributions from pension and
profit sharing plans are subject to special requirements under the 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 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 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 on behalf of their customer. The shareholder should contact the
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
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
customers prior to the time the Exchange closes (normally, that is 4:00 P.M.,
but may be earlier on some days) and the order was transmitted to and received
by the Distributor prior to its close of business that day (normally 5:00 P.M.).
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 the required redemption documents in
proper form, with the 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. Shares are normally redeemed pursuant to an
Automatic Withdrawal Plan three business days before the date you select in the
Account Application. If a contingent deferred sales charge applies to the
redemption, the amount of the check or payment will be reduced accordingly. The
Fund cannot guarantee receipt of a payment on the date requested 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 and Class
M share purchases, shareholders should not make regular additional Class A or
Class M share purchases while participating in an Automatic Withdrawal Plan.
Class B and Class C shareholders should not establish withdrawal plans because
of the imposition of the contingent deferred sales charge on such withdrawals
(except where the contingent deferred sales charge is waived as described in 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, as
well as in 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.
o 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.
o Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to
meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent. The Transfer
Agent and the Fund shall incur no liability to the Planholder for any action
taken or omitted by the Transfer Agent in good faith to administer the Plan.
Certificates will not be issued for shares of the Fund purchased for and held
under the Plan, but the Transfer Agent will credit all such shares to the
account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made at
the net asset value per share determined on the redemption date. Checks or
AccountLink payments of the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment (receipt of payment on the date selected cannot be guaranteed),
according to the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time in mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice (in proper form in accordance with
the requirements of the then-current Prospectus of the Fund) to redeem all, or
any part of, the shares held under the Plan. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per share in
effect in accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to the
Transfer Agent. A Plan may also be terminated at any time by the Transfer Agent
upon receiving directions to that effect from the Fund. The Transfer Agent will
also terminate a Plan upon receipt of evidence satisfactory to it of the death
or legal incapacity of the Planholder. Upon termination of a Plan by the
Transfer Agent or the Fund, shares that have not been redeemed from the account
will be held in uncertificated form in the name of the Planholder, and the
account will continue as a dividend- reinvestment, uncertificated account unless
and until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop because of exhaustion of uncertificated shares needed
to continue payments. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, except with respect to exchanges of Class M shares,
which may be exchanged only for Class A shares as described in the following
paragraph, 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, Class B and Class C shares, except Oppenheimer
Money Market Fund, Inc., Centennial Money Market Trust, Centennial Tax-Exempt
Trust, Centennial Government Trust, Centennial New York Tax-Exempt Trust,
Centennial California Tax-Exempt Trust and Centennial America Fund, L.P., which
only offer Class A shares and Oppenheimer Main Street
California Municipal Fund, which only offers Class A and Class B shares (Class B
and Class C shares of Oppenheimer Cash Reserves are generally available only by
exchange from the same class of shares of other Oppenheimer funds or through
OppenheimerFunds sponsored 401(k) plans). A current list showing which funds
offer which classes can be obtained by calling the Distributor at 1-800-525-
7048.
The Fund is currently the only Oppenheimer fund which offers Class M
shares. Except as described herein there may be no exchanges of any class of
shares of any Oppenheimer fund into Class M shares of the Fund. With respect to
those accounts established on or before March 8, 1996, Class M shares may be
exchanged for Class A shares of Oppenheimer funds. Except for Class A shares of
either Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves which
were acquired upon the exchange of Class M shares of the Fund, no exchanges of
any class of shares of any Oppenheimer fund into Class M shares are permitted.
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 30 days 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 (except Oppenheimer Cash Reserves) 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 any class purchased subject to a contingent deferred
sales charge. However, when Class A shares acquired by exchange of Class A
shares of other Oppenheimer funds purchased subject to a Class A contingent
deferred sales charge are redeemed within 12 months (18 months for shares
purchased prior to May 1, 1997) of the end of the calendar month of the initial
purchase of the exchanged Class A shares, the Class A contingent deferred sales
charge is imposed on the redeemed shares. The Class B contingent deferred sales
charge is imposed on Class B shares acquired by exchange if they are redeemed
within 6 years of the initial purchase of the exchanged Class B shares. The
Class C contingent deferred sales charge is imposed on Class C shares acquired
by exchange if they are redeemed within 12 months of the initial purchase of the
exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. 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 ,Class C or
Class M 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
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value. However, daily
dividends on newly purchased shares will not be declared or paid until such time
as Federal Funds (funds credited to a member bank's account at the Federal
Reserve Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on the
next business day. If all shares in an account are redeemed, all dividends
accrued on shares in the account will be paid together with the redemption
proceeds. Dividends will be declared on shares repurchased by a dealer or broker
for three business days following the trade date (i.e., to and including the day
prior to settlement of the repurchase).
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,
in order to enable the investor to earn a return on otherwise idle funds.
Tax Status of the Fund's Dividends and Distributions. The Federal income tax
treatment of the Fund's dividends and distributions is explained in the
Prospectus under the caption "Dividends, Distributions and Taxes." Special
provisions of the Code govern 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 (generally dividends from domestic corporations) which the Fund
derives from its portfolio investments held for a minimum period, usually 46
days. A corporate shareholder will not be eligible for the deduction on
dividends paid on shares held by the shareholder for 45 days or less. To the
extent that the Fund derives a substantial portion of its gross income from
option premiums, interest income or short-term gains from the sale of
securities, or dividends from foreign corporations, its dividends will not
qualify for the deduction.
Under the 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 to 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's distributions will meet those requirements, the Fund's Board and Manager
might determine that in a particular year it would be in the best interest of
the Fund not to distribute income or capital gains at the mandated levels and to
pay the excise tax on the undistributed amounts, which would reduce the amount
available for distribution to shareholders.
The Code requires that a holder (such as the Fund) of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payment in cash on
the security during the year. The Fund may also from time to time receive
payment-in-kind securities in lieu of cash interest payments. As an investment
company, the Fund must pay out substantially all of its net
investment income each year. Accordingly, the Fund maybe required to pay out as
an income distribution each year an amount which is greater than the total
amount of cash interest the Fund actually received. Such distributions will be
made from the cash assets of the Fund or by liquidation of portfolio securities,
if necessary. If a distribution of cash necessitates the liquidation of
portfolio securities, the Fund may realize a gain or loss from such sales. In
the event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution than they would have
had in the absence of such transactions.
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 with the Custodian in excess of $100,000 are not protected
by federal deposit insurance. Such uninsured balances at times may be
substantial.
Independent Accountants. Price Waterhouse LLP serves as the Fund's independent
accountants. The services provided by Price Waterhouse LLP include auditing
services and review and consultations on various filings by the Fund with the
Securities and Exchange Commission and tax authorities. They also act as
auditors for certain other funds advised by the Manager and its affiliates.
-3-
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of Bond Fund Series: In our opinion,
the accompanying statement of assets and liabilities, including the statement of
investments, and the related statements of operations and of changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of Oppenheimer Bond Fund for Growth (the sole portfolio
constituting Bond Fund Series, hereafter referred to as the Fund) at December
31, 1997, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
finacial highlights (hereafter referred to as finacial statements) are the
responsibility of the Fund's management; our responsiblitiy is to express an
opinion on these finacial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where securities purchased had not been received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
January 23, 1998
8 Oppenheimer Bond Fund for Growth
<PAGE>
- --------------------------------------------------- Statement of Investments
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value Amount See Note 1
<S> <C> <C>
======================================================= Convertible Corporate Bonds and Notes--70.5%
----------------------------------------------------------------------------------------------
Basic Materials--1.0%
- ---------------------------------------------------------------------------------------------- Metals--1.0%
Homestake Mining Co., 5.50% Cv. Sub. Nts.,
6/23/00(1) $ 6,000,000 $ 5,580,000
- ---------------------------------------------------------------------------------------------- Inco Ltd.,
7.75% Cv. Debs., 3/15/16 3,814,000 3,742,487
---------
9,322,487
- ---------------------------------------------------------------------------------------------- Consumer
Cyclicals--15.0%
- ---------------------------------------------------------------------------------------------- Autos &
Housing--2.9% Bluegreen Corp., 8.25% Cv. Sub. Debs.,
5/15/12 3,635,000 3,357,831
- ---------------------------------------------------------------------------------------------- Engle Homes,
Inc., 7% Cv. Sub. Nts., 3/1/03 1,850,000 2,442,000
- ---------------------------------------------------------------------------------------------- Magna
International, Inc., 5% Cv. Sub. Debs., 10/15/02 7,000,000 8,531,250
- ---------------------------------------------------------------------------------------------- MascoTech,
Inc., 4.50% Cv. Sub. Debs., 12/15/03 10,000,000 8,750,000
- ---------------------------------------------------------------------------------------------- Rouse Co.,
5.75% Cv. Sub. Nts., 7/23/02 4,450,000 5,123,062
-----------
28,204,143
- ---------------------------------------------------------------------------------------------- Leisure &
Entertainment--4.6% Credit Suisse First Boston Corp., New
York Branch, 3% Disney- Linked Certificate of Deposit, 10/3/01(2)
10,000,000 12,950,000
- ---------------------------------------------------------------------------------------------- Family Golf
Centers, Inc., 5.75% Cv. Sub. Nts., 10/15/04(1) 3,000,000 3,183,750
- ---------------------------------------------------------------------------------------------- Hudson Hotels
Corp., 7.50% Cv. Sub. Debs., 7/1/01(2) 7,500,000 7,140,000
- ---------------------------------------------------------------------------------------------- Marriott
International, Inc., Zero Coupon Sub. Liquid Yield Option Nts.:
4.262%, 3/25/11(1)(3) 7,000,000
4,558,750 3.935%, 3/25/11(3) 3,000,000 1,953,750
- ---------------------------------------------------------------------------------------------- Speedway
Motorsports, Inc., 5.75% Cv. Sub. Debs., 9/30/03 4,000,000 4,090,000
- ---------------------------------------------------------------------------------------------- Time Warner,
Inc., Zero Coupon Cv. Sr. Sub. Liquid Yield Option Nts., 4.769%, 6/22/13(3)
20,000,000 10,125,000
----------- 44,001,250
- ---------------------------------------------------------------------------------------------- Media--2.5%
Hollinger, Inc., Zero Coupon Cv. Sub. Liquid Yield
Option Nts., 6.331%, 10/5/13(3) 10,000,000
3,850,000 ----------------------------------------------------------------------------------------------
Interpublic Group Cos., 1.80% Cv. Sub. Debs., 9/16/04(1) 4,000,000 3,295,000
- ---------------------------------------------------------------------------------------------- Omnicom
Group, Inc.: 2.25% Cv. Sub. Debs., 1/6/13(1)(4)
1,500,000 1,571,250 4.25% Cv. Sub. Debs., 1/3/07(1)
2,000,000 2,740,000 4.25% Cv. Sub. Debs., 1/3/07 2,000,000
2,740,000 ----------------------------------------------------------------------------------------------
Rogers Communications, Inc.: 2% Cv. Sr. Debs., 11/26/05
3,800,000 2,275,250 Zero Coupon Cv. Sr. Liquid Yield Option Nts.,
5.883%, 5/20/13(3) 6,855,000 2,904,806
- ---------------------------------------------------------------------------------------------- Scantron Corp.,
6.75% Cv. Sub. Debs., 6/1/11 (Cv. into Common Stock of John H. Harland Co.)
1,381,000 1,386,179
- ---------------------------------------------------------------------------------------------- Thomas Nelson,
Inc., 5.75% Cv. Nts., 11/30/99(1) 4,000,000 3,850,000
-----------
24,612,485 </TABLE>
9 Oppenheimer Bond Fund for Growth
<PAGE>
- ------------------------------------------------ Statement of Investments
(Continued) ---------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ---------------------------------------------------------------------------------------------- <S>
<C> <C> Retail:General--0.4%
Travel Ports of America, Inc.: 8.50% Cv. Sr. Sub. Debs., 1/15/05
(Reg. S)(2) $ 950,000 $ 1,221,918 8.50%Cv. Sr. Sub. Debs., 1/15/05(2)
1,750,000 2,250,902
- ----------- 3,472,820
- ----------------------------------------------------------------------------------------------
Retail:Specialty--4.6% Cendant Corp., 3% Cv. Sub. Nts.,
2/15/02(1) 8,000,000 10,030,000
- ---------------------------------------------------------------------------------------------- Corporate
Express, Inc., 4.50% Cv. Sub. Nts., 7/1/00 12,150,000 10,798,312
- ---------------------------------------------------------------------------------------------- Costco Cos.,
Inc., Zero Coupon Cv. Sub. Nts., 3.50%, 8/19/17(1)(3) 8,000,000 4,770,000
- ---------------------------------------------------------------------------------------------- Home Depot,
Inc., 3.25% Cv. Sub. Nts., 10/1/01(5) 7,000,000 9,406,250
- ---------------------------------------------------------------------------------------------- Nine West
Group, Inc., 5.50% Cv. Sub. Nts., 7/15/03(1) 4,250,000 3,442,500
- ---------------------------------------------------------------------------------------------- U.S. Office
Products Co.: 5.50% Cv. Sub. Nts., 5/15/03(1)
4,000,000 3,615,000 5.50% Cv. Sub. Nts., 5/15/03 2,000,000
1,807,500 -----------
43,869,562
- ---------------------------------------------------------------------------------------------- Consumer
Non-Cyclicals--12.6%
- ----------------------------------------------------------------------------------------------
Beverages--0.3% Chock Full O'Nuts Corp., 8% Cv. Sub.
Debs., 9/15/06 2,539,000 2,656,429
- ---------------------------------------------------------------------------------------------- Food--1.4%
Food Lion, Inc., 5% Cv. Sub. Debs., 6/1/03(1)
12,000,000 13,350,000
- ----------------------------------------------------------------------------------------------
Healthcare/Drugs--5.6% ALZA Corp., 5% Cv. Sub. Debs., 5/1/06
7,000,000 7,411,250
- ---------------------------------------------------------------------------------------------- Athena
Neurosciences, Inc., 4.75% Cv. Nts., 11/15/04(1) 5,000,000 5,006,250
- ---------------------------------------------------------------------------------------------- Chiron Corp.,
1.90% Cv. Sub. Nts., 11/17/00(1) 7,750,000 6,926,562
- ---------------------------------------------------------------------------------------------- Dura
Pharmaceuticals, Inc., 3.50% Cv. Sub. Nts., 7/15/02 8,250,000 9,085,312
- ---------------------------------------------------------------------------------------------- Fuisz
Technologies Ltd., 7% Cv. Sub. Debs., 10/15/04(1) 4,000,000 3,580,000
- ---------------------------------------------------------------------------------------------- NeXstar
Pharmaceuticals, Inc., 6.25% Cv. Sub. Debs., 8/1/04(1) 3,000,000 2,812,500
- ---------------------------------------------------------------------------------------------- Roche Holdings,
Inc.: Zero Coupon Cv. Liquid Yield Option Nts., 5.494%,
4/20/10(1)(3) 12,000,000 6,660,000 Zero Coupon Exchangeable Liquid Yield Option
Nts., 6.375%, 5/6/12(1)(3) 15,000,000 6,956,250
- ---------------------------------------------------------------------------------------------- Swiss Bank
Corp., Jersey Branch, 2.50% Exchangeable Nts., 7/7/02 (Exchangeable into the Cash
Value of Shares of Novartis AG)(2) 5,000,000
5,106,250 -----------
53,544,374
- ----------------------------------------------------------------------------------------------
Healthcare/Supplies &Services--4.8% CareMatrix Corp., 6.25% Cv. Sub.
Nts., 8/15/04(1) 2,500,000 2,800,000
- ---------------------------------------------------------------------------------------------- Concentra
Managed Care, 6% Cv. Sub. Nts., 12/15/01(1) 3,000,000 4,196,250
- ---------------------------------------------------------------------------------------------- Omnicare, Inc.,
5% Cv. Sub. Debs., 12/1/07(1) 7,000,000 7,000,000
- ---------------------------------------------------------------------------------------------- PhyCor, Inc.,
4.50% Cv. Sub. Debs., 2/15/03 8,500,000 8,245,000
</TABLE>
10 Oppenheimer Bond Fund for Growth <PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ---------------------------------------------------------------------------------------------- <S>
<C> <C> Healthcare/Supplies & Services (continued)
Quintiles Transnational Corp.:
4.25% Cv. Sub. Nts., 5/31/00(1) $ 4,000,000 $ 4,535,000 4.25% Cv.
Sub. Nts., 5/31/00 1,450,000 1,643,937
- ---------------------------------------------------------------------------------------------- Sunrise Assisted
Living, Inc., 5.50% Cv. Nts., 6/15/02(1) 4,000,000 5,260,000
- ---------------------------------------------------------------------------------------------- Tenet
Healthcare Corp., 6% Exchangeable Sub. Nts., 12/1/05 (Exchangeable into Common Stock of
Vencor, Inc.) 7,000,000 6,623,750
- ---------------------------------------------------------------------------------------------- ThermoTrex
Corp., 3.25% Cv. Gtd. Bonds, 11/1/07 4,000,000 3,875,000
- ---------------------------------------------------------------------------------------------- Veterinary
Centers of America, Inc.:
5.25% Cv. Sub. Debs., 5/1/06 1,750,000 1,297,188 5.25% Cv.
Sub. Debs., 5/1/06 430,000 318,738
------------
45,794,863
- ---------------------------------------------------------------------------------------------- Tobacco--0.5%
Standard Commercial Corp., 7.25% Cv. Sub. Debs., 3/31/07 4,984,000 4,498,060
- ---------------------------------------------------------------------------------------------- Energy--3.0%
- ---------------------------------------------------------------------------------------------- Energy Services
&Producers--0.6%
SEACOR SMIT, Inc.:
5.375% Cv. Sub. Nts., 11/15/06(1) 2,500,000 2,925,000 5.375% Cv.
Sub. Nts., 11/15/06 1,500,000 1,755,000
- ---------------------------------------------------------------------------------------------- SFP Pipeline
Holdings, Inc., 11.16% Exchangeable Debs., 8/15/10(6) 1,000,000 1,695,000
--------- 6,375,000
- ----------------------------------------------------------------------------------------------
Oil-Integrated--2.4%
Aker RGI ASA, 5.25% Cv. Bonds, 7/23/02 2,750,000 3,031,875
- ---------------------------------------------------------------------------------------------- Loews Corp.,
3.125% Cv. Sub. Nts., 9/15/07 (Exchangeable
into Common Stock of Diamond Offshore Drilling, Inc.) 9,000,000 8,955,000
- ---------------------------------------------------------------------------------------------- Pennzoil Co.,
4.75% Exchangeable Sr. Debs., 10/1/03
(Exchangeable into Common Stock of Chevron Corp.)(5) 8,000,000 10,740,000
------------
22,726,875
- ---------------------------------------------------------------------------------------------- Financial--3.0%
- ---------------------------------------------------------------------------------------------- Diversified
Financial--0.8%
Berkshire Hathaway, Inc., 1% Sr. Exchangeable Nts., 12/2/01 (Exchangeable into Common
Stock of Travelers Group, Inc.) 5,000,000 8,056,250
- ---------------------------------------------------------------------------------------------- Insurance--2.2%
Conseco, Inc., 6.25% Cv. Sub. Debs., 5/1/03 (Cv. into Cash at 100.066% of Face)
2,000,000 2,094,430
- ---------------------------------------------------------------------------------------------- Penn Treaty
American Corp., 6.25% Cv. Sub. Nts., 12/1/03(1) 3,250,000 4,233,125
- ---------------------------------------------------------------------------------------------- Republic of
Italy, 5% Privatization Exchangeable Nts., 6/28/01 (Exchangeable into ADSs of Istituto
Nazionale del Assicurazioni SpA) 12,000,000 14,760,000
- ---------------------------------------------------------------------------------------------- Westbridge
Capital Corp., 7.50% Cv. Sub. Nts., 5/1/04(7) 2,500,000 443,750
---------
21,531,305 </TABLE>
11 Oppenheimer Bond Fund for Growth <PAGE>
- --------------------------------------------------- Statement of Investments
(Continued)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ---------------------------------------------------------------------------------------------- <S>
<C> <C> Industrial--10.4%
---------------------------------------------------------------------------------------------- Industrial
Materials--0.6% Empresas ICA Sociedad Controladora, SA de CV,
5% Cv. Sub. Debs., 3/15/04 $ 7,000,000 $
5,503,750 ----------------------------------------------------------------------------------------------
Industrial Services--6.7% Danka Business Systems plc, 6.75% Cv.
Sub. Nts., 4/1/02 8,000,000 7,190,000
- ---------------------------------------------------------------------------------------------- Kent Electronics
Corp., 4.50% Cv. Sub. Nts., 9/1/04 4,000,000 3,270,000
- ---------------------------------------------------------------------------------------------- Lam Research
Corp., 5% Cv. Sub. Nts., 9/1/02 5,000,000 4,200,000
- ---------------------------------------------------------------------------------------------- PerSeptive
Biosystems, Inc., 8.25% Cv. Sub. Nts., 8/15/01 5,430,000 5,742,225
- ---------------------------------------------------------------------------------------------- Thermo Ecotek
Corp.: 4.875% Cv. Sub. Debs., 4/15/04(1)
5,000,000 5,806,250 Non-Interest Bearing Cv. Sub. Debs., 3/15/01
500,000 640,000
- ---------------------------------------------------------------------------------------------- Thermo
Fibertek, Inc., 4.50% Cv. Sub. Debs., 7/15/04(1) 5,000,000 5,356,250
- ---------------------------------------------------------------------------------------------- Thermo
TerraTech, Inc.: 4.625% Cv. Sub. Nts., 5/1/03
1,798,000 1,609,210 4.625% Cv. Sub. Debs., 5/1/03(1)
1,500,000 1,342,500
- ---------------------------------------------------------------------------------------------- United States
Filter Corp., 4.50% Cv. Sub. Nts., 12/15/01 6,500,000 6,678,750
- ---------------------------------------------------------------------------------------------- USA Waste
Services, Inc., 4% Cv. Sub. Debs., 2/1/02 12,887,000 14,111,265
- ---------------------------------------------------------------------------------------------- WMX
Technologies, Inc., 2% Cv. Sub. Nts., 1/24/05 10,000,000 8,550,000
-----------
64,496,450
- ----------------------------------------------------------------------------------------------
Manufacturing--3.1% Hexcel Corp., 7% Cv. Sub. Debs., 8/1/11
4,000,000 4,140,000
- ---------------------------------------------------------------------------------------------- Mark IV
Industries, Inc., 4.75% Cv. Sub. Nts., 11/1/04(1) 17,000,000 15,958,750
- ---------------------------------------------------------------------------------------------- Solectron Corp.,
6% Cv. Sub. Nts., 3/1/06(1)(5) 4,000,000 5,525,000
- ---------------------------------------------------------------------------------------------- Synetic, Inc.,
5% Cv. Sub. Debs., 2/15/07 5,000,000 4,281,250
-----------
29,905,000
- ----------------------------------------------------------------------------------------------
Technology--21.9%
- ----------------------------------------------------------------------------------------------
Aerospace/Defense--0.6% Orbital Sciences Corp., 5% Cv. Sub.
Nts., 10/1/02(1) 4,500,000 5,664,375
- ---------------------------------------------------------------------------------------------- Computer
Hardware--3.4% Adaptec, Inc., 4.75% Cv. Sub. Nts., 2/1/04
6,000,000 6,180,000
- ---------------------------------------------------------------------------------------------- Applied
Magnetics Corp., 7% Cv. Sub. Debs., 3/15/06(1) 7,000,000 5,678,750
- ---------------------------------------------------------------------------------------------- EMC Corp.,
3.25% Cv. Sub. Nts., 3/15/02(1)(5) 3,000,000 4,076,250
- ---------------------------------------------------------------------------------------------- Level One
Communications, Inc., 4% Cv. Sub. Nts., 9/1/04(1) 1,750,000 1,721,563
- ---------------------------------------------------------------------------------------------- Micron
Technology, Inc., 7% Cv. Sub. Nts., 7/1/04 4,000,000 3,710,000
- ---------------------------------------------------------------------------------------------- Quantum Corp.,
7% Cv. Sub. Nts., 8/1/04 6,500,000 6,110,000
- ---------------------------------------------------------------------------------------------- Telxon Corp.:
5.75% Cv. Sub. Nts., 1/1/03(1)
2,250,000 2,387,813 5.75% Cv. Sub. Nts., 1/1/03 2,500,000
2,653,125 -----------
32,517,501 </TABLE>
12 Oppenheimer Bond Fund for Growth
<PAGE>
- -----------------------------------------------------------------------------
- ---------------------------------------------------------------------- <TABLE>
<CAPTION>
Face Market Value Amount See Note 1
- ---------------------------------------------------------------------------------------- <S>
<C> <C> Computer Software/Services--4.0%
America Online, Inc., 4% Cv. Sub. Nts., 11/15/02(2) $ 8,000,000 $ 8,740,000
- ---------------------------------------------------------------------------------------- Bear Stearns Cos.,
Inc. (The), 3% McAfee Equity Linked
Participation Securities, 9/17/02(2) 8,000,000 7,712,000
- ---------------------------------------------------------------------------------------- Learning Co., Inc.,
5.50% Cv. Sr. Nts., 11/1/00 3,000,000 2,662,500
- ---------------------------------------------------------------------------------------- MacNeal-Schwendler
Corp., 7.875% Cv. Sub. Debs., 8/18/04 5,017,000 5,010,729
- ---------------------------------------------------------------------------------------- Microprose, Inc.,
6.50% Cv. Sub. Nts., 9/15/02(1) 1,750,000 1,122,188
- ---------------------------------------------------------------------------------------- National Data Corp.,
5% Cv. Sub. Nts., 11/1/03 10,100,000 9,658,125
- ---------------------------------------------------------------------------------------- Tecnomatix
Technologies Ltd., 5.25% Cv. Sub. Nts., 8/15/04(1) 3,500,000 3,482,500
-----------
38,388,042
- ---------------------------------------------------------------------------------------- Electronics--9.8%
California Microwave, Inc., 5.25% Cv. Sub. Nts., 12/15/03 3,970,000 3,558,113
- ---------------------------------------------------------------------------------------- Checkpoint Systems,
Inc., 5.25% Cv. Sub. Debs., 11/1/05 6,600,000 7,103,250
- ---------------------------------------------------------------------------------------- Cymer, Inc.,
3.50%/7.25% Cv. Sub. Debs., 8/6/04(1) 2,000,000 1,500,000
- ---------------------------------------------------------------------------------------- Motorola, Inc., Zero
Coupon Cv. Sub. Liquid Yield Option Nts., 1.307%, 9/27/13(3)(5)
13,000,000 9,896,250
- ---------------------------------------------------------------------------------------- Park Electrochemical
Corp., 5.50% Cv. Sub. Nts., 3/1/06 9,000,000 8,505,000
- ---------------------------------------------------------------------------------------- Taiwan
Semiconductor Manufacturing Co. Ltd.,
Zero Coupon Credit Enhanced Debt Indexed to Stock,
4.929%, 7/3/02(1)(3) 6,250,000 6,703,125
- ---------------------------------------------------------------------------------------- Thermo
Cardiosystems, Inc., 4.75% Cv. Sub. Debs., 5/15/04(1) 2,000,000 2,220,000
- ---------------------------------------------------------------------------------------- Thermo Electron
Corp., 4.25% Cv. Sub. Nts., 1/1/03(1) 15,500,000 19,316,875
- ---------------------------------------------------------------------------------------- Thermo Instrument
System, Inc., 4.50% Cv. Gtd
Sr. Debs., 10/15/03(1) 1,500,000 1,713,750
- ---------------------------------------------------------------------------------------- Thermo Optek Corp.,
5% Cv. Sub. Debs., 10/15/00(1) 9,535,000 10,869,900
- ---------------------------------------------------------------------------------------- Thermo Voltek
Corp., 3.75% Cv. Sub. Debs., 11/15/00 2,470,000 2,346,500
- ---------------------------------------------------------------------------------------- ThermoQuest Corp.:
5% Cv. Sub. Debs., 8/15/00 500,000 550,000 5% Cv. Sub. Debs.,
8/15/00(1) 9,775,000 10,752,500
- ---------------------------------------------------------------------------------------- Tyco International
Ltd., Zero Coupon Cv. Sub. Liquid
Yield Option Nts., 6.50%, 7/6/10(3)(5) 3,000,000 3,697,500
- ---------------------------------------------------------------------------------------- XILINX, Inc., 5.25%
Cv. Sub. Nts., 11/1/02(1) 5,000,000 4,868,750
----------- 93,601,513
- ----------------------------------------------------------------------------------------
Telecommunications/Technology--4.1%
Comverse Technology, Inc., 5.75% Cv. Sub. Debs., 10/1/06 9,000,000 9,641,250
- ---------------------------------------------------------------------------------------- Gilat Satellite
Networks Ltd., 6.50% Cv. Sub. Nts., 6/3/04(1) 7,250,000 6,733,438
- ---------------------------------------------------------------------------------------- Metricom, Inc., 8%
Cv. Sub. Nts., 9/15/03 2,750,000 2,523,125
- ---------------------------------------------------------------------------------------- SmarTalk
Teleservices, Inc., 5.75% Cv. Sub. Nts., 9/15/04(1) 9,000,000 9,618,750
- ---------------------------------------------------------------------------------------- United States Cellular
Corp., Zero Coupon Cv. Sub.
Liquid Yield Option Nts., 5.783%, 6/15/15(3) 30,000,000 10,837,500
-----------
39,354,063 </TABLE>
13 Oppenheimer Bond Fund for Growth <PAGE>
- ---------------------------------------------------- Statement of Investments
(Continued)
- --------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
- ------------------------------------------------------------------------------------------- <S>
<C> <C> Utilities--3.6%
- ------------------------------------------------------------------------------------------- Gas Utilities--0.6%
Consolidated Natural Gas Co., 7.25% Cv. Sub. Debs., 12/15/15 $ 5,000,000 $ 5,737,500
- ------------------------------------------------------------------------------------------- Telephone
Utilities--3.0%
Bankers Trust Corp., 3.10% Common Stock Linked Nts.,
11/5/02 (ACC Corp.)(2) 8,000,000 9,720,000
- ------------------------------------------------------------------------------------------- GTE Corp., 6%
Cv. Sub. Debs., 4/1/12 (Cv. into Cash
at 96.657% of Face) 11,004,000 10,632,615
- ------------------------------------------------------------------------------------------- Tel-Save Holdings,
Inc.:
4.50% Cv. Sub. Nts., 9/15/02(1) 4,450,000 4,294,250 5% Cv. Sub.
Nts., 12/15/04(1) 4,000,000 3,795,000
- -------------------------------------------------------------------------------------------
28,441,865
- ------------ Total Convertible Corporate Bonds and Notes (Cost $642,797,804)
675,625,962
Shares
=========================================================================================== Common Stocks--1.5%
- ------------------------------------------------------------------------------------------- American Home
Products Corp. 19,040 1,456,560
- ------------------------------------------------------------------------------------------- Capstead
Mortgage Corp. 86,952 1,733,605
- ------------------------------------------------------------------------------------------- CommScope,
Inc.(9) 26,200 352,062
- ------------------------------------------------------------------------------------------- Danskin, Inc.
Restricted Common Shares(2)(9) 3,492,903 1,113,363
- ------------------------------------------------------------------------------------------- General
Semiconductor, Inc.(9) 20,000 231,250
- ------------------------------------------------------------------------------------------- Kaman Corp., Cl.
A 115,061 1,884,124
- ------------------------------------------------------------------------------------------- NextLevel
Systems, Inc.(9) 71,947 1,286,053
- ------------------------------------------------------------------------------------------- Orion Capital
Corp. 60,002 2,786,343
- ------------------------------------------------------------------------------------------- Philip Morris Cos.,
Inc. 66,000 2,990,625
- ------------------------------------------------------------------------------------------- Thermolase Corp.
Units (consisting of one share of common
stock and one redemption right)(9)(10) 49,220 845,969
----------- Total Common Stocks (Cost $12,026,872)
14,679,954
=========================================================================================== Preferred Stocks--5.4%
- ------------------------------------------------------------------------------------------- Danskin, Inc.
$88.2722 Cv. Preferred Stock, Series D(2)(9) 88 468,946
- ------------------------------------------------------------------------------------------- Fort James Corp.,
$3.50 Cum. Cv. Exchangeable:
Series N, Non-Vtg 50,000 2,706,250 Series L, Non-Vtg
18,600 1,036,950
- ------------------------------------------------------------------------------------------- Kaman Corp.,
$3.25 Depositary Shares each representing
one-fourth of a share of Cv. Preferred Stock, Series 2 61,390 4,205,215
- ------------------------------------------------------------------------------------------- Mobile
Telecommunication Technologies Corp.:
$2.25 Cum. Cv. Exchangeable(1) 121,100 3,996,300 7.50% Cum.
Cv., Series C(11) 5,000 6,500,000
- ------------------------------------------------------------------------------------------- PennCorp Financial
Group, Inc., $3.50 Cv., Series II(1) 60,000 3,517,500
- ------------------------------------------------------------------------------------------- Phoenix Duff &
Phelps Corp., $1.50 Cum. Cv., Series A 312,700 8,951,037 </TABLE>
14 Oppenheimer Bond Fund for Growth <PAGE>
- -----------------------------------------------------------------------------
- ---------------------------------------------------------------------- <TABLE>
<CAPTION>
Face Market Value Amount See Note 1
- ------------------------------------------------------------------------------------------ <S>
<C> <C> Preferred Stocks (continued)
SFX Broadcasting, Inc., $3.25 Cum. Cv
Exchangeable, Series D(1) 30,000 $ 2,647,500
- ------------------------------------------------------------------------------------------ TCI Pacific
Communications, Inc., 5% Cum
Exchangeable Sr. Preferred, Cl. A 107,000 17,655,000
----------- Total Preferred Stocks (Cost $37,707,697)
51,684,698
Shares or
Face Amount
========================================================================================== Other Securities--19.0%
- ------------------------------------------------------------------------------------------ Basic
Materials--1.5%
- ------------------------------------------------------------------------------------------ Chemicals--0.5%
Merrill Lynch & Co., Inc., 6.25% Structured Yield Product
Exchangeable for Stock, 7/1/01 (IMC Global, Inc.) 150,000 5,175,000
- ------------------------------------------------------------------------------------------ Paper--1.0%
International Paper Capital Trust, 5.25% Cv. Preferred
Securities, 7/20/25 195,000 9,360,000
------------------------------------------------------------------------------------------
Consumer Cyclicals--2.3%
- ------------------------------------------------------------------------------------------ Autos &
Housing--0.2% Daimler Benz AG, American Depositary Nts.,
representing 5.75% Sub. Mandatory Cv. Nts., 6/14/02 27,988
2,099,100 ------------------------------------------------------------------------------------------ Leisure
& Entertainment--1.7% Houston Industries, Inc., 7% Automatic
Common Exchange Securities, 7/1/00 (Time Warner, Inc.) 75,000
4,279,687 ------------------------------------------------------------------------------------------ Mattel,
Inc., $.4125 Preferred Redeemable Increased Dividend Equity Securities, Series C,
7/1/00(5) 465,000 7,440,000
- ------------------------------------------------------------------------------------------ Wendy's Financing
Trust I, $2.50 Term Convertible Securities, Series A, 9/15/26
75,000 4,125,000 -----------
15,844,687
- ------------------------------------------------------------------------------------------ Media--0.4%
News Corp. Ltd. (The), 5% Exchangeable Trust Originated
Preferred Securities, 11/12/16 (British Sky Broadcasting Group plc)(1)
40,000 3,555,000
- ------------------------------------------------------------------------------------------ Consumer
Non-Cyclicals--0.7%
- ------------------------------------------------------------------------------------------ Household
Goods--0.7% Newell Financial Trust I, 5.25% Cv. Preferred
Stock, 12/1/27(1) 125,000 6,531,250
- ------------------------------------------------------------------------------------------ Financial--5.1%
- ------------------------------------------------------------------------------------------ Banks--1.0%
National Australia Bank Ltd., Exchangeable Capital Units (each unit
consists of $25 principal amount of 7.875% Perpetual Capital Security and a purchase contract
entitling the holder
to exchange units for ordinary shares of the bank) 322,900 9,182,469
</TABLE>
15 Oppenheimer Bond Fund for Growth <PAGE>
- ---------------------------------------------------- Statement of Investments
(Continued)
- ---------------------------------------------------------------------- <TABLE>
<CAPTION>
Shares or Market Value Face Amount See Note 1
- ------------------------------------------------------------------------------------------ <S>
<C> <C> Diversified Financial--2.9%
Bankers Trust Corp., 7% Common Stock Linked Nts., 8/16/99
(Sitel Corp.)(2) $6,000,000 $ 5,175,000
- ------------------------------------------------------------------------------------------- Credit Suisse First
Boston Corp., 6% Equity-Linked Sr Medium-Term Nts., 4/29/98 (Charles
Schwab Corp.)(2) $5,000,000 7,012,500
- ------------------------------------------------------------------------------------------- Merrill Lynch &
Co., Inc., 7.25% Structured Yield Product Exchangeable for Common Stock,
6/15/99 (Sun America, Inc.) 145,000 10,222,500
- ------------------------------------------------------------------------------------------- SunAmerica, Inc.,
8.50% Premium Equity Redemption Cumulative Securities, 10/31/99
125,000 5,820,312
- ----------- 28,230,312
- ------------------------------------------------------------------------------------------- Insurance--1.2%
Aetna, Inc., $4.75 Cv. Preferred Stock, 7/19/00
75,000 5,362,500
- ------------------------------------------------------------------------------------------- Allstate Corp.,
$2.30 Debt Exchangeable for Common Stock, 4/15/98 (PMI Group, Inc.)
100,000 6,000,000
- ----------- 11,362,500
- ------------------------------------------------------------------------------------------- Industrial--3.6%
- ------------------------------------------------------------------------------------------- Industrial
Materials--1.6% Corning Delaware LP, 6% Cv. Monthly
Income Preferred Securities(5) 80,000
4,930,000 ------------------------------------------------------------------------------------------- Owens
Corning Capital LLC, 6.50% Cv. Monthly Income Preferred Securities,
Non-Vtg.(1) 210,000 10,290,000
----------- 15,220,000
- -------------------------------------------------------------------------------------------
Manufacturing--1.8% Elsag Bailey Financing Trust,
5.50% Cv. Trust Originated Preferred Securities, 12/31/35
85,000 3,230,000
- ------------------------------------------------------------------------------------------- Kennametal, Inc.:
6% Cum. Cv. Term Income Deferrable Equity Securities,
Non-Vtg., 3/31/16(1) 70,000 3,666,250 6%
Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg., 3/31/16
95,700 5,012,288
- ------------------------------------------------------------------------------------------- Lehman Brothers
Holdings, Inc., 6% Yield Enhanced Equity-Linked Debt Securities, 8/31/98 (Black &
Decker Corp.)(2) 126,646 4,789,752
----------- 16,698,290
- -------------------------------------------------------------------------------------------
Transportation--0.2% CNF Trust I, $2.50 Term Cum. Cv.
Securities, Series A, 6/1/12(5) 40,000 2,310,000
-------------------------------------------------------------------------------------------
Technology--2.3%
- ------------------------------------------------------------------------------------------- Computer
Hardware--0.7% Credit Suisse First Boston Corp., 6%
Equity-Linked Sr Medium-Term Nts., 2/17/98 (Intel Corp.)(2)
$5,000,000 6,687,500 </TABLE>
16 Oppenheimer Bond Fund for Growth <PAGE>
- -------------------------------------------------------------------------------
- ---------------------------------------------------------------------- <TABLE>
<CAPTION>
Shares or Market Value Face Amount See Note 1
- ------------------------------------------------------------------------------------------ <S>
<C> <C> Computer Software--1.1%
Microsoft Corp., $2.196 Cv., Series A, Non-Vtg., 12/15/99 80,000
$7,190,000 ------------------------------------------------------------------------------------------ Vanstar
Financing Trust: 6.75% Trust Cv. Preferred Securities,
12/31/49(1) 35,000 1,242,500 6.75% Trust Cv. Preferred Securities, 12/31/49
55,000 1,952,500 ------------
10,385,000
------------------------------------------------------------------------------------------
Telecommunications/Technology--0.5% QUALCOMM Financial
Trust I, 5.75% Trust Cv. Preferred Securities, 2/24/12(1)
100,000 4,800,000
- ------------------------------------------------------------------------------------------ Utilities--3.5%
- ------------------------------------------------------------------------------------------ Electric
Utilities--0.9% AES Trust I, $2.6875 Term Convertible
Securities, Series A, 3/31/27(5) 100,000
7,175,000 ------------------------------------------------------------------------------------------
CalEnergy Capital Trust II, 6.25% Trust Cv Preferred Securities,
2/25/12(1) 40,000 1,805,000
----------- 8,980,000
- ------------------------------------------------------------------------------------------ Gas Utilities--0.5%
MCN Energy Group, Inc.:
8% Cv. Preferred Redeemable Increased Dividend Equity Securities,
5/16/00 30,000 1,875,000 8.75% Cv. Preferred Redeemable
Increased Dividend Equity Securities, 4/30/99
90,100 3,085,925 -----------
4,960,925
- ------------------------------------------------------------------------------------------ Telephone
Utilities--2.1% Bear Stearns Cos., 6% Equity-Linked
Participation Securities, 11/25/98 (ACC Corp.)(2) $
5,000,004 6,872,506
- ------------------------------------------------------------------------------------------ SBC
Communications, Inc., 7.75% Debt Exchangeable for Common Stock, 3/15/01
(ADSs of Telefonos de Mexico) 100,000 5,275,000
- ------------------------------------------------------------------------------------------ Sprint Corp., 8.25%
Debt Exchangeable for Common Stock, 3/31/00 (Southern New England
Telecommunications Corp.) 181,300 8,113,175
- ------------------------------------------------------------------------------------------
20,260,681
- ----------- Total Other Securities (Cost $163,721,169) 181,642,714
</TABLE>
17 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------- Statement of Investments
(Continued)
- --------------------------------------------------------------------- <TABLE>
<CAPTION>
Units Market Value See Note 1
- ----------------------------------------------------------------------------------------------------- <S>
<C> <C> Rights, Warrants and
Certificates--0.0%
- ----------------------------------------------------------------------------------------------------- Danskin,
Inc.:
Escrow deposit to be used to purchase 686,237 shares of Restricted Common Stock in Rights
Offering(2) -- $ 205,871 Portion of Promissory Note to be
used to purchase 342,560 shares of Restricted Common Stock in Rights Offering(2)
-- 102,768
Wts., Exp. 10/04(2) 367,801 44,136
- ----------------------------------------------------------------------------------------------------- Submicron
Systems Corp. Wts., Exp. 12/00(2) 27,000 1,053
- ----------------------------------------------------------------------------------------------------- Travel
Ports of America, Inc. Wts., Exp. 1/05(2) 5,300 7,420
--------- Total Rights, Warrants and Certificates (Cost
$308,639) 361,248
Face
Amount -----------------------------------------------------------------------------------------------------
Repurchase Agreements--4.5%
- -----------------------------------------------------------------------------------------------------
Repurchase agreement with Smith, Barney, Harris, Upham & Co., Inc. 6.625%, dated 12/31/97,
to be repurchased at $43,015,826 on 1/2/98, collateralized by U.S. Treasury Bonds,
8.875%-11.25%, 2/15/15-2/15/19, with a value of $44,050,015 (Cost $43,000,000)
$43,000,000 43,000,000
- ----------------------------------------------------------------------------------------------------- Total
Investments, at Value (Cost $899,562,181) 100.9% 966,994,576
- ----------------------------------------------------------------------------------------------------- Liabilities
in Excess of Other Assets (0.9) (8,338,864)
---------- ------------ Net Assets
100.0% $958,655,712 ==========
============
1. Represents securities sold under Rule 144A, which are exempt from registration under the
Securities Act of 1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees. These securities amount to $305,437,014 or
31.86% of the Fund's net assets as of December 31, 1997.
2. Identifies issues considered to be illiquid or restricted--See Note 6 of Notes to Financial
Statements.
3. For zero coupon bonds, the interest rate shown is the effective yield on the date of purchase. 4.
When-issued security to be delivered and settled after December 31, 1997.
</TABLE>
18 Oppenheimer Bond Fund for Growth <PAGE>
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------------------- 5. A sufficient
amount of securities has been designated to cover outstanding written call options, as follows:
<CAPTION>
Shares Subject
Expiration Exercise Premium Market Value to Call Date Price
Received See Note 1
- --------------------------------------------------------------------------------------------- <S>
<C> <C> <C> <C> <C> AES Corp. 60,000
2/98 $40.0 $178,194 $442,500 AES Corp. 60,000 5/98 40.0
268,191 547,500
- -------------------------------------------------------------------------------------------- CNF
Transportation, Inc. 25,000 3/98 45.0 142,995 31,250 CNF
Transportation, Inc. 5,000 3/98 47.5 22,349 2,813
- -------------------------------------------------------------------------------------------- Chevron Corp.
2,500 1/98 80.0 8,987 2,344 Chevron Corp. 20,000
3/98 75.0 86,897 120,000 Chevron Corp. 102,700 3/98 80.0
474,491 276,006
- -------------------------------------------------------------------------------------------- Corning, Inc.
30,000 2/98 37.5 62,848 56,250 Corning, Inc. 50,000
2/98 42.5 160,995 18,750
- -------------------------------------------------------------------------------------------- EMC Corp.
60,000 1/98 30.0 173,406 37,500 EMC Corp. 60,000
1/98 32.5 107,846 7,500
- -------------------------------------------------------------------------------------------- Home Depot, Inc.
30,000 2/98 55.0 152,845 153,750 Home Depot, Inc.
90,000 2/98 60.0 247,292 185,625
- -------------------------------------------------------------------------------------------- Mattel, Inc.
70,000 1/98 35.0 208,818 179,375 Mattel, Inc. 80,000
1/98 40.0 165,069 45,000 Mattel, Inc. 30,000 4/98 40.0
107,846 78,750
- -------------------------------------------------------------------------------------------- Motorola, Inc.
30,000 1/98 65.0 152,845 5,625 Motorola, Inc. 50,000
1/98 70.0 295,991 3,125 Motorola, Inc. 20,000 4/98 65.0
129,396 52,500 Motorola, Inc. 20,000 4/98 70.0 111,896
30,000 -------------------------------------------------------------------------------------------- Solectron
Corp. 30,000 1/98 45.0 122,846 15,000 Solectron Corp.
50,000 1/98 42.5 173,495 62,500 Solectron Corp. 20,000 4/98
37.5 81,897 125,000
- -------------------------------------------------------------------------------------------- Tyco International
Ltd. 80,000 4/98 40.0 297,590 510,000
--------- --------- $3,935,025
$2,988,663 ========== ==========
</TABLE>
6. Represents the current interest rate for a variable rate security.
7. Non-income producing--issuer is in default of interest payment. 8. Denotes a
step bond: a zero coupon bond that converts to a fixed or variable interest rate
at a designated future date. 9. Non-income producing security. 10. Units may be
comprised of several components, such as debt and equity and/or warrants to
purchase equity at some point in the future. For units which represent debt
securities, face amount disclosed represents total underlying principal. 11.
Interest or dividend is paid in kind. See accompanying Notes to Financial
Statements.
19 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------------- Statement of Assets and
Liabilities, December 31, 1997
- -----------------------------------------------------------------------------
===================================================================== <TABLE>
<CAPTION>
Assets
<S> <C> Investments, at value (cost
$899,562,181)--see accompanying statement $966,994,576
- ----------------------------------------------------------------------------------- Cash
823,411
- ----------------------------------------------------------------------------------- Receivables:
Investments sold 10,434,688 Interest and dividends
7,774,939 Shares of beneficial interest sold
4,018,517 ----------------------------------------------------------------------------------- Other
16,613
- ------------- Total assets 990,062,744
=================================================================================== Liabilities
Options written, at value (premiums received $3,935,025)-- see accompanying statement--Note 5
2,988,663
- ----------------------------------------------------------------------------------- Payables and other
liabilities:
Investments purchased 17,115,629 Dividends
9,781,644 Accrued taxes--Note 1
806,841 Shares of beneficial interest redeemed 490,490 Other
223,765
- -------------- Total liabilities 31,407,032
=================================================================================== Net Assets $958,655,712
==============
=================================================================================== Composition of Net Assets
Paid-in capital $889,591,068
- ----------------------------------------------------------------------------------- Accumulated net realized
gain on investment transactions 685,887
- ----------------------------------------------------------------------------------- Net unrealized
appreciation on investments--Note 3 68,378,757
-------------- Net assets $958,655,712
============== </TABLE>
20 Oppenheimer Bond Fund for Growth <PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<TABLE>
<S> <C> Net
Asset Value Per Share Class A Shares:
Net asset value and redemption price per share (based on net assets of $192,212,333 and
12,544,027 shares of beneficial interest outstanding) $15.32 Maximum offering price per
share (net asset value plus sales charge of 5.75% of offering price)
$16.25
- ---------------------------------------------------------------------------------------- Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and
offering price per share (based on net assets of $383,755,244 and 25,004,414 shares of beneficial
interest outstanding) $15.35
- ---------------------------------------------------------------------------------------- Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and
offering price per share (based on net assets of $85,396,627 and 5,575,212 shares of beneficial
interest outstanding) $15.32
- ---------------------------------------------------------------------------------------- Class M Shares:
Net asset value and redemption price per share (based on net assets of $297,291,508 and
19,402,557 shares of beneficial interest outstanding) $15.32 Maximum offering price per
share (net asset value plus sales charge of 3.25% of offering price)
$15.83 </TABLE>
See accompanying Notes to Financial Statements
21 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------- Statement of Operations Fpr
the year Ended December 31, 1997
- -----------------------------------------------------------------------------
<TABLE>
<S> <C> Investment Income
Interest $ 40,206,440
- ---------------------------------------------------------------------------------- Dividends
3,412,949 ------------ Total
income 43,619,389
================================================================================== Expenses
Distribution and service plan fees--Note 4:
Class A 340,094 Class B
2,961,198 Class C 622,555 Class M
2,129,479
- ---------------------------------------------------------------------------------- Management fees--Note 4
3,705,530
- ---------------------------------------------------------------------------------- Transfer and shareholder
servicing agent fees--Note 4:
Class A 163,285 Class B
337,129 Class C 61,981 Class M
311,167
- ---------------------------------------------------------------------------------- Registration and filing fees
269,350
- ---------------------------------------------------------------------------------- Accounting service
fees--Note 4 239,689
- ---------------------------------------------------------------------------------- Shareholder reports
214,455
- ---------------------------------------------------------------------------------- Legal and auditing fees
62,138
- ---------------------------------------------------------------------------------- Custodian fees and
expenses 43,410
- ---------------------------------------------------------------------------------- Trustees' fees and expenses
35,806
- ---------------------------------------------------------------------------------- Interest expense
26,431
- ---------------------------------------------------------------------------------- Other
185,934
- ---------------------------------------------------------------------------------- Total expenses
11,709,631
======================= Net Investment Income 31,909,758
========================================================================== Realized and Unrealized Gain Net realized gain on:
Investments (including premiums on options exercised) 54,040,039 Closing and
expiration of options written--Note 5 19,221
------------ Net realized gain 54,059,260
- ---------------------------------------------------------------------------------- Net change in unrealized
appreciation or depreciation on investments 43,452,225
- ---------------------------------------------------------------------------------- Net realized and unrealized
gain 97,511,485
======================================================= Net Increase in Net Assets Resulting from Operations
$129,421,243 ============= </TABLE>
See accompanying Notes to Financial Statements
22 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------- Statement of Changes in Net
Assets
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
<S> <C> <C> Operations
Net investment income $ 31,909,758 $ 19,841,059
- --------------------------------------------------------------------------------------------------------- Net
realized gain 54,059,260 14,006,497
- --------------------------------------------------------------------------------------------------------- Net
change in unrealized appreciation or depreciation 43,452,225 7,865,590
------------ ----------- Net increase in net assets
resulting from operations 129,421,243 41,713,146
========= Dividends and Distributions to Shareholders
Dividends from net investment income:
Class A (6,865,016) (2,123,534) Class B
(11,617,988) (4,911,332) Class C
(2,462,263) (648,607) Class M
(11,859,099) (12,157,589)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (10,306,904) (2,201,758) Class B
(20,590,978) (4,975,362) Class C
(4,572,611) (903,669) Class M
(16,003,763) (6,479,192)
================================== Beneficial Interest Transactions
Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 91,206,809 90,847,491 Class B
157,527,088 175,385,489 Class C
44,261,278 38,234,063 Class M
3,408,746 29,022,434
========================================================================================================= Net Assets
Total increase 341,546,542 340,801,580
- ---------------------------------------------------------------------------------------------------------
Beginning of period 617,109,170 276,307,590
-------------- ------------- End of period (including
overdistributed net investment
income of $4,113 at 12/31/96) $ 958,655,712 $ 617,109,170
=============== ============= </TABLE>
See accompanying Notes to Financial Statements.
23 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------------- Financial Highlights
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ------------------------------------ Year Ended December 31,
1997 1996(1) 1995(3)
<S> <C> <C> <C> Per
Share Operating Data:
Net asset value, beginning of period $14.27 $13.96 $13.11
- --------------------------------------------------------------------------------------- Income (loss) from
investment
operations:
Net investment income .71 .73 .54 Net realized and unrealized
gain (loss) 1.93 .65 1.48 ------ ------
----- Total income (loss) from investment
operations 2.64 1.38 2.02
- ---------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.72) (.72) (.68) Distributions from
net realized gain (.87) (.35) (.49) ------
------ ----- Total dividends and distributions
to shareholders (1.59) (1.07) (1.17)
- --------------------------------------------------------------------------------------- Net asset value, end of
period $15.32 $14.27 $13.96 ======
====== ======
Total Return, at Net Asset Value(4) 18.77% 10.13%
15.42%
======================================================================================= Ratios/Supplemental Data:
Net assets, end of period (in thousands) $192,212 $93,578 $2,502
- -------------------------------------------------------------------------------------- Average net assets (in
thousands) $145,929 $41,617 $1,799
- -------------------------------------------------------------------------------------- Ratios to average net
assets:
Net investment income 4.58% 5.11% 5.63%(5) Expenses
0.95% 0.98%(6) 1.05%(5)(6) Expenses (excluding interest)(6)(7)
0.95% 0.97% 1.01%(5)
- -------------------------------------------------------------------------------------- Portfolio turnover
rate(8) 78.5% 52.7% 57.5%
1. On January 4, 1996, OppenheimerFunds, Inc. became the investment advisor to the Fund.
2. For the period from March 11, 1996 (inception of offering) to December 31, 1996.
3. For the period from May 1, 1995 (inception of offering) to December 31, 1995. 4. Assumes a
hypothetical initial investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns.Total returns are not annualized
for periods of less than one full year. 5. Annualized.
6. The expense ratios reflect the effect of gross expenses paid indirectly by the Fund.
</TABLE>
24 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
------------------------------- ----------------------- Year
Ended December 31, Year Ended December 31, 1997
1996(1) 1995(3) 1997 1996 (1)(2)
<S> <C> <C> <C> <C> <C> Per Share Operating Data:
Net asset value, beginning of period $14.29 $13.98 $13.11 $14.27 $14.03
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .59 .62 .45 .59 .50 Net
realized and unrealized gain (loss) 1.94 .65 1.51 1.93 .59 Total
income (loss) from investment ------ ------ ------ ------ ------ operations
2.53 1.27 1.96 2.52 1.09
- ------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.60) (.61) (.60) (.60) (.50)
Distributions from net realized gain (.87) (.35) (.49) (.87) (.35)
------ ------ ----- ----- ----- Total dividends and
distributions to shareholders
(1.47) (.96) (1.09) (1.47) (.85) --------------------------------------------
Net asset value, end of period $15.35 $14.29 $13.98
$15.32 $14.27 ====== ====== ======
====== ======
================================================================================ Total Return, at Net Asset Value(4)
17.93% 9.28% 15.09% 17.88% 7.74%
==================================================================== Ratios/Supplemental Data:
Net assets, end of period (in thousands) $383,755 $211,176 $34,465 $85,397
$38,312
- ------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $296,426 $113,784 $15,184 $62,343
$18,550
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 3.80% 4.31% 4.82% 3.82%
4.32%(5) Expenses 1.72% 1.75%(6) 1.69% 1.70%
1.69%(5)(6) Expenses (excluding interest)(6)(7) 1.72% 1.73% 1.64%
1.70% 1.67%(5)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 78.5% 52.7% 57.5% 78.5% 52.7%
</TABLE>
7. During the periods shown above, the Fund's interest expense was substantially
offset by the incremental interest income generated on bonds purchased with
borrowed funds.
8. 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 period
ended December 31, 1997 were $831,794,079 and $596,914,610, respectively. Per
share information has been determined based on average shares outstanding for
the period.
25 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------------ Financial Highlights
(Continued)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class M
------------------------------------------------
Year Ended December 31, <S> <C> <C> <C> <C>
<C> 1997 1996(1) 1995 1994 1993
- -------------------------------------------------------------------------------------------- Per Share
Operating Data:
Net asset value, beginning of period $14.27 $13.96 $12.20 $13.16 $11.43
- -------------------------------------------------------------------------------------------- Income (loss)
from investment operations:
Net investment income .62 .65 .70 .68 .59 Net realized and
unrealized gain (loss) 1.94 .66 2.42 (.81) 1.79
- ------ ------ ------ ------ ------ Total income (loss) from
investment operations 2.56 1.31 3.12 (.13) 2.38
- --------------------------------------------------------------------------------------------
Dividends and distributions to share-
holders:
Dividends from net investment income (.64) (.65) (.87) (.69) (.65 Distributions
from net realized gain (.87) (.35) (.49) (.14) --
- ------ ------ ------ ------ ----- Total dividends and distributions
to shareholders (1.51) (1.00) (1.36) (.83) (.65
- -------------------------------------------------------------------------------------------- Net asset value,
end of period $15.32 $14.27 $13.96 $12.20 $13.16
====== ====== ====== ====== =====
=========================================================== Total Return, at Net Asset Value(4) 18.19% 9.58%
26.00% (1.12)% 21.23%
============================================================================================ Ratios/Supplemental Data:
Net assets, end of period (in thousands) $297,292 $274,043 $239,341 $126,691 $69,375
- -------------------------------------------------------------------------------------------- Average net assets
(in thousands) $285,621 $264,936 $181,719 $106,829 $36,923
- -------------------------------------------------------------------------------------------- Ratios to average
net assets:
Net investment income 4.05% 4.59% 5.12% 5.24% 4.70% Expenses
1.46% 1.58%(6) 1.58%(6) 1.66% 1.78% Expenses (excluding
interest)(6)(7) 1.46% 1.55% 1.56% 1.65% 1.75%
- -------------------------------------------------------------------------------------------- Portfolio turnover
rate(8) 78.5% 52.7% 57.5% 52.8% 88.7% </TABLE>
1. On January 4, 1996, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
2. For the period from March 11, 1996 (inception of offering) to December 31,
1996.
3.For the period from May 1, 1995 (inception of offering) to December 31, 1995.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns.Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. The expense ratios reflect the effect of gross expenses paid indirectly by
the Fund.
7. During the periods shown above, the Fund's interest expense was substantially
offset by the incremental interest income generated on bonds purchased with
borrowed funds.
8. 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 period
ended December 31, 1997 were $831,794,079 and $596,914,610, respectively. Per
share information has been determined based on average shares outstanding for
the period. See accompanying Notes to Financial Statements.
26 Oppenheimer Bond Fund for Growth <PAGE>
- ----------------------------------------------------------- Notes to Financial
Statements
- ----------------------------------------------------------------------------
- --------------------------------------------------- 1. Significant Accounting
Policies
Oppenheimer Bond Fund for Growth (the Fund), a portfolio of the Bond Fund
Series, is registered under the Investment Company Act of 1940, as amended, as a
non-diversified, open-end management investment company. The Fund's investment
objective is to seek a high level of total return on its assets through a
combination of current income and capital appreciation. The Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class
B, Class C and Class M shares. Class A and Class M shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge. All classes of shares have identical rights to
earnings, assets and voting privileges, except that each class has its own
distribution and/or service plan, expenses directly attributable to a particular
class and exclusive voting rights with respect to matters affecting a single
class. 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 equity 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 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. Such
securities which cannot be valued by an 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 are valued 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. 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 is used.
27 Oppenheimer Bond Fund for Growth <PAGE>
- ---------------------------------------------------------- Notes to Financial
Statements (Continued)
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Significant Accounting Policies (continued) Security Credit Risk. The Fund
invests in high yield securities, which may be subject to a greater degree of
credit risk, greater market fluctuations and risk of loss of income and
principal, and may be more sensitive to economic conditions than lower yielding,
higher rated fixed income securities. The Fund may not invest in securities with
bond ratings of less than C at the time of purchase nor may it invest in
securities in default at the time of purchase. At December 31, 1997, securities
with an aggregate market value of $443,750, representing 0.05% of the Fund's net
assets, were in default.
- --------------------------------------------------------------------------------
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. During 1995, the Fund
acquired all of the assets and liabilities of another investment company which
did not distribute its net investment income or realized gains and was taxed as
a C corporation. Accordingly, an accrued tax liability was assumed by the Fund
on the date of the acquisition. As of December 31, 1997, the remaining accrued
tax liability for net unrealized gains on investments at the time of the
acquisition was $806,841.
28 Oppenheimer Bond Fund for Growth <PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distributions to Shareholders. The Fund intends to declare dividends separately
for Class A, Class B, Class C and Class M shares from net investment income each
day the New York Stock Exchange is open for business and pay such dividends
quarterly. Distributions from net realized gains on investments, if any, will be
declared at least once each year.
- --------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. The character of the distributions made during the year from net
investment income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the fiscal year in which the income or realized gain was recorded by
the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended December 31, 1997, amounts have been reclassified to reflect a
decrease in overdistributed net investment income of $898,721, a decrease in
accumulated net realized gain on investments of $1,145,578, and an increase in
paid-in capital of $246,857.
- --------------------------------------------------------------------------------
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. Cost is determined and realized gains and losses are based
upon the specific identification method for both financial statement and federal
income tax purposes. Interest income is recorded on the accrual basis. In
computing net investment income, the Fund accretes original issue discount.
Market discount is accreted at the time of sale (to the extent of the lesser of
the accrued market discount or the disposition gain) and is treated as income,
rather than capital gain.
Expenses paid indirectly represent a reduction of custodian fees f or
earnings on cash balances maintained by the Fund.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
29 Oppenheimer Bond Fund for Growth <PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. Shares of Beneficial Interest The Fund has authorized an unlimited number of
shares of beneficial interest of each class, par value $.01 per share.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31,
1996(1) ---------------------------- ------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------- <S>
<C> <C> <C> <C> Class A:
Sold 7,279,999 $111,599,725 6,494,619 $ 92,520,655
Dividends and distributions reinvested 932,388 14,314,572 249,431
3,554,945 Redeemed (2,225,551) (34,707,488) (366,014)
(5,228,109) ---------- ----------- ---------- ----------- Net
increase 5,986,836 $ 91,206,809 6,378,036 $ 90,847,491
========== ============ ========== ============
- --------------------------------------------------------------------------------------------------------- Class
B: Sold
10,397,158 $160,305,660 12,294,846 $175,175,363 Dividends and distributions
reinvested 1,506,208 23,000,990 577,315 8,234,848 Redeemed
(1,674,594) (25,779,562) (561,285) (8,024,722)
- ---------- ----------- ---------- ----------- Net increase 10,228,772
$157,527,088 12,310,876 $175,385,489 ==========
============ ========== ============
- --------------------------------------------------------------------------------------------------------- Class
C: Sold
3,123,899 $ 47,976,523 2,679,311 $ 38,154,738 Dividends and distributions
reinvested 309,297 4,711,704 91,900 1,310,288 Redeemed
(543,468) (8,426,949) (85,727) (1,230,963)
- ---------- ----------- ---------- ----------- Net increase 2,889,728 $
44,261,278 2,685,484 $ 38,234,063 ==========
============ ========== ============
- --------------------------------------------------------------------------------------------------------- Class
M: Sold
1,920,434 $ 29,581,986 5,031,985 $ 71,344,923 Dividends and distributions
reinvested 1,354,464 20,607,753 1,047,016 14,881,567 Redeemed
(3,076,456) (46,780,993) (4,018,081) (57,204,056)
- ---------- ----------- ---------- ----------- Net increase 198,442 $
3,408,746 2,060,920 $ 29,022,434 ==========
============ ========== ============ </TABLE>
1. For the year ended December 31, 1996 for Class A, Class B and Class M shares
and for the period from March 11, 1996 (inception of offering) to December 31,
1996 for Class C shares.
3. Unrealized Gains and Losses on Investments At December 31, 1997, net
unrealized appreciation on investments and options written of $68,378,757 was
composed of gross appreciation of $94,812,739, and gross depreciation of
$26,433,982.
30 Oppenheimer Bond Fund for Growth <PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
===== 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 a fee of 0.625% on the first
$50 million of net assets, 0.50% of the next $250 million of net assets and
0.4375% on net assets in excess of $300 million.
Accounting fees paid to the Manager were in accordance with the accounting
services agreement with the Fund which provides for an annual fee of $12,000 for
the first $30 million of net assets and $9,000 for each additional $30 million
of net assets.
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer
and shareholder servicing agent for the Fund and for other registered investment
companies. The Fund pays OFS an annual maintenance fee for each Fund shareholder
account and reimburses OFS for its out-of-pocket expenses.
For the year ended December 31, 1997, commissions (sales charges paid by
investors) on sales of Class A and Class M shares totaled $1,867,289 and
$760,191, respectively, of which $564,844 and $96,399, respectively, was
retained by OppenheimerFunds 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 and
Class C shares totaled $5,894,745 and $434,925, respectively, of which $138,642
and $9,133, respectively, were paid to an affiliated broker/dealer. During the
year ended December 31, 1997, OFDI received contingent deferred sales charges of
$444,782 and $26,261, respectively, upon redemption of Class B and Class C
shares as reimbursement for sales commissions advanced by OFDI at the time of
sale of such shares.
The Fund has adopted a Service Plan for Class A shares to reimburse OFDI
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. OFDI uses the service fee to reimburse
brokers, dealers, banks and other financial institutions quarterly for providing
personal service and maintenance of accounts of their customers that hold Class
A shares. During the year ended December 31, 1997, OFDI paid $32,539 to an
affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
31 Oppenheimer Bond Fund for Growth <PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
4. Management Fees and Other Transactions With Affiliates (continued) The Fund
has adopted Distribution and Service Plans for Class B and Class C shares to
compensate OFDI for its costs in distributing Class B and Class C shares and
servicing accounts. Under the Plans, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class B and Class C shares for its services
rendered in distributing Class B and Class C shares. OFDI also receives a
service fee of 0.25% per year to compensate dealers for providing personal
services for accounts that hold Class B and Class C shares. Each fee is computed
on the average annual net assets of Class B and Class C shares, determined as of
the close of each regular business day. During the year ended December 31, 1997,
OFDI paid $3,297 and $3,302, respectively, to an affiliated broker/dealer as
reimbursement for Class B and Class C personal service and maintenance expenses
and retained $2,652,827 and $461,741, respectively, as compensation for Class B
and Class C sales commissions and service fee advances, as well as financing
costs. If either Plan is terminated by the Fund, the Board of Trustees may allow
the Fund to continue payments of the asset-based sales charge to OFDI for
distributing shares before the Plan was terminated. At December 31, 1997, OFDI
had incurred unreimbursed expenses of $11,326,716 for Class B and $886,036 for
Class C.
The Fund has adopted a Distribution and Service Plan for Class M shares to
reimburse OFDI for its services and costs in distributing Class M shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.50% per year on Class M shares. OFDI also receives a service
fee of 0.25% per year to reimburse dealers for providing personal services for
accounts that hold Class M shares. OFDI may pay a portion of the asset-based
sales charge which it receives from the Fund to provide additional compensation
to broker/dealers who sell Class M shares. Both fees are computed on the average
annual net assets of Class M shares, determined as of the close of each regular
business day. During the year ended December 31, 1997, OFDI paid $8,871 to an
affiliated broker/dealer as reimbursement for Class M personal service and
maintenance expenses and retained $732,265 as reimbursement for certain Class M
sales-related distribution expenses.
================================================================================
5. Option Activity The Fund may buy put 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.
32 Oppenheimer Bond Fund for Growth <PAGE>
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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 or the cost of the security for
a purchased put option is adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a
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 buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the year ended December 31, 1997 was as follows:
<TABLE>
<CAPTION>
Call Options
- ----------------------------- Number of Amount of
Options Premiums
- -------------------------------------------------------------------------------- <S>
<C> <C> Options outstanding at December 31, 1996 6,552
$1,651,120 Options written 29,029 10,106,235 Options closed or
expired (21,816) (6,491,345) Options exercised
(3,013) (1,330,985) ------- ---------- Options
outstanding at December 31, 1997 10,752 $3,935,025
======= ==========
===================================================================== </TABLE>
6. Illiquid and Restricted Securities
At December 31, 1997, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may be considered
illiquid if it lacks a readily-available market or if its valuation has not
changed for a certain period of time. The Fund intends to invest no more than
15% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limit. The aggregate value of illiquid or restricted securities
subject to this limitation at December 31, 1997 was $87,321,885, which
represents 9.11% of the Fund's net assets, of which $32,241,129 is considered
restricted. Information concerning restricted securities is as follows:
33 Oppenheimer Bond Fund for Growth <PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- -------------------------------------------------------------------------------
<TABLE>
=================================== 6. Illiquid and Restricted Securities (continued)
<CAPTION>
Valuation
Cost per Unit Security Acquisition
Date Per Unit Dec. 31, 1997
- -------------------------------------------------------------------------------------------------------- <S>
<C> <C> <C> Bonds and Other Securities
Bankers Trust Corp.:
3.10% Common Stock Linked Nts., 11/5/02 (ACC Corp.) 10/29/97
100.00% 121.50% 7% Common Stock Linked Nts., 8/16/99 (Sitel Corp.) 8/12/97
100.00 86.25
- -------------------------------------------------------------------------------------------------------- Hudson
Hotels Corp., 7.5% Cv. Sub. Debs., 7/1/01 7/8/96 100.00 95.20
- -------------------------------------------------------------------------------------------------------- Travel
Ports of America, Inc.: 8.50% Cv. Sr. Sub. Debs.,
1/15/05 2/13/95-8/9/95 100.04 128.62 8.50% Cv. Sr. Sub. Debs.,
1/15/05 (Reg. S) 6/14/95-8/13/96 111.44 128.62
Stocks, Warrants and Other Securities
Danskin, Inc.: Escrow deposit
to be used to purchase
686,237 shares of Restricted Common Stock
in Rights Offering 8/14/95 $ .30 $ .30 $88.2722 Cv.
Preferred Stock, Series D 8/14/95 5,000.00 5,312.50 Portion of
Promissory Note to be used to purchase
342,560 shares of Restricted Common Stock
in Rights Offering 8/14/95 .30 .30 Restricted
Common Shares 8/14/95-3/3/97 1.47 .32 Wts., Exp. 10/04
8/14/95 -- 0.12
- -------------------------------------------------------------------------------------------------------- Lehman
Brothers Holdings, Inc. 6% Yield
Enhanced Equity-Linked Debt Securities, 8/31/98
(Black & Decker Corp.) 9/5/96 39.48 37.82
- --------------------------------------------------------------------------------------------------------
SubMicron Systems Corp. Wts., Exp. 12/00 12/11/95 -- .04
- -------------------------------------------------------------------------------------------------------- Travel
Ports of America, Inc., Wts., Exp. 1/05 2/13/95 -- 1.40
====================================================================== </TABLE>
7. Bank Borrowings The Fund may borrow up to 5% of its total assets from a bank
to purchase portfolio securities, or for temporary and emergency purposes. The
Fund has entered into an agreement which enables it to participate with two
other funds managed by the Manager in an unsecured line of credit with a bank,
which permits borrowings up to $50 million, collectively. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Funds Rate
plus 0.625%. In addition, a commitment fee of 0.07% is allocated among the three
participating funds at the end of each quarter, based on the average daily
unused portion of the committed line. The commitment fee is allocated among the
three funds based upon their respective average net assets for the period. The
commitment fee allocated to the Fund for the year ended December 31, 1997 was
$245.
The Fund had no borrowings outstanding at December 31, 1997. For the year
ended December 31, 1997, the average monthly loan balance was $468,393 at an
average interest rate of 6.056%. The Fund had no borrowings outstanding at any
month-end.
34 Oppenheimer Bond Fund for Growth
Appendix A
Corporate 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
Information Technology
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
Wireless Services
-4-
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Accountants
Price Waterhouse LLP
950 17th Street, Suite 2500
Denver, Colorado 80202
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
