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Oppenheimer Quest Opportunity Value Fund
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Prospectus dated February 19, 1999
Oppenheimer Quest Opportunity Value Fund is a mutual fund that seeks
growth of capital as its goal. It invests in a diversified portfolio of
stocks, bonds and cash equivalents, but primarily focuses on stocks.
This Prospectus contains important information about the Fund's
objective, its investment policies, strategies and risks. It also contains
important information about how to buy and sell shares of the Fund and other
account features. Please read this Prospectus carefully before you invest and
keep it for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
Contents
About the Fund
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The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
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How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
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About the Fund
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The Fund's Objective and Investment Strategies
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What Is the Fund's Investment Objective? The Fund's objective is to seek
growth of capital.
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What Does the Fund Invest In? The Fund can invest in a variety of equity and
debt securities. The Fund normally invests mainly in equity securities,
primarily common stocks, but also securities convertible into common stocks,
of U.S. and foreign issuers that the portfolio manager believes are
undervalued in the marketplace. The Fund can invest in equity securities
without limit. Under normal market conditions, the Fund invests at least 50%
of its total assets in common stock and debt securities convertible into
common stock.
The Fund can invest up to 100% of its assets in bonds, notes and other
debt securities, including money market obligations. The Fund limits its debt
investments to securities issued or guaranteed by the U.S. government and its
agencies and instrumentalities, including mortgage-backed securities, and
investment-grade corporate debt obligations of domestic and foreign issuers.
The Fund can also buy short-term debt securities and money market
instruments for liquidity and cash management purposes. These investments are
more fully explained in "About the Fund's Investments," below.
|X| How Does the Portfolio Manager Decide What Securities to Buy or
Sell? In selecting securities for purchase or sale by the Fund, the Fund's
portfolio manager, who is employed by the Sub-Advisor, OpCap Advisors, uses a
"value" approach to investing. The portfolio manager searches for securities
of companies believed to be undervalued in the marketplace, in relation to
factors such as a company's assets, earnings, growth potential and cash
flows. While this process and the inter-relationship of the factors used may
change over time and its implementation may vary in particular cases, in
general the selection process includes the following techniques:
|_| A "bottom up" analytical approach using fundamental research to focus on
particular issuers before considering industry trends, evaluating
each issuer's characteristics, financial results and management.
|_| A search for securities of companies believed to be undervalued in the
marketplace and having a high return on capital, strong
management committed to shareholder value, and positive cash
flows.
|_| Ongoing monitoring of issuers for fundamental changes in the company
that might alter the portfolio manager's initial expectations
about the security and might result in the sale of the security.
The portfolio manager allocates the Fund's investments among equity and
debt securities after assessing the relative values of these different types
of investments under prevailing market conditions. The portfolio might hold
stocks, bonds and money market instruments in different proportions at
different times. While stocks and other equity securities are normally
emphasized to seek growth, the portfolio manager might buy bonds and other
fixed-income securities, instead of stocks, when he thinks that:
|_| common stocks in general appear to be overvalued,
|_| debt securities offer meaningful capital growth opportunities
relative to common stocks, or
|_| it is desirable to maintain liquidity pending investment in
equity securities to seek capital growth opportunities.
Who Is the Fund Designed For? The Fund is designed primarily for investors
seeking capital growth in their investment over the long term. Those
investors should be willing to assume the risk of short-term share price
fluctuations that are typical for a fund focusing on stock investments. The
Fund does not seek current income as part of its objective. Since the Fund's
income level will fluctuate and will likely be small, it is not designed for
investors needing current income. Because of its focus on long-term growth,
the Fund may be appropriate for retirement plans. The Fund is not a complete
investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks and bonds are subject to changes in their value from a number of
factors. They include changes in general bond and stock market movements
(this is referred to as "market risk"), or the change in value of particular
stocks or bonds because of an event affecting the issuer (in the case of
bonds, this is known as "credit risk"). At times, the Fund may increase the
relative emphasis of its equity investments in a particular industry. In that
case, it will be subject to the risks that economic, political or other
events can have on the values of issuers in that particular industry (this is
referred to as "industry risk"). Changes in interest rates can also affect
stock and bond prices (this is known as "interest rate risk"). Foreign
investing involves special risks.
These risks collectively form the risk profile of the Fund, and can
affect the value of the Fund's investments, its investment performance and
its price per share. These risks mean that you can lose money by investing in
the Fund. When you redeem your shares, they may be worth more or less than
what you paid for them.
The Fund's investment Manager, OppenheimerFunds, Inc., has engaged the
Sub-Advisor, OpCap Advisors, to select securities for the Fund's portfolio.
The Sub-Advisor tries to reduce risks by carefully researching securities
before they are purchased and to reduce the Fund's exposure to market risks
by diversifying its investments, that is, by not holding a substantial amount
of stock of any one company and by not investing too great a percentage of
the Fund's assets in any one issuer. Also, the Fund does not concentrate 25%
or more of its assets in investments in any one industry.
However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price of the Fund will
change daily based on changes in market prices of securities and market
conditions, and in response to other economic events. There is no assurance
that the Fund will achieve its investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund normally
focuses its investments in equity securities, the value of the Fund's
portfolio will be affected by changes in the stock markets. Market risk will
affect the Fund's net asset value per share, which will fluctuate as the
values of the Fund's portfolio securities change.
A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other. Because the Fund can buy both foreign stocks and stocks of U.S.
issuers, it will be affected by changes in domestic and foreign stock markets.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the
issuer. The Fund invests in securities of large companies, but can also buy
securities of small and medium-size companies, which may have more volatile
stock prices than large companies.
|_| Industry Focus. At times the Fund may increase the relative
emphasis of its investments in stocks of companies in a single industry.
Stocks of issuers in a particular industry may be affected by changes in
economic conditions, or by changes in government regulations, availability of
basic resources or supplies, or other events that affect that industry more
than others. To the extent that the Fund increases the emphasis of its
investments in a particular industry, its share values may fluctuate in
response to events affecting that industry.
|X| Interest Rate Risks. The values of debt securities are subject to
change when prevailing interest rates change. When interest rates fall, the
value of already-issued debt securities generally rise. When interest rates
rise, the values of already-issued debt securities generally fall. The
magnitude of these fluctuations will often be greater for longer-term debt
securities than shorter-term debt securities. The Fund's share prices can go
up or down when interest rates change because of the effect of the changes on
the value of the Fund's investments in debt securities.
|X| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income may be reduced and if the issuer fails to
repay principal, the value of that bond and of the Fund's shares may be
reduced. While the Fund's investments in U.S. government securities are
subject to little credit risk, the Fund's other investments in debt
securities are subject to risks of default.
How Risky is the Fund Overall? The Fund normally focuses its investments on
stocks and other equity securities for long-term capital growth. In the short
term, the stock markets can be volatile, and the price of the Fund's shares
will go up and down in response to those price movements. The Fund's
income-oriented investments may help cushion the Fund's total return from
changes in stock prices, but fixed-income securities have their own risks and
normally are not the primary emphasis of the Fund. In the OppenheimerFunds
spectrum, the Fund is more conservative than aggressive growth stock funds,
but may be more volatile than investment-grade bond funds.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing
in the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the past ten calendar years and by showing how
the average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]
Sales charges are not included in the calculations of return in this bar
chart, and if those charges were included, the returns would be less than
those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 21.90% (1stQ'91) and the lowest return (not
annualized) for a calendar quarter was -15.00% (3rdQ90).
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Average Annual
Total 1 Year 5 Years 10 Years
Returns for the (or life of (or life of
periods class, if less) class, if less)
ended December
31, 1998
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Class A Shares
(inception 1/3/89) 1.47% 17.40% 16.83%
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S&P 500 Index
(from 12/31/88) 28.60% 24.05% 19.19%
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Class B Shares
(inception 9/1/93) 2.16% 18.00% 16.79%
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S&P 500 Index
(from 8/31/93) 28.60% 24.05% 22.76%
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Class C Shares
(inception 9/1/93) 6.12% 18.17% 16.85%
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Class Y Shares
(inception 8.19% 15.02% N/A
12/16/96)
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S&P 500 Index
(from 12/31/96) 28.60% 30.95% N/A
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The Fund's average annual total returns in the table include the applicable
sales charge for Classes A, B and C shares: for Class A, the current maximum
initial sales charge of 5.75%; for Class B, the contingent deferred sales
charges of 5% (1-year), 2% (5-years) and 1% (life of class); and for Class C,
the 1% contingent deferred sales charge for the 1-year period. There is no
sales charge for Class Y shares.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in
additional shares. Because the Fund normally invests primarily in stocks, the
Fund's performance is compared to the S&P 500 Index, an unmanaged index of
equity securities that is a measure of the general domestic stock market.
However, it must be remembered that the index performance reflects the
reinvestment of income but does not consider the effects of transaction costs
and that the Fund's stock investments will vary from those in the index.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services. 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 the fees and expenses you may pay if you buy and hold shares
of the Fund. The numbers below are based on the Fund's expenses during its
fiscal year ended October 31, 1998.
Shareholder Fees (charges paid directly from your investment):
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Class A Class B Class C Class Y
Shares Shares Shares Shares
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Maximum Sales Charge
(Load) on purchases 5.75% None None None
(as % of offering
price)
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Maximum Deferred
Sales Charge (Load)
(as % of the lower None1 5%2 1%3 None
of the original
offering price or
redemption proceeds)
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1. A contingent deferred sales charge may apply to redemptions of
investments of $1 million or more ($500,000 for retirement plan accounts)
of Class A shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Class A Class B Class C Class Y
Shares Shares Shares Shares
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Management Fees 0.86% 0.86% 0.86% 0.86%
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Distribution and/or 0.50% 1.00% 1.00% None
Service (12b-1) Fees
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Other Expenses 0.18% 0.18% 0.18% 0.14%
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Total Annual 1.54% 2.04% 2.04% 1.00%
Operating Expenses
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Expenses may vary in future years. "Other expenses" include transfer agent
fees, custodial expenses, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for
the time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end
of those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that
the class's operating expenses remain the same. Your actual costs may be
higher or lower because expenses will vary over time. Based on these
assumptions your expenses would be as follows:
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If shares are 1 Year 3 Years 5 Years 10 Years1
redeemed:
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Class A Shares $723 $1,033 $1,366 $2,304
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Class B Shares $707 $940 $1,298 $2,124
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Class C Shares $307 $640 $1,098 $2,369
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Class Y Shares $102 $318 $552 $1,225
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If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
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Class A Shares $723 $1,033 $1,366 $2,304
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Class B Shares $207 $640 $1,098 $2,124
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Class C Shares $207 $640 $1,098 $2,369
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Class Y Shares $102 $318 $552 $1,225
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In the first example, expenses include the initial sales charge for Class A
and the applicable Class B or Class C contingent deferred sales charges. In
the second example, the Class A expenses include the sales charge, but Class
B and Class C expenses do not include the contingent deferred sales charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over
time based upon the evaluation of economic and market trends by the
Sub-Advisor. The Fund's portfolio might not always include all of the
different types of investments described below. The Statement of Additional
Information contains more detailed information about the Fund's investment
policies and risks.
|X| Stock Investments. The Fund invests in a diversified portfolio of
equity and debt securities of issuers that may be of small, medium or large
size, to seek capital growth. Equity securities include common stocks,
preferred stocks, warrants and debt securities convertible into common stock.
They can be securities issued by domestic or foreign companies. Although they
are debt securities, in some cases convertible securities can be considered
"equity equivalents" because of the conversion feature. Their rating must meet
the Fund's credit criteria for debt securities, described below, but has less
impact on the investment decision than in the case of other debt securities.
At times, the Fund may increase its relative emphasis on the securities
of issuers in a particular industry or group of industries, or of a
particular capitalization or a range of capitalizations, depending on the
Sub-Advisor's judgment about market and economic conditions.
|X| Debt Securities. The Fund can also invest in debt securities, such
as U.S. government securities, mortgage-backed securities, and domestic and
foreign corporate bonds, notes and debentures, when the portfolio manager
believes they present opportunities for seeking the Fund's objective of
capital growth, as discussed above. The Fund can also buy short-term
high-quality debt securities for liquidity pending the purchase of new
investments or to have cash to pay for redemptions of Fund shares.
The corporate debt securities the Fund buys must be "investment grade."
That means that they must either be rated at least "Baa" by Moody's Investors
Service or "BBB" by Standard & Poor's Rating Service or have comparable
ratings by other nationally-recognized rating organizations. If they are
unrated corporate debt securities, the Sub-Advisor must judge that they are
comparable to rated investment-grade securities.
|_| U.S. Government Securities. The Fund can invest in U.S. government
securities that are U.S. Treasury securities and securities issued or
guaranteed by agencies or federally-chartered corporate entities referred to
as instrumentalities of the U.S. government. They can include collateralized
mortgage obligations (CMOs) and other mortgage-related securities. U.S.
Treasury securities are backed by the full faith and credit of the U.S.
government and are subject to little credit risk.
Some securities issued or guaranteed by agencies or instrumentalities of
the U.S. government have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right
of the issuer to borrow from the U.S. Treasury under certain circumstances,
such as Federal National Mortgage Association bonds ("Fannie Maes"). Others
are supported only by the credit of the entity that issued them, such as
Federal Home Loan Mortgage Corporation obligations ("Freddie Macs"). These
have relatively little credit risk.
|_| Mortgage-Related Securities. Investments in mortgage-related
securities are subject to special risks of unanticipated prepayment. The risk
is that when interest rates fall, borrowers under the mortgages that underlie
a mortgage-related security the Fund owns will prepay their mortgages more
quickly than expected, causing the issuer of the security to prepay the
principal to the Fund prior to the security's expected maturity. Securities
subject to prepayment risk, including the CMOs and other mortgage-related
securities that the Fund can buy, generally offer less potential for gains
when prevailing interest rates fall, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may
be difficult to predict and may increase the volatility of the price.
Additionally, the Fund may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Fund to lose a
portion of its principal investment represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected
maturity of a short- or medium-term security. That could cause its value to
fluctuate more widely in response to changes in interest rates. In turn, this
could cause the value of the Fund's shares to fluctuate more.
|_| Money Market Instruments. The Fund can also invest in "money market
instruments." These include U.S. government securities and high-quality
corporate debt securities having a remaining maturity of one year or less.
They also include commercial paper, other short-term corporate debt
obligations, certificates of deposit, bankers' acceptances and repurchase
agreements. They do not generate capital growth if held to maturity.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a majority of the Fund's outstanding voting
shares. The Fund's objective is a fundamental policy. Other investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund does not expect to engage frequently in
short-term trading to try to achieve its objective. Portfolio turnover
affects brokerage costs the Fund pays. If the Fund realizes capital gains
when it sells its portfolio investments, it must generally pay those gains
out to shareholders, increasing their taxable distributions. The Financial
Highlights table below shows the Fund's portfolio turnover rates during prior
fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use
the investment techniques and strategies described below. The Fund might not
always use all of the different types of techniques and instruments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
|X| Foreign Investing. While the Fund has no limits on the amounts it
can invest in foreign securities, it normally does not expect to invest a
substantial portion of its assets in foreign securities. The Fund can buy
foreign securities that are listed on a domestic or foreign stock exchange,
traded in domestic or foreign over-the-counter markets, or represented by
American Depository Receipts. While the Fund can invest in emerging markets,
which have greater risks than developed markets, the Fund currently does not
intend to purchase securities issued by governments or companies in emerging
markets. The Fund will hold foreign currency only in connection with buying
and selling foreign securities.
|_| Risks of Foreign Investing. While foreign securities offer
special investment opportunities, there are also special risks. The change
in value of a foreign currency against the U.S. dollar will result in a
change in the U.S. dollar value of securities denominated in that foreign
currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of
foreign investments may be affected by 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.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities. If they are not prepared,
there could be delays in settlements of securities trades and additional
costs to the Fund.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There is a risk that the value of the
security might decline prior to the settlement date. No income accrues to
the Fund on a when-issued security until the Fund receives the security on
settlement of the trade. The Fund will not commit more than 15% of its net
assets under these transactions.
|X| Investing in Small, Unseasoned Companies. The Fund can invest up to
5% of its total assets in securities of small, unseasoned companies. These
are companies that have been in continuous operation for less than three
years, counting the operations of any predecessors. These securities may have
limited liquidity, which means that the Fund could have difficulty selling
them at an acceptable price when it wants to. Their prices may be very
volatile, especially in the short term.
|X| Illiquid and Restricted Securities. Investments may be illiquid
because of the absence of an active trading market, making it difficult to
value them or dispose of them promptly at an acceptable price. A restricted
security is one that has a contractual restriction on its resale or which
cannot be sold publicly until it is registered under the Securities Act of
1933. The Fund cannot invest more than 15% of its net assets in illiquid or
restricted securities. Certain restricted securities that are eligible for
resale to qualified institutional purchasers may not be subject to that
limit. The Manager and Sub-Advisor monitor holdings of illiquid securities on
an ongoing basis to determine whether to sell any holdings to maintain
adequate liquidity.
Temporary Defensive Investments. In times of unstable or adverse market or
economic conditions, the Fund can invest up to 100% of its assets in
temporary defensive investments. Generally they would be short-term U.S.
government securities and the types of money market instruments described
above. To the extent the Fund invests defensively in these securities, it
might not achieve its investment objective of capital growth.
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. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and
other investors. That failure could have a negative impact on handling
securities trades, pricing and accounting services. Data processing errors by
government issuers of securities could result in 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 Funds'
investments and returns.
The Manager, the Sub-Advisor, the Distributor and the Transfer Agent
have been 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, the
services they provide depend on the interaction of their computer systems
with those of brokers, information services, the Fund's custodian and other
parties. Therefore, any failure of the computer systems of those parties to
deal with the year 2000 may also have a negative effect on the services they
provide to the Fund. The extent of that risk cannot be ascertained at this
time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc.,
supervises the Fund's investment program and handles its day-to-day
business. The Manager carries out its duties, subject to the policies
established by the Board of Trustees, under an Investment Advisory Agreement
that 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 became the Fund's
investment advisor November 22, 1995.
The Manager has operated as an investment advisor since 1959. The
Manager (including subsidiaries) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $95 billion as of
December 31, 1998, and with more than 4 million shareholder accounts. The
Manager is located at Two World Trade Center, 34th Floor, New York, New York
10048-0203.
|X| The Manager's Fees. Under the Investment Advisory Agreement, the
Fund pays the Manager an advisory fee at an annual rate that declines on
additional assets as the Fund grows: 1.00% of the first $400 million of
average annual net assets of the Fund, 0.90% of the next $400 million, 0.85%
of the next $3.2 billion, 0.80% of the next $4 billion and 0.75% of average
annual net assets in excess of $8 billion. The Fund's management fee for its
last fiscal year ended October 31, 1998 was 0.86% of average annual net
assets for each class of shares.
The Sub-Advisor. On November 22, 1995, the Manager retained the Sub-Advisor
to provide day-to-day portfolio management for the Fund. Prior to that date
and from the inception of the Fund, the Sub-Advisor had been the Fund's
investment advisor. The Sub-Advisor has operated as an investment advisor to
investment companies and other investors since its organization in 1980. As
of December 31, 1998, the Sub-Advisor or its parent advised accounts having
assets in excess of $62 billion. It is located at One World Financial Center,
200 Liberty Street, New York New York 10281.
The Manager, not the Fund, pays the Sub-Advisor an annual fee under the
Sub-Advisory Agreement between the Manager and the Sub-Advisor. The fee is
calculated as a percentage of the fee the Fund pays the Manager. The rate is
40% of the advisory fee collected by the Manager based on the net assets of
the Fund as of November 22, 1995, and 30% of the fee collected by the Manager
on assets in excess of that amount.
|X| Portfolio Manager. The portfolio manager of the Fund is Richard J.
Glasebrook II, who is employed by the Sub-Advisor. He is the person
primarily responsible for the day-to-day management of the Fund's portfolio.
He is a Managing Director of Oppenheimer Capital, the immediate parent
company of the Sub-Advisor and has been the Fund's portfolio manager since
April 1991.
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About Your Account
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How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any
dealer, broker or financial institution that has a sales agreement with the
Fund's Distributor, or directly through the Distributor, or automatically
through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The Distributor may appoint certain servicing agents to accept
purchase (and redemption) orders. The Distributor, in its sole discretion,
may reject any purchase order for the Fund's shares.
|X| Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X| 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 with a financial advisor before
you make a purchase to be sure that the Fund is appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With
AccountLink, shares are purchased for your account on the regular business
day the Distributor is instructed by you to initiate the Automated Clearing
House (ACH) transfer to buy the shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by telephone
instructions using OppenheimerFunds PhoneLink, also described below. Please
refer to "AccountLink," below for more details.
|X| Buying Shares Through 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 Asset Builder Application
and the Statement of Additional Information.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
|_| With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent investments for
as little as $25. Subsequent purchases of at least $25 can be made by
telephone through AccountLink.
|_| Under retirement plans, such as IRAs, pension and profit-sharing
plans and 401(k) plans, you can start your account with as little as $250. If
your IRA is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
|_| The minimum investment requirement does not apply to 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 reinvesting distributions from unit investment trusts
that have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the
net asset value per share plus any initial sales charge that applies). The
offering price that applies to a purchase order is based on the next
calculation of the net asset value per share that is made after the
Distributor receives the purchase order at its offices in Denver, Colorado,
or after any agent appointed by the Distributor receives the order and sends
it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier
on some days. (All references to time in this Prospectus mean "New York
time").
The net asset value per share is determined 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. To determine net asset value, the Fund's Board
of Trustees has established procedures to value the Fund's securities, in
general based on market value. The Board has adopted special procedures for
valuing illiquid and restricted securities and obligations for which market
values cannot be readily obtained. Because some foreign securities trade in
markets and exchanges that operate on weekends and U.S. holidays, the values
of some of the Fund's foreign investments may change significantly on days
when investors cannot buy or redeem Fund shares.
|_| To receive the offering price for a particular day, in most cases
the Distributor or its designated agent must receive your order by the time
of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the
order will receive the next offering price that is determined after your
order is received.
|_| If you buy shares through a dealer, your dealer must receive the
order by the close of The New York Stock Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of business
on a regular business day (normally 5:00 P.M.) to receive that day's offering
price. Otherwise, the order will receive the next offering price that is
determined.
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What Classes of Shares Does the Fund Offer? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
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- -------------------------------------------------------------------------------
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|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million for regular accounts or $500,000 for
certain retirement plans). The amount of that initial sales charge will vary
depending on the amount you invest. The sales charge rates are listed in "How
Can I Buy Class A Shares?" below. There is also an asset-based sales charge
on Class A shares.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That contingent deferred
sales charge varies depending on how long you own your shares, as described
in "How Can I Buy Class B Shares?" below.
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|X| Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and 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 "How
Can I Buy Class C Shares?" below.
|X| Class Y Shares. Class Y shares are offered only to certain
institutional investors that have special agreements with the Distributor.
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
best suited to your needs depends on a number of factors that you should
discuss with your financial advisor. Some factors to consider 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. 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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are
different. You should review these factors with your financial advisor. The
discussion below assumes that you will purchase only one class of shares, and
not a combination of shares of different classes.
|X| How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the appropriate
class of shares. Because of the effect of class-based expenses, your choice
will also depend on how much you plan to invest. For example, the reduced
sales charges available for larger purchases of Class A shares may, over
time, offset the effect of paying an initial sales charge on your investment,
compared to the effect over time of higher class-based expenses on shares of
Class B or Class C.
|_| Investing for the Short Term. If you have a relatively short-term
investment horizon (that is, you plan to hold your shares for not more than
six years), you should probably consider purchasing Class A or Class C shares
rather than Class B shares. That is because of the effect of the Class B
contingent deferred sales charge if you redeem within six 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 as 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.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more
of Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than
$100,000 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
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all
of the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders.
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. Therefore, you should carefully review how you plan
to use your investment account before deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are
not borne by Class A shares, such as the Class B and Class C asset-based
sales charge described below and in the Statement of Additional Information.
Share certificates are not available for Class B and Class C shares, and if
you are considering using your shares as collateral for a loan, that may be a
factor to consider.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares
than for selling another class. It is important to remember that Class B and
Class C contingent deferred sales charges and asset-based sales charges have
the same purpose as the front-end sales charge on sales of Class A shares: to
compensate the Distributor for commissions and expenses it pays to dealers
and financial institutions for selling shares. The Distributor may pay
additional 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.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement
of Additional Information details the conditions for the waiver of sales
charges that apply in certain cases, and the special sales charge rates that
apply to purchases of shares of the Fund by certain groups, or under
specified retirement plan arrangements or in other special types of
transactions.
How Can I Buy Class A Shares? Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales charge.
However, in some cases, described below, purchases are not subject to an
initial sales charge, and the offering price will be the net asset value. In
other cases, reduced sales charges may be available, as described below or in
the Statement of Additional Information. 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 or allocated
to your dealer as commission. The Distributor reserves the right to reallow
the entire commission to dealers. The current sales charge rates and
commissions paid to dealers and brokers are as follows:
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Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Amount Offering Price
Invested
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Less than $25,000 5.75% 6.10% 4.75%
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$25,000 or more
but less than 5.50% 5.82% 4.75%
$50,000
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$50,000 or more
but less than 4.75% 4.99% 4.00%
$100,000
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$100,000 or more
but less than 3.75% 3.90% 3.00%
$250,000
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$250,000 or more
but less than 2.50% 2.56% 2.00%
$500,000
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$500,000 or more
but less than $1 2.00% 2.04% 1.60%
million
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|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 aggregating $1 million or more or for certain purchases by particular
types of retirement plans described in Appendix C to the Statement of
Additional Information. The Distributor pays dealers of record commissions
in an amount equal to 1.0% of purchases of $1 million or more other than by
those retirement accounts. For those retirement plan accounts, the commission
is 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. In
either case, the commission will be paid only on purchases that were not
previously subject to a front-end sales charge and dealer commission.1
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called
the "Class A contingent deferred sales charge") may be deducted from the
redemption proceeds. That sales charge will be equal to 1.0% of the lesser
of (1) the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or
capital gain distributions) or (2) 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 purchases of Class A shares of all Oppenheimer funds you
made that were subject to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable
when shares are redeemed, the Fund will first redeem shares that are not
subject to the sales charge, including shares purchased by reinvestment of
dividends and capital gains. Then the Fund will redeem other shares in the
order in which you purchased them. The Class A contingent deferred sales
charge is waived in certain cases described in Appendix C to the Statement of
Additional Information.
The Class A contingent deferred sales charge is not charged on exchanges
of shares under the Fund's exchange privilege (described below). However, if
the shares acquired by exchange are redeemed within 18 calendar months of the
end of the calendar month in which the exchanged shares were originally
purchased, then the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be
eligible to buy Class A shares at reduced sales charge rates under the Fund's
"Right of Accumulation" or a Letter of Intent, as described in "Reduced Sales
Charges" in the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and
contingent deferred sales charges are not imposed in the circumstances
described in Appendix C to 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 when purchasing shares whether any of the special
conditions apply.
How Can I Buy 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. The Class B contingent
deferred sales charge is paid to compensate the Distributor for its expenses
of providing distribution-related services to the Fund in connection with the
sale of Class B shares.
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 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,
|_| shares purchased by the reinvestment of dividends or capital gains
distributions, or
|_| shares redeemed in the special circumstances described in Appendix
C to the Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
(1) shares acquired by reinvestment of dividends and capital gains
distributions,
(2) shares held for over 6 years, and
(3) shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
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Contingent Deferred Sales Charge
Years Since Beginning of Month in on Redemptions in That Year
Which Purchase Order was Accepted (As % of Amount Subject to
Charge)
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. In applying the sales charge,
all purchases are considered to have been made on the first regular business
day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares
automatically convert to Class A shares 72 months after you purchase them.
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 the Statement of
Additional Information.
How Can I Buy 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. The Class C
contingent deferred sales charge is paid to compensate the Distributor for
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
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 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,
|_| shares purchased by the reinvestment of dividends or capital gains
distributions, or
|_| shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
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.
Who Can Buy Class Y Shares? Class Y shares are sold at net asset value per
share without sales charge directly to certain institutional investors that
have special agreements with the Distributor for this purpose. They may
include insurance companies, registered investment companies and employee
benefit plans. For example, Massachusetts Mutual Life Insurance Company, an
affiliate of the Manager, may purchase Class Y shares of the Fund and other
Oppenheimer funds (as well as Class Y shares of funds advised by MassMutual)
for asset allocation programs, investment companies or separate investment
accounts it sponsors and offers to its customers. Individual investors are
not able to buy Class Y shares directly.
An institutional investor that buys Class Y shares for its customers'
accounts may impose charges on those accounts. The procedures for buying,
selling, exchanging and transferring the Fund's other classes of shares and
the special account features available to investors buying those other
classes of shares do not apply to Class Y shares. An exception is that the
time those orders must be received by the Distributor or its agents or by the
Transfer Agent is the same for Class Y as for other share classes. However,
those instructions must be submitted by the institutional investor, not by
its customers for whose benefit the shares are held.
Distribution and Service (12b-1) Plans. Because these fees are paid out of
the Fund's assets on an ongoing basis, over time these fees will increase the
cost of your investment and may cost you more than other types of sales
charges.
|X| Distribution and Service Plan for Class A Shares. The Fund has
adopted a Distribution and Service Plan for Class A shares. Under the plan
the Fund pays an asset-based sales charge to the Distributor at an annual
rate of 0.25% of average annual net assets of Class A shares the Fund. The
Fund also pays a service fee to the Distributor of 0.25% of the average
annual net assets of Class A shares. The Distributor currently uses all of
the fee and a portion of the asset-based sales charge to pay dealers,
brokers, banks and other financial institutions quarterly for providing
personal service and maintenance of accounts of their customers that hold
Class A shares. The Distributor pays out the portion of the asset-based sales
charge equal to 0.15% of average annual net assets representing Class A
shares purchased before September 1, 1993, and 0.10% of average annual net
assets representing Class A shares purchased on or after that date.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C
shares to pay 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 shares and on Class C shares. The Distributor also receives a
service fee of 0.25% per year under each plan. The asset-based sales charge
and service fees increase Class B and Class C expenses by 1.00% of the 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. The Distributor pays the 0.25% service fees to dealers in advance
for the first year after the shares were sold by the dealer. 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 commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sales of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
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. Including the advance of the service fee, the total amount
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 pays 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.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone
(through a service representative or by PhoneLink) or automatically
under Asset Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit
dividends and distributions directly to your bank account. Please call
the Transfer Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
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.
|X| 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.
|X| Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already established
by calling the special PhoneLink number.
|X| 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.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier).
Please call 1-800-525-7048 for information about which transactions may be
handled this way. 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. You can obtain information about the
Fund, as well as your account balance, on the OppenheimerFunds Internet web
site, at http://www.oppenheimerfunds.com. Additionally, shareholders listed
in the account registration (and the dealer of record) may request certain
account transactions through a special section of that web site. To perform
account transactions, you must first obtain a personal identification number
(PIN) by calling the Transfer Agent at 1-800-533-3310. If you do not want to
have Internet account transaction capability for your account, please call
the Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis. Please call the Transfer Agent
or consult the Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class
B shares on which you paid a contingent deferred sales charge when you
redeemed them. This privilege does not apply to Class C or Class Y shares.
You must be sure to ask the Distributor for this privilege when you send your
payment.
Retirement Plans. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be
used by individuals and employers:
|X| Individual Retirement Accounts (IRAs), including regular IRAs, Roth
IRAs, SIMPLE IRAs, rollover and Education IRAs.
|X| SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for
small business owners or self-employed individuals.
|X| 403(b)(7) Custodial Plans, that are tax deferred plans for
employees of eligible tax-exempt organizations, such as schools, hospitals
and charitable organizations.
|X| 401(k) Plans, which are special retirement plans for businesses.
|X| Pension and Profit-Sharing Plans, designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means that it must comply with
the procedures described below) and is accepted by the Transfer Agent. The
Fund lets you sell your shares by writing a letter or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular basis.
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 account, please call the Transfer Agent
first, at 1-800-525-7048, for assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, the following redemption requests must be in writing and
must include a signature guarantee (although there may be other situations
that also require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check
|_| The redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| 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.
|X| Retirement Plan Accounts. There are special procedures to sell
shares in an OppenheimerFunds retirement plan account. Call the Transfer
Agent for a distribution request form. Special income tax withholding
requirements apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting your
money and if you do not want tax withheld. If your employer holds your
retirement plan account for you in the name of the plan, you must ask the
plan trustee or administrator to request the sale of the Fund shares in your
plan account.
|X| Sending Redemption Proceeds by Wire. While the Fund normally sends
your money by check, you can arrange to have the proceeds of the shares you
sell sent by Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The
minimum redemption you can have sent by wire is $2,500. There is a $10 fee
for each wire. To find out how to set up this feature on your account or to
arrange a wire, call the Transfer Agent at 1-800-852-8457.
How Do I Sell Shares by Mail? Write a letter of instructions that includes:
|_| Your name
|_| The Fund's name
|_| Your Fund account number (from your account statement)
|_| The dollar amount or number of shares to be redeemed
|_| Any special payment instructions
|_| Any share certificates for the shares you are selling
|_| The signatures of all registered owners exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure
proper authorization of the person asking to sell the shares.
- -------------------------------------------------------------------------------
Use the following address for requests by mail:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OppenheimerFunds Services
- -------------------------------------------------------------------------------
P.O. Box 5270
Denver, Colorado 80217-5270
- -------------------------------------------------------------------------------
Send courier or express mail requests to:
- -------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell Shares by Telephone? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is normally
4:00 P.M., but may be earlier on some days. You may not redeem shares held
in an OppenheimerFunds retirement plan account or under a share certificate
by telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone in any 7-day period. The check must be payable to all owners of
record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the
address on an account.
|X| Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH transfer 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.
Can I Sell Shares Through My 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. If your shares
are held in the name of your dealer, you must redeem them through your dealer.
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. To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available for sale
in your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them. After the account is open 7
days, you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund 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. In some cases, sales charges may be imposed on exchange transactions.
For tax purposes, exchanges of shares involve a sale 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. Please refer to "How to Exchange Shares" in the
Statement of Additional Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the Transfer
Agent at the address on the Back Cover. Exchanges of shares held under
certificates cannot be processed unless the Transfer Agent receives the
certificates with the request.
|X| 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 obtain one by calling
a service representative at 1-800-525-7048. That list can change from time
to time.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on
which the Transfer Agent receives an exchange request that conforms to the
policies described above. It must be received by the close of The New York
Stock Exchange that day, which is normally 4:00 P.M. but may be earlier on
some days. However, either fund may delay the purchase of shares of the fund
you are exchanging into up to seven days if it determines it would be
disadvantaged by a same-day exchange. For example, the receipt of multiple
exchange requests from a "market timer" might require the Fund to sell
securities at a disadvantageous time and/or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
it believes will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
|_| The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever it
is reasonably able to do so, it may impose these changes at any time.
|_| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange
will be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies for buying, selling and exchanging
shares is contained in the Statement of Additional Information.
|X| 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.
|X| 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 the Transfer Agent receives cancellation instructions from an owner of
the account.
|X| 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. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions, and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction erroneously
or improperly.
|X| The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates. The
redemption price, which is the net asset value per share, will normally
differ for each class of shares. The redemption value of your shares may be
more or less than their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink or by Federal Funds wire (as
elected by the shareholder) within seven days after the Transfer Agent
receives redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission, payment
may be delayed or suspended. For accounts registered in the name of a
broker-dealer, payment will normally be forwarded within three business days
after redemption.
|X| 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 with your bank to
provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $500 for reasons other than the fact that
the market value of shares has dropped. In some cases involuntary redemptions
may be made to repay the Distributor for losses from the cancellation of
share purchase orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such
as a lack of liquidity in the Fund's portfolio to meet redemptions). This
means that the redemption proceeds will be paid with securities from the
Fund's portfolio.
|X| "Backup Withholding" of federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund your correct, certified Social
Security or Employer Identification Number when you sign your application, or
if you under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048 to
ask that copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis, on a date selected by
the Board of Trustees. Dividends and distributions paid on Class A and Class
Y shares will generally be higher than dividends for Class B and Class C
shares, which normally have higher expenses than Class A and Class Y. The
Fund has no fixed dividend rate and cannot guarantee that it will pay any
dividends or distributions.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term
or long-term capital gains in December of each year. The Fund may make
supplemental distributions of dividends and capital gains following the end
of its fiscal year. There can be no assurance that the Fund will pay any
capital gains distributions in a particular year.
What Choices Do I Have for Receiving Distributions? When you open your
account, specify on your application how you want to receive your dividends
and distributions. You have four options:
|X| 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.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends
by check or having them sent to your bank account through AccountLink.
|X| 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 through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state
or local taxes. Dividends paid from short-term capital gains and net
investment income are taxable as ordinary income. Long-term capital gains
are taxable as long-term capital gains when distributed to shareholders. It
does not matter how long you have held your shares. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information
the Fund sends you after the end of the calendar year.
|X| Avoid "Buying a Dividend". If you buy shares on or just before the
ex-dividend date or just before the Fund declares a capital gain
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.
|X| Remember, There May be Taxes on Transactions. Because the Fund's
share price fluctuates, you may have a capital gain or loss when you sell or
exchange your shares. A capital gain or loss is the difference between the
price you paid for the shares and the price you received when you sold them.
Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax advisor about the
effect of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the calendar years since the Fund's inception.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, the Fund's independent accountants, whose report,
along with the Fund's financial statements, is included in the Statement of
Additional Information, which is available on request.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CLASS A
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996(2) 1995 1994
===================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $35.62 $29.89 $24.59 $19.69 $18.71
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .31 .16 .10 .23(3) .18(3)
Net realized and unrealized gain 1.72 6.46 5.62 5.40 1.35
---------- ---------- ---------- ----------- -------------
Total income from investment
operations 2.03 6.62 5.72 5.63 1.53
- -------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.18) (.11) (.13) (.12) (.33)
Distributions from net realized gain (1.03) (.78) (.29) (.61) (.22)
---------- ---------- ---------- ----------- -------------
Total dividends and distributions to
shareholders (1.21) (.89) (.42) (.73) (.55)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $36.44 $35.62 $29.89 $24.59 $19.69
========== ========== ========== =========== =============
===================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 5.83% 22.66% 23.56% 29.88% 8.41%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $2,027 $1,839 $897 $367 $163
- -------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $2,071 $1,399 $609 $252 $137
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.85% 0.67% 0.64% 1.02% 0.96%
Expenses 1.54% 1.54% 1.62% 1.69% 1.78%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 45.1% 30.0% 25.4% 21.0% 42.0%
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
2. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
3. Based on average shares outstanding for the period.
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 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 October 31, 1998 were $2,133,951,635 and $1,789,366,682, respectively.
32
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued) CLASS B
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996(2) 1995 1994
===================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $35.05 $29.49 $24.33 $19.59 $18.70
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .06 .05 .11(3) .08(3)
Net realized and unrealized gain 1.68 6.31 5.47 5.36 1.34
---------- ---------- ---------- ----------- -------------
Total income from investment
operations 1.81 6.37 5.52 5.47 1.42
- -------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.04) (.03) (.07) (.12) (.31)
Distributions from net realized gain (1.03) (.78) (.29) (.61) (.22)
---------- ---------- ---------- ----------- -------------
Total dividends and distributions to
shareholders (1.07) (.81) (.36) (.73) (.53)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.79 $35.05 $29.49 $24.33 $19.59
========== ========== ========== =========== =============
===================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 5.29% 22.05% 22.92% 29.19% 7.84%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $1,996 $1,706 $719 $218 $43
- -------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $1,976 $1,239 $426 $117 $16
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.35% 0.17% 0.12% 0.48% 0.43%
Expenses 2.04% 2.03% 2.14% 2.21% 2.34%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 45.1% 30.0% 25.4% 21.0% 42.0%
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
2. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
3. Based on average shares outstanding for the period.
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 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 October 31, 1998 were $2,133,951,635 and $1,789,366,682,
respectively.
33
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued) CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996(2) 1995 1994
===================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $35.01 $29.45 $24.31 $19.58 $18.70
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .06 .06 .08(3) .08(3)
Net realized and unrealized gain 1.68 6.30 5.44 5.38 1.33
---------- ---------- ---------- ----------- -------------
Total income from investment
operations 1.81 6.36 5.50 5.46 1.41
- -------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.04) (.02) (.07) (.12) (.31)
Distributions from net realized gain (1.03) (.78) (.29) (.61) (.22)
---------- ---------- ---------- ----------- -------------
Total dividends and distributions to
shareholders (1.07) (.80) (.36) (.73) (.53)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.75 $35.01 $29.45 $24.31 $19.58
========== ========== ========== =========== =============
===================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 5.29% 22.05% 22.89% 29.16% 7.78%
===================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $476 $434 $181 $50 $7
- -------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $487 $316 $105 $24 $3
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.35% 0.17% 0.12% 0.37% 0.43%
Expenses 2.04% 2.04% 2.14% 2.31% 2.35%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 45.1% 30.0% 25.4% 21.0% 42.0%
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
2. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
3. Based on average shares outstanding for the period.
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 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 October 31, 1998 were $2,133,951,635 and $1,789,366,682,
respectively.
34
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued) CLASS Y
-----------------------
YEAR ENDED OCTOBER 31,
1998 1997(1)
========================================================================================
<S> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $35.77 $29.93
- ----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .48 .17
Net realized and unrealized gain 1.74 5.67
----------- -----------
Total income from investment
operations 2.22 5.84
- ----------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.32) --
Distributions from net realized gain (1.03) --
----------- ------------
Total dividends and distributions to
shareholders (1.35) --
- ----------------------------------------------------------------------------------------
Net asset value, end of period $36.64 $35.77
=========== ============
========================================================================================
TOTAL RETURN, AT NET ASSET VALUE(4) 6.38% 19.51%
========================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions) $23 $15
- ----------------------------------------------------------------------------------------
Average net assets (in millions) $20 $ 6
- ----------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.39% 1.30%(5)
Expenses 1.00% 0.91%(5)
- ----------------------------------------------------------------------------------------
Portfolio turnover rate(6) 45.1% 30.0%
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
2. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
3. Based on average shares outstanding for the period.
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 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 October 31, 1998 were $2,133,951,635 and $1,789,366,682, respectively.
<PAGE>
For More Information About Oppenheimer Quest Opportunity Value Fund:
The following additional information about the Fund is available without
charge upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is
available in the Fund's Annual and Semi-Annual Reports to shareholders.
The Annual Report includes a discussion of market conditions and
investment strategies that significantly affected the Fund's performance
during its last fiscal year.
- ----------------------------------------------------------------------------
How to Get More Information:
- ----------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and
other Fund documents and reports by visiting the SEC's Public Reference
Room in Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web
site at http://www.sec.gov. Copies may be obtained upon payment of a
duplicating fee by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in
this Prospectus. This Prospectus is not an offer to sell shares of the
Fund, nor a solicitation of an offer to buy shares of the Fund, to any
person in any state or other jurisdiction where it is unlawful to make
such an offer.
The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.
SEC File No. 811-5225
PR0236.001.0299 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Quest Opportunity Value Fund
Graphic Material included in the Prospectus of Oppenheimer Quest
Opportunity Value Fund (the "Fund") under the heading "Annual Total Returns
(Class A) (as of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the Fund
for the calendar years since the Fund's inception, without deducting sales
charges. Set forth below are the relevant data points that will appear on the
bar chart.
Calendar
Year Annual Total
Ended Returns
12/31/89 22.69%
12/31/90 -10.32%
12/31/91 51.07%
12/31/92 17.95%
12/31/93 8.20%
12/31/94 4.92%
12/31/95 41.98%
12/31/96 22.82%
12/31/97 20.14%
12/31/98 7.66%
- -------------------------------------------------------------------------------
Oppenheimer Quest Opportunity Value Fund
- -------------------------------------------------------------------------------
Two World Trade Center, 34th Floor, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated February 19, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 19, 1999. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217, or by calling the Transfer Agent at the toll-free number shown above, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks 2
The Fund's Investment Policies............................ 2
Other Investment Techniques and Strategies................ 12
Investment Restrictions................................... 14
How the Fund is Managed ..................................... 17
Organization and History.................................. 17
Trustees and Officers..................................... 18
The Manager............................................... 23
Brokerage Policies of the Fund............................... 26
Distribution and Service Plans............................... 28
Performance of the Fund...................................... 31
About Your Account
How To Buy Shares............................................ 35
How To Sell Shares........................................... 44
How To Exchange Shares....................................... 48
Dividends, Capital Gains and Taxes........................... 50
Additional Information About the Fund........................ 52
Financial Information About the Fund
Report of Independent Accountants............................
Financial Statements.........................................
Appendix A: Ratings Definitions.............................. A-1
Appendix B: Corporate Industry Classifications............... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.... C-1
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ABOUT THE FUND
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Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund invests in. Additional information is also
provided about the Fund's investment Manager, OppenheimerFunds, Inc., and the
strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Sub-Adviser, OpCap Advisors, may use
in selecting portfolio securities will vary over time. The Fund is not required
to use all of the investment techniques and strategies described below at all
times in seeking its goal. It may use some of the special investment techniques
and strategies at some times or not at all.
In selecting securities for the Fund's portfolio, the Sub-Adviser
evaluates the merits of particular securities primarily through the exercise of
its own investment analysis. In the case of corporate issuers, that process may
include, among other things, evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part, the issuer's financial
condition, its pending product developments and business (and those of
competitors), the effect of general market and economic conditions on the
issuer's business, and legislative proposals that might affect the issuer. In
the case of foreign securities, the Sub-Adviser may also consider the conditions
of a particular country's economy in relation to the U.S. economy or other
foreign economies, general political conditions in a country or region, the
effect of taxes, the efficiencies and costs of particular markets and other
factors when evaluating the securities of issuers in a particular country.
|X| Investments in Equity Securities. The Fund does not limit its
investments in equity securities to issuers having a market capitalization of a
specified size or range, and therefore the Fund can invest in securities of
small-, mid- and large-capitalization issuers. At times, the Fund may increase
the relative emphasis of its equity investments in securities of one or more
capitalization ranges, based upon the Sub-Adviser's judgment of where the best
market opportunities are to seek the Fund's objective. At times, the market may
favor or disfavor securities of issuers of a particular capitalization range,
and securities of small-capitalization issuers may be subject to greater price
volatility in general than securities of larger companies. Therefore, if the
Fund has substantial investments in smaller-capitalization companies at times of
market volatility, the Fund's share price could fluctuate more than that of
funds focusing on larger-capitalization issuers.
|_| Value Investing. In selecting equity investments for the Fund's
portfolio, the portfolio manager currently uses a value investing style. In
using a value approach, the portfolio manager seeks stock and other equity
securities that appear to be temporarily undervalued, by various measures, such
as price/earnings ratios. This approach is subject to change and may not
necessarily be used in all cases. Value investing seeks stocks having prices
that are low in relation to their real worth or future prospects, in the hope
that the Fund will realize appreciation in the value of its holdings when other
investors realize the intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying
financial condition and prospects. While there are a variety of measures that
can be used to identify these securities, the portfolio manager looks primarily
at the issuer's price/earnings ratio, which is the stock's price divided by its
earnings per share. A stock having a price/earnings ratio lower than its
historical range, or the market as a whole or that of similar companies may
offer attractive investment opportunities.
|_| Preferred Stocks. Preferred stock, unlike common stock, has a
stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid before dividends can be paid to the issuer's common stock.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as provisions allowing calls
or redemptions prior to maturity, which can also have a negative impact on
prices when interest rates decline. Preferred stock generally has a preference
over common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation. The rights of preferred stock on distribution of
a corporation's assets in the event of a liquidation are generally subordinate
to the rights associated with a corporation's debt securities. Preferred stock
may be "participating" stock, which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases.
|_| Rights and Warrants. The Fund can invest up to 5% of its total
assets in warrants but no more than 2% of its total assets may be invested in
warrants that are not listed on The New York Stock Exchange or The American
Stock Exchange. Those percentage limitations are fundamental policies. Warrants
basically are options to purchase equity securities at specific prices valid for
a specific period of time. Their prices do not necessarily move parallel to the
prices of the underlying securities. Rights are similar to warrants, but
normally have a short duration and are distributed directly by the issuer to its
shareholders. Rights and warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
|_| Convertible Securities. Convertible securities are debt
securities that are convertible into an issuer's common stock. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore are subject to less risk than common stock in case of the issuer's
bankruptcy or liquidation.
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease when
interest rates rise. If the conversion value exceeds the investment value, the
security will behave more like an equity security: it will likely sell at a
premium over its conversion value, and its price will tend to fluctuate directly
with the price of the underlying security.
While convertible securities are a form of debt security in many cases,
their conversion feature (allowing conversion into equity securities) causes
them to be regarded more as "equity equivalents." As a result, the rating
assigned to the security has less impact on the Sub-Adviser's investment
decision with respect to convertible securities than in the case of
non-convertible fixed income securities. To determine whether convertible
securities should be regarded as "equity equivalents," the Sub-Adviser may
consider the following factors: (1) whether, at the option of the investor, the
convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible securities),
and
(3) the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation in
the price of the issuer's common stock.
|X| Investments in Debt Securities. The Fund can invest in a variety of
domestic and foreign debt securities, including mortgage-backed securities
investment-grade corporate debt securities and U.S. government securities. It
might do so to seek its objective if and at times when the portfolio manager
believes that debt securities are preferable to equity investments. The Fund can
invest in those debt securities and other high-quality short-term debt
securities including money market instruments for liquidity or defensive
purposes. Because the Fund currently emphasizes investments in equity
securities, such as stocks, it is not anticipated that under normal market
conditions more than 50% of the Fund's assets will be invested in debt
securities. Foreign debt securities are subject to the risks of foreign
investing described below. In general, domestic and foreign debt securities are
also subject to two additional types of risks: credit risk and interest rate
risk.
|X| Credit Risk. Credit risk relates to the ability of the issuer to meet
interest or principal payment obligations as they become due. In making
investments in debt securities, the Sub-Adviser may rely to some extent on the
ratings of ratings organizations or it may use its own research to evaluate a
security's credit worthiness. Investment-grade bonds are bonds rated at least
"Baa" by Moody's Investors Service, Inc., at least "BBB" by Standard & Poor's
Rating Service or Duff & Phelps, Inc., or that have comparable ratings by
another nationally recognized rating organization. If securities the Fund buys
are unrated, to be considered part of the Fund's holdings of investment-grade
securities, they must be judged by the Sub-Adviser to be of comparable quality
to bonds rated as investment grade by a rating organization. The debt security
ratings definitions of the principal ratings organizations are included in
Appendix A of this Statement of Additional Information.
|_| Interest Rate Risk. Interest rate risk refers to the fluctuations in
value of debt securities resulting from the inverse relationship between price
and yield. For example, an increase in general interest rates will tend to
reduce the market value of already-issued fixed-income investments, and a
decline in general interest rates will tend to increase their value. In
addition, debt securities with longer maturities, which tend to have higher
yields, are subject to potentially greater fluctuations in value 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 income payable on those securities
(unless the security pays interest at a variable rate pegged to interest rate
changes). However, those price fluctuations will be reflected in the valuations
of the securities, and therefore the Fund's net asset values will be affected by
those fluctuations.
|_| Mortgage-Related Securities. Mortgage-related securities are a form
of derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real
estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related securities
tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of "locking in" attractive long-term interest
rates, and they may have less potential for appreciation during periods of
declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in response to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.
As with other debt securities, the values of mortgage-related securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.
|_| Collateralized Mortgage Obligations. CMOs are multi-class
bonds that are backed by pools of mortgage loans or mortgage pass-through
certificates. They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Ginnie Mae, Fannie
Mae, or Freddie Mac,
(2) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs,
(3) unsecuritized conventional mortgages, (4) other mortgage-related securities,
or (5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the reverse direction to an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
|X| U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other U.S. government agencies or federally-chartered
entities referred to as "instrumentalities." The obligations of U.S. government
agencies or instrumentalities in which the Fund can invest may or may not be
guaranteed or supported by the "full faith and credit" of the United States.
"Full faith and credit" means generally that the taxing power of the U.S.
government is pledged to the payment of interest and repayment of principal on a
security. If a security is not backed by the full faith and credit of the United
States, the owner of the security must look principally to the agency issuing
the obligation for repayment. The owner might not be able to assert a claim
against the United States if the issuing agency or instrumentality does not meet
its commitment. The Fund will invest in securities of U.S. government agencies
and instrumentalities only if the Sub-Adviser is satisfied that the credit risk
with respect to the agency or instrumentality is minimal.
|_| U.S. Treasury Obligations. These include Treasury bills (which
have maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years when issued), and Treasury bonds (which have
maturities of more than ten years when issued). Treasury securities are backed
by the full faith and credit of the United States as to timely payments of
interest and repayments of principal. They also can include U. S. Treasury
securities that have been "stripped" by a Federal Reserve Bank, zero-coupon U.S.
Treasury securities described below, and Treasury Inflation-Protection
Securities ("TIPS").
|_| Treasury Inflation-Protection Securities. The Fund can buy
these U.S. Treasury securities, called "TIPS," that are designed to provide an
investment vehicle that is not vulnerable to inflation. The interest rate paid
by TIPS is fixed. The principal value rises or falls semi-annually based on
changes in the published Consumer Price Index. If inflation occurs, the
principal and interest payments on TIPS are adjusted to protect investors from
inflationary loss. If deflation occurs, the principal and interest payments will
be adjusted downward, although the principal will not fall below its face amount
at maturity.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| U.S. Government Mortgage-Related Securities. The Fund can
invest in a variety of mortgage-related securities that are issued by U.S.
government agencies or instrumentalities, some of which are described below.
|_| GNMA Certificates. The Government National Mortgage
Association ("GNMA") is a wholly-owned corporate instrumentality of the United
States within the U.S. Department of Housing and Urban Development. GNMA's
principal programs involve its guarantees of privately-issued securities backed
by pools of mortgages. Ginnie Maes are debt securities representing an interest
in one or a pool of mortgages that are insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the Veterans
Administration.
The Ginnie Maes in which the Fund can invest are of the "fully modified
pass-through" type. They provide that the registered holders of the Certificates
will receive timely monthly payments of the pro-rata share of the scheduled
principal payments on the underlying mortgages, whether or not those amounts are
collected by the issuers. Amounts paid include, on a pro-rata basis, any
prepayment of principal of such mortgages and interest (net of servicing and
other charges) on the aggregate unpaid principal balance of the Ginnie Maes ,
whether or not the interest on the underlying mortgages has been collected by
the issuers.
The Ginnie Maes purchased by the Fund are guaranteed as to timely payment
of principal and interest by GNMA. In giving that guaranty, GNMA expects that
payments received by the issuers of Ginnie Maes on account of the mortgages
backing the Ginnie Maes will be sufficient to make the required payments of
principal of and interest on those Ginnie Maes. However, if those payments are
insufficient, the guaranty agreements between the issuers of the Certificates
and GNMA require the issuers to make advances sufficient for the payments. If
the issuers fail to make those payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under any
guaranty issued by GNMA as to such mortgage pools. An opinion of an Assistant
Attorney General of the United States, dated December 9, 1969, states that such
guaranties "constitute general obligations of the United States backed by its
full faith and credit." GNMA is empowered to borrow from the United States
Treasury to the extent necessary to make any payments of principal and interest
required under those guaranties.
Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to the
extent of payments received by the issuers on account of such mortgages, Ginnie
Maes do not constitute a liability of those issuer, nor do they evidence any
recourse against those issuers. Recourse is solely against GNMA. Holders of
Ginnie Maes such as the Fund) have no security interest in or lien on the
underlying mortgages.
Monthly payments of principal will be made, and additional prepayments of
principal may be made, to the Fund with respect to the mortgages underlying the
Ginnie Maes held by the Fund. All of the mortgages in the pools relating to the
Ginnie Maes in the Fund are subject to prepayment without any significant
premium or penalty, at the option of the mortgagors. While the mortgages on
1-to-4-family dwellings underlying certain Ginnie Maes have a stated maturity of
up to 30 years, it has been the experience of the mortgage industry that the
average life of comparable mortgages, as a result of prepayments, refinancing
and payments from foreclosures, is considerably less.
|_| Federal Home Loan Mortgage Corporation Certificates. FHLMC,
a corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each registered
holder of a FHLMC Certificate timely payment of the amounts representing a
holder's proportionate share in: (i) interest payments less servicing and
guarantee fees, (ii) principal prepayments and (iii) the ultimate collection of
amounts representing the holder's
proportionate interest in principal payments on the mortgage loans in
the pool represented by the FHLMC Certificate, in each case whether
or not such amounts are actually received.
The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.
|_| Federal National Mortgage Association (Fannie Mae)
Certificates. Fannie Mae, a federally-chartered and privately-owned corporation,
issues Fannie Mae Certificates which are backed by a pool of mortgage loans.
Fannie Mae guarantees to each registered holder of a Fannie Mae Certificate that
the holder will receive amounts representing the holder's proportionate interest
in scheduled principal and interest payments, and any principal prepayments, on
the mortgage loans in the pool represented by such Certificate, less servicing
and guarantee fees, and the holder's proportionate interest in the full
principal amount of any foreclosed or other liquidated mortgage loan. In each
case the guarantee applies whether or not those amounts are actually received.
The obligations of Fannie Mae under its guarantees are obligations solely of
Fannie Mae and are not backed by the full faith and credit of the United States
or any of its agencies or instrumentalities other than Fannie Mae.
|X| Money Market Instruments. The following is a brief description of
the types of money market securities the Fund can invest in. Those money
market securities are high-quality, short-term debt instruments that are
issued by the U.S. government, corporations, banks or other entities. They
may have fixed, variable or floating interest rates.
|_| U.S. Government Securities. These include obligations issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities.
|_| Bank Obligations. The Fund can buy time deposits,
certificates of deposit and bankers' acceptances. Time deposits, other than
overnight deposits, may be subject to withdrawal penalties, and if so, they
are deemed to be "illiquid" investments.
The Fund can purchase bank obligations that are fully insured by the
Federal Deposit Insurance Corporation. The FDIC insures the deposits of member
banks up to $100,000 per account. Insured bank obligations may have a limited
market and a particular investment of this type may be deemed "illiquid" unless
the Board of Trustees of the Fund determines that a readily-available market
exists for that particular obligation, or unless the obligation is payable at
principal amount plus accrued interest on demand or within seven days after
demand.
|_| Commercial Paper. The Fund can invest in commercial paper if it
is rated within the top two rating categories of Standard & Poor's and Moody's.
If the paper is not rated, it may be purchased if issued by a company having a
credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
|_| Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by the
Fund at varying rates of interest under direct arrangements between the Fund, as
lender, and the borrower. They permit daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may prepay up to the full amount of the note without penalty. These
notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and
borrower, it is not expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. Accordingly, the Fund's right to redeem such notes is
dependent upon the ability of the borrower to pay principal and interest on
demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an ongoing
basis, the Sub-Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation
on investments by the Fund in illiquid securities, described in the Prospectus.
The Fund does not intend that its investments in variable amount master demand
notes will exceed 5% of its total assets.
|X| Foreign Securities. The Fund can purchase equity and debt securities
issued by foreign companies or foreign governments or their agencies. "Foreign
securities" include equity and debt securities of companies organized under the
laws of countries other than the United States and debt securities of foreign
governments and their agencies and instrumentalities. Those securities may be
traded on foreign securities exchanges or in the foreign over-the-counter
markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are considered "foreign securities" for the purpose of
the Fund's investment allocations. That is because they are subject to many of
the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Because the Fund can purchase securities denominated in foreign
currencies, a change in the value of a foreign currency against the U.S. dollar
could result in a change in the amount of income the Fund has available for
distribution. Because a portion of the Fund's investment income may be received
in foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income, which
could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign
governments and their agencies and instrumentalities may or may not be supported
by the full faith and credit of the foreign government. The Fund can buy
securities issued by certain "supra-national" entities, which include entities
designated or supported by governments to promote economic reconstruction or
development, international banking organizations and related government
agencies. Examples are the International Bank for Reconstruction and Development
(commonly called the "World Bank"), the Asian Development bank and the
Inter-American Development Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
|_| Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing
markets abroad may also offer special opportunities for growth investing but
have greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject
to the risk of greater political and economic instability, which can greatly
affect the volatility of prices of securities in those countries. The
Sub-Adviser will consider these factors when evaluating securities in these
markets, because the selection of those securities must be consistent with the
Fund's goal of growth of capital.
|_| Risks of Conversion to Euro. On January 1, 1999, eleven countries
in the European Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress securities
values. o vendors the Fund depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Fund buys), the
Manager (which must price the Fund's investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in
settlements and additional costs to the Fund. o exchange contracts and
derivatives that are outstanding during the transition to the euro. The
lack of currency rate calculations between the affected currencies and the
need to update the Fund's contracts could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's custodian bank has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|X| 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 the year, its portfolio
turnover rate would have been 100% annually. The Fund's portfolio turnover rate
will fluctuate from year to year, but the Fund expects to have a portfolio
turnover rate less than 100% or more annually.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
|X| Investing in Small, Unseasoned Companies. The Fund can invest in
securities of small, unseasoned companies. These are companies that have been in
operation for less than three years, including the operations of any
predecessors. Securities of these companies may be subject to volatility in
their prices. They may have a limited trading market, which may adversely affect
the Fund's ability to dispose of them and can reduce the price the Fund might be
able to obtain for them. Other investors that own a security issued by a small,
unseasoned issuer for which there is limited liquidity might trade the security
when the Fund is attempting to dispose of its holdings of that security. In that
case the Fund might receive a lower price for its holdings than might otherwise
be obtained.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can invest
in securities on a "when-issued" basis and can purchase or sell securities on a
"delayed-delivery" or "forward commitment" basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Sub-Adviser before
settlement will affect the value of such securities and may cause a loss to the
Fund. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund from the investment.
No income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund can engage in when-issued transactions to secure what the
Sub-Adviser considers to be an advantageous price and yield at the time of
entering into the obligation. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause the Fund to lose the opportunity to
obtain the security at a price and yield the Sub-Adviser considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purpose of investment
leverage. Although the Fund will enter into delayed-delivery or when-issued
purchase transactions to acquire securities, it may dispose of a commitment
prior to settlement. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
delivery or receive against a forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
The Fund will not enter into when-issued commitments if more than 15% of the
Fund's net assets would be committed under these transactions.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's net assets that may be subject to repurchase agreements having
maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Sub-Adviser will monitor the vendor's creditworthiness to confirm
that the vendor is financially sound and will continuously monitor the
collateral's value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
|X| Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Trustees. It may do so to try to provide income or to raise cash or income for
liquidity purposes. These loans are limited to not more than 10% of the value of
the Fund's total assets. There are some risks in connection with securities
lending. The Fund might experience a delay in receiving additional collateral to
secure a loan, or a delay in recovery of the loaned securities. The Fund
presently does not intend to engage in loans of securities.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder's, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or |_| more than 50% of the
outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
|_| The Fund cannot buy securities issued or guaranteed by any one issuer
if more than 5% of its total assets would be invested in securities of that
issuer. This limitation applies to 75% of the Fund's total assets.
|_| The Fund cannot purchase more than 10% of any class of security of any
issuer. All outstanding debt securities and all preferred stock of an issuer is
considered as one class. This restriction does not apply to securities issued by
the U.S. government or any of its agencies or instrumentalities.
|_| The Fund cannot concentrate its investments. That means it cannot
invest 25% or more of its total assets in any industry. However, there is no
limitation on investments in U.S. government securities. Moreover, if deemed
appropriate for seeking its investment objective, the Fund may invest less than
25% of its total assets (valued at the time of investment) in any one industry
classification used by the Fund for investment purposes. Under this restriction,
a foreign government is considered an "industry."
|_| The Fund cannot borrow money in excess of one third of the value of
the its total assets. The Fund can borrow only from banks and only as a
temporary measure for extraordinary or emergency purposes. The Fund will make no
additional investments while borrowings exceed 5% of the Fund's total assets.
The Fund can borrow only if it maintains a 300% ratio of assets to borrowings at
all times in the manner set forth in the Investment Company Act of 1940.
|_| The Fund cannot make loans to any person or individual. However,
portfolio securities may be loaned by the Fund within the limits set forth in
the Prospectus and Statement of Additional Information.
|_| The Fund cannot invest in real estate or real estate limited
partnerships (direct participation programs). However, the Fund can purchase
securities of issuers that engage in real estate operations and securities that
are secured by real estate or interests in real estate.
|_| The Fund cannot invest for the purpose of exercising control or
management of another company.
|_| The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
|_| The Fund cannot invest in or hold securities of any issuer if officers
and Trustees of the Fund or officers and directors of its Manager or Sub-Adviser
individually beneficially own more than 1/2 of 1% of the securities of that
issuer and together own more than 5% of the securities of that issuer.
|_| The Fund cannot invest in physical commodities or physical commodity
contracts. However, the Fund may buy and sell hedging instruments to the extent
specified in its Prospectus and Statement of Additional Information from time to
time. The Fund can also buy and sell options, futures, and securities or other
instruments backed by physical commodities or whose investment return is linked
to changes in the price of physical commodities.
|_| The Fund cannot purchase warrants that would cause more than 5% of the
Fund's total assets to be invested in warrants, or more than 2% of its total
assets to be invested in warrants that are not listed on The New York Stock
Exchange or The American Stock Exchange.
|_| The Fund cannot pledge its assets, or assign or otherwise encumber its
assets in an amount in excess of 10% of the value of its net assets. It can
pledge, assign or encumber its assets only to secure borrowings that comply with
the limits set forth in the Fund's Prospectus and Statement of Additional
Information.
|_| The Fund cannot issue senior securities (as defined in the Investment
Company Act of 1940). However, the Fund can enter into repurchase agreements,
borrow money in accordance with the restrictions set forth in its other
fundamental policies and lend its portfolio securities.
|X| Does the Fund Have Any Restrictions That Are Not Fundamental? The Fund
has a number of other investment restrictions that are not fundamental policies,
which means that they can be changed by the Board of Trustees without
shareholder approval.
|_| The Fund cannot invest in interests in oil, gas or other mineral
exploration or development programs or leases.
|_| The Fund cannot make short sales or purchase securities on margin.
However, the Fund can make short-term borrowings when necessary for the
clearance of purchases of portfolio securities. Collateral arrangements in
connection with futures and options transactions are not deemed to be margin
transactions under this restriction.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. 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.
For purposes of the Fund's policy not to concentrate its investments as
described above, the Fund has adopted the industry classifications set forth in
Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company. The Fund is one of three series of Oppenheimer Quest for
Value Funds (the "Trust"), an open-end management investment company organized
as a Massachusetts business trust in April 1987.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. 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.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Trust into two or more
series and each series into two or more classes. The Board has done so, and the
Fund currently has four classes of shares: Class A, Class B, Class C and Class
Y. All classes invest in the same investment portfolio. Each class of shares: o
has its own dividends and distributions, o pays certain expenses which may be
different for the different classes, o may have a different net asset value, o
may have separate voting rights on matters in which interests of one
class are different from interests of another class, and o votes as a
class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series of the Trust and new
classes of shares of the Fund. The Trustees may reclassify unissued shares of
the Fund into additional series or classes of shares. The Trustees also may
divide or combine the shares of a class into a greater or lesser number of
shares without 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 at shareholder
meetings.
|X| Meetings of Shareholders. Although the Fund is not required by
Massachusetts law to hold annual meetings, it may hold shareholder meetings from
time to time on important matters. The Fund's shareholders have the right to
call a meeting to remove a Trustee or to take certain other action described in
the Declaration of Trust.
The Fund will hold meetings when required to do so by the Investment
Company Act or other applicable law. The Fund will hold a meeting when the
Trustees call a meeting or upon proper request of shareholders. If the Fund
receives a written request of the record holders of at least 25% of the
outstanding shares eligible to be voted at a meeting to call a meeting for a
specified purpose (which might include the removal of a Trustee), the Fund will
call a meeting of shareholders for that specified purpose.
Shareholders of the different classes of the Fund vote together in the
aggregate on certain matters at shareholders' meetings. Those matters include
the election of Trustees and ratification of appointment of the independent
auditors. Shareholders of a particular series or class vote separately on
proposals that affect that series or class. Shareholders of a series or class
that is not affected by a proposal are not entitled to vote on the proposal. For
example, only shareholders of a particular series vote on any material amendment
to the investment advisory agreement for that series. Only shareholders of a
particular class of a series vote on certain amendments to the Distribution
and/or Service Plans if the amendments affect only that class.
|X| Shareholder and Trustee Liability. The Trust's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Trustees and officers and their principal
occupations and business affiliations during the past five years are listed
below. Trustees denoted with an asterisk (*) below are deemed to be "interested
persons" of the Fund under the Investment Company Act. All of the Trustees are
also trustees, directors or managing general partners of the following
Oppenheimer funds:
Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest For Value Funds, a series fund having the following series:
Oppenheimer Quest Small Cap Value Fund, Oppenheimer Quest Balanced Fund,
and Oppenheimer Quest Opportunity Value Fund,
Oppenheimer Quest Global Value Fund, Inc.,
Oppenheimer Quest Capital Value Fund, Inc.,
Rochester Portfolio Series, a series fund having one series: Limited-Term New
York Municipal Fund,
Bond Fund Series, a series fund having one series: Oppenheimer Convertible
Securities Fund,
Rochester Fund Municipals, and
Oppenheimer MidCap Fund
Ms. Macaskill and Messrs. Bishop, Bowen, Doll, Donohue, Farrar and Zack, who
are officers of the Fund, respectively hold the same offices of the other
Oppenheimer funds listed above. As of February 1, 1999, the Trustees and the
officers of the Fund as a group owned less than 1% of the outstanding shares of
the Fund. The foregoing statement does not reflect shares held of record by an
employee benefit plan for employees of the Manager other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue, are trustees of that plan.
Bridget A. Macaskill*, Chairman of the Board of Trustees and President, Age: 50
Two World Trade Center, New York, New York 10048-0203 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 Corp., an investment adviser subsidiary of the
Manager; Chairman and a director of Shareholder Services, Inc. (since August
1994) and Shareholder Financial Services, Inc. (since September 1995), transfer
agent subsidiaries of the Manager; President (since September 1995) and a
director (since October 1990) of Oppenheimer Acquisition Corp., the Manager's
parent holding company; President (since September 1995) and a director (since
November 1989) of Oppenheimer Partnership Holdings, Inc., 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 management subsidiary of
the Manager and of Oppenheimer Millennium Funds plc; President and a director of
other Oppenheimer funds; a director of Hillsdown Holdings plc (a U.K. food
company), formerly (until October 1998) a director of NASDAQ Stock Market, Inc.
Paul Y. Clinton, Trustee, Age: 68
39 Blossom Avenue, Osterville, Massachusetts 02655
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; Trustee or Director of Capital Cash Management Trust,
Narrangansett Tax-Free Fund, OCC Accumulation Trust, OCC Cash Reserves,
investment companies; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation.
Thomas W. Courtney, Trustee, Age 65
833 Wyndemere Way, Naples, Florida 34105
Principal of Courtney Associates, Inc., a venture capital firm; Director or
Trustee of OCC Cash Reserves, Inc., OCC Accumulation Trust, Cash Assets Trust,
Hawaiian Tax-Free Trust and Tax Free Trust of Arizona, investment companies;
Director of several privately owned corporations; former General Partner of
Trivest Venture Fund, a private venture capital fund; former President of
Investment Counseling Federated Investors, Inc., an investment advisory firm;
former Director of Financial Analysts Federation.
Robert G. Galli, Trustee, Age: 65
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 to
December 1997); Vice President (June 1990 to March 1994) and General Counsel of
Oppenheimer Acquisition Corp.; Executive Vice President (December 1977 to
October 1995), General Counsel and a director (December 1975 to October 1993) of
the Manager; Executive Vice President and a director (July 1978 to October 1993)
and General Counsel of the Distributor, OppenheimerFunds Distributor, Inc.;
Executive Vice President and a director (April 1986 to October 1995) of
HarbourView Asset Management Corp.; Vice President and a director (October 1988
to October 1993) of Centennial Asset Management Corporation, an investment
adviser subsidiary of the Manager; and an officer of other Oppenheimer funds.
Lacy B. Herrmann, Trustee, Age: 69
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, and a former
officer and Trustee/Director of its predecessors; President and Director of STCM
Management Company, Inc., sponsor and adviser to Capital Cash Management Trust;
Chairman, President and a Director of InCap Management Corporation, a fund
sub-adviser and administrator; Director of OCC Cash Reserves, Inc., and Trustee
of OCC Accumulation Trust, open-end investment companies; Trustee Emeritus of
Brown University.
George Loft, Trustee, Age: 84
51 Herrick Road, Sharon, Connecticut 06069
Private Investor; Director of OCC Cash Reserves, Inc., and Trustee of OCC
Accumulation Trust, open-end investment companies.
Robert C. Doll, Jr., Vice President, Age: 44
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and Director (since January 1993) and Director of
Investments (since January 1999) of the Manager; Vice President and a Director
of Oppenheimer Acquisition Corp. (since September 1995); Executive Vice
President of HarbourView Asset Management Corp. (since January 1993); an officer
and portfolio manager of other Oppenheimer funds.
Andrew J. Donohue, Secretary, Age: 48
Two World Trade Center, New York, New York 10048-0203
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 Asset Management Corp., Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and (since September 1995) Oppenheimer
Partnership Holdings, Inc.; President and a director of Centennial Asset
Management Corporation (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 Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
George C. Bowen, Treasurer, Age: 62
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 Asset Management Corp.; Senior Vice President (since
February 1992), Treasurer (since July 1991) and a director (since December 1991)
of Centennial Asset Management Corporation; Vice President and Treasurer (since
August 1978) and Secretary (since April 1981) of Shareholder Services, Inc.;
Vice President, Treasurer and Secretary (since November 1989) of Shareholder
Financial Services, Inc.; Assistant Treasurer (since March 1998) of Oppenheimer
Acquisition Corp.; Treasurer (since November 1989) of Oppenheimer Partnership
Holdings, Inc.; Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc. (since July 1996); Treasurer of OppenheimerFunds International
Ltd. and Oppenheimer Millennium Fund plc (since October 1997); a director or
trustee and an officer of other Oppenheimer funds.
Robert Bishop, Assistant Treasurer, Age: 40
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: 33
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: 50
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager, Assistant Secretary of Shareholder Services, Inc.
(since May 1985), and Shareholder Financial Services, Inc. (since November
1989); Assistant Secretary of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.
|X| Remuneration of Trustees. The officers of the Fund and one Trustee, Ms.
Macaskill, are affiliated with the Manager and receive no salary or fee from the
Fund. The remaining Trustees received the compensation shown below. The
compensation from the Fund was paid during its fiscal year ended October 31,
1998. The table below also shows the total compensation from all of the
Oppenheimer funds listed above, including the compensation from the Fund and two
other funds that are not Oppenheimer funds but for which the Sub-Adviser acts as
investment adviser. That amount represents compensation received as a director,
trustee, or member of a committee of the Board during the calendar year 1998.
<PAGE>
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Total
Compensation
From all
Aggregate Retirement Oppenheimer
Compensation Benefits Quest/Rochester
Trustee's Name From the Fund1 Accrued as Part Funds
of Fund Expenses (11 Funds)2 and
Two Other Funds3
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Paul Y. Clinton $ 33,734 $ 20,643 $ 135,100
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Thomas W. $ 28,156 $ 15,065 $ 135,100
Courtney
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- --------------------------------------------------------------------
Robert G. Galli $ 5,7104 None $ 113,383.33
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- --------------------------------------------------------------------
Lacy B. $ 36,108 $ 23,205 $ 135,100
Herrmann
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George Loft $ 37,445 $ 24,352 $ 135.100
- --------------------------------------------------------------------
1. Aggregate compensation includes fees and any retirement plan benefits
accrued for a Trustee.
2. For the 1998 calendar year. Includes compensation for a portion of the
year paid by Oppenheimer Quest Officers Value Fund, which was reorganized
into another fund in June 1998. Each series of an investment company is
considered a separate "fund" for this purpose. For Mr. Galli, compensation
is for period from 6/2/98 to 12/31/98.
3. Includes compensation paid by two funds for which the Sub-Adviser acts
as investment adviser. Those funds are not Oppenheimer funds and are not
affiliated with the Oppenheimer funds, the Manager or the Distributor. The
amount of aggregate compensation paid to certain Fund Trustees by those
two other funds was as follows: Mr. Clinton: $63,400; Mr. Courtney:
$63,400; Mr. Hermann: $63,400; and Mr. Loft: $63,400.
4. For Mr. Galli, the aggregate compensation from the Fund is for the period
from 6/2/98 to 12/31/98. The total compensation for the 1998 calendar year
also includes compensation from 20 other Oppenheimer funds for which he
serves as a trustee or director.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five years of service in which the
highest compensation was received. A Trustee must serve as Trustee for any of
the Oppenheimer Quest/Rochester/MidCap funds listed above for at least 15 years
to be eligible for the maximum payment. Each Trustee's retirement benefits will
depend on the amount of the Trustee's future compensation and length of service.
Therefore the amount of those benefits cannot be determined at this time, nor
can we estimate the number of years of credited service that will be used to
determine those benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested Trustees that enables
them 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 and 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 without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of February 1, 1999, the only persons who owned
of record or were known by the Fund to own beneficially 5% or more of any class
of the Fund's outstanding shares were:
Merrill Lynch Pierce Fenner & Smith, Inc., 4800 Deer Lake Dr. East, Floor 3,
Jacksonville, Florida 32246, which owned 1,377,661.865 Class C shares
(representing 10.66% of the Fund's Class C shares then outstanding), for the
benefit of its customers.
Massachusetts Mutual Life Insurance Co., 1295 State Street, Springfield,
Massachusetts 01111, which owned 644,776.888 Class Y shares (representing
99.64% of the Fund's Class Y shares then outstanding), for the benefit of
its customers.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. 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 enforced by the
Manager.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and Fund's parent Trust. The Manager handles the
Fund's day-to-day business, and the agreement permits the Manager to enter into
sub-advisory agreements with other registered investment advisers to obtain
specialized services for the Fund, as long as the Fund is not obligated to pay
any additional fees for those services. The Manager has retained the Sub-Adviser
pursuant to a separate Sub-Advisory Agreement, described below, under which the
Sub-Adviser buys and sells portfolio securities for the Fund. The portfolio
manager of the Fund is employed by the Sub-Adviser and is the person who is
principally responsible for the day-to-day management of the Fund's portfolio,
as described below.
The investment advisory agreement between the Fund and the Manager requires
the Manager, at its expense, to provide the Fund with adequate office space,
facilities and equipment. It also requires the Manager to provide and supervise
the activities of all administrative and clerical personnel required to provide
effective administration for the Fund. Those responsibilities include the
compilation and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of proxy materials
and registration statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. Expenses for the Trust's three series are allocated to the
series in proportion to their net assets, unless allocations of expenses can be
made directly to a series. The advisory agreement lists examples of expenses
paid by the Fund. The major categories relate to calculation of the Fund's net
asset values per share, interest, taxes, brokerage commissions, fees to certain
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs and non-recurring
expenses, including litigation costs. The management fees paid by the Fund to
the Manager are calculated at the rates described in the Prospectus, which are
applied to the assets of the Fund as a whole. The fees are allocated to each
class of shares based upon the relative proportion of the Fund's net assets
represented by that class.
- ---------------------------------------------------------------------
Fees Paid to Manager
Management Fees Paid to to Calculate Fund's
Fiscal Year ended OppenheimerFunds, Inc. Net Asset Values2
10/31:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
19961 $10,059,240 $56,691
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1997 $25,895,389 $53,998
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1998 $39,225,283 $55,000
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1. For the 11 month fiscal period commencing November 22, 1995, when the Manager
became the Fund's investment adviser. For the period from November 1, 1995 to
November 22, 1995, the Fund paid an advisory fee of $407,877 and accounting
services fees of $2,978 to the Sub-Adviser, which was then the Fund's
investment adviser.
2. During the fiscal years noted, the Fund paid the Manager a fee for accounting
services, consisting of a base fee of $55,000 per year plus out-of-pocket
expenses. The Manager has voluntarily agreed to eliminate its fee for
providing those services for fiscal years commencing on or after November 1,
1998.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
The agreement permits the Manager to act as investment adviser for any other
person, firm or corporation and to use the names "Oppenheimer" and "Quest for
Value" in connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer act as
investment adviser to the Fund, the Manager may withdraw the right of the Fund
to use the names "Oppenheimer" or "Quest for Value" as part of its name.
The Sub-Adviser. The Sub-Adviser is a majority-owned subsidiary of Oppenheimer
Capital, a registered investment adviser. From the Fund's inception on April 30,
1980, until November 22, 1995, the Sub-Adviser (which was then named Quest for
Value Advisors) or the Sub-Adviser's parent served as the Fund's investment
advisor. The Sub-Adviser acts as investment adviser to other investment
companies and for individual investors.
On November 4, 1997, PIMCO Advisors L.P., a registered investment adviser
with $125 billion in assets under management through various subsidiaries and
affiliates, acquired control of Oppenheimer Capital and the Sub-Adviser. On
November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors. As a result, Oppenheimer Capital and the Sub-Adviser became indirect
wholly-owned subsidiaries of PIMCO Advisors. PIMCO Advisors has two general
partners: PIMCO Partners, G.P., a California general partnership, and PIMCO
Advisors Holdings L.P. (formerly Oppenheimer Capital, L.P.), an New York Stock
Exchange-listed Delaware limited partnership of which PIMCO Partners, G.P. is
the sole general partner.
PIMCO Partners, G.P. beneficially owns or controls (through its general
partner interest in the former Oppenheimer Capital, L.P.) more than 80% of
the units of limited partnership of PIMCO Advisors. PIMCO Partners, G.P. has
two general partners. The first of these is Pacific Investment Management
Company, a wholly-owned subsidiary of Pacific Financial Asset Management
Company, a direct subsidiary of Pacific Life Insurance Company ("Pacific
Life").
The managing general partner of PIMCO Partners, G.P. is PIMCO Partners
L.L.C. ("PPLLC"), a California limited liability company. PPLLC's members
are the Managing Directors (the "PIMCO Managers") of Pacific Investment
Management Company, a subsidiary of PIMCO Advisors (the "PIMCO
Subpartnership"). The PIMCO Managers are: William H. Gross, Dean S. Meiling,
James F. Muzzy, William F. Podlich, III, Brent R. Harris, John L. Hague,
William S. Thompson Jr., William C. Powers, David H. Edington, Benjamin
Trosky, William R. Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by a Management Board, which consists of
sixteen members, pursuant to a delegation by its general partners. PIMCO
Partners G.P. has the power to designate up to nine members of the Management
Board and the PIMCO Subpartnership, of which the PIMCO Managers are the Managing
Directors, has the power to designate up to two members. In addition, PIMCO
Partners, G.P., as the controlling general partner of PIMCO Advisors, has the
power to revoke the delegation to the Management Board and exercise control of
PIMCO Advisors. As a result, Pacific Life and/or the PIMCO Managers may be
deemed to control PIMCO Advisors. Pacific Life and the PIMCO Managers disclaim
such control.
|X| The Sub-Advisory Agreement. Under the Sub-Advisory Agreement between
the Manager and the Sub-Adviser, the Sub-Adviser shall regularly provide
investment advice with respect to the Fund and invest and reinvest cash,
securities and the property comprising the assets of the Fund. Under the
Sub-Advisory Agreement, the Sub-Adviser agrees not to change the portfolio
manager of the Fund without the written approval of the Manager. The Sub-Adviser
also agrees to provide assistance in the distribution and marketing of the Fund.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Adviser an
annual fee in monthly installments, based on the average daily net assets of the
Fund. The fee paid to the Sub-Adviser under the Sub-Advisory agreement is paid
by the Manager, not by the Fund. The fee is equal to 40% of the investment
advisory fee collected by the Manager from the Fund based on the total net
assets of the Fund as of November 22, 1995 (the "Base Amount") plus 30% of the
investment advisory fee collected by the Manager based on the total net assets
of the Fund that exceed the Base Amount.
The Sub-Advisory Agreement states that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations, the Sub-Adviser shall not be liable to the Manager for any act or
omission in the course of or connected with rendering services under the
Sub-Advisory Agreement or for any losses that may be sustained in the purchase,
holding or sale of any security.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement and the Sub-Advisory
Agreement. One of the duties of the Sub-Adviser under the Sub-Advisory Agreement
is to arrange the portfolio transactions for the Fund. The Fund's investment
advisory agreement with the Manager and the Sub-Advisory Agreement contain
provisions relating to the employment of broker-dealers to effect the Fund's
portfolio transactions. The Manager and the Sub-Adviser are authorized to employ
broker-dealers, including "affiliated" brokers, as that term is defined in the
Investment Company Act. They may employ broker-dealers that the Manager thinks,
in its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable.
The Manager and the Sub-Adviser need not seek competitive commission
bidding. However, they are expected to be aware of the current rates of eligible
brokers and to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund as established by its Board of Trustees.
The Manager and the Sub-Adviser may select brokers (other than affiliates)
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager, the Sub-Adviser or their respective affiliates
have investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would charge, if the Manager or Sub-Adviser, as
applicable, makes a good faith determination that the commission is fair and
reasonable in relation to the services provided. Subject to those
considerations, as a factor in selecting brokers for the Fund's portfolio
transactions, the Manager and the Sub-Adviser may also consider sales of shares
of the Fund and other investment companies for which the Manager or an affiliate
serves as investment adviser.
Brokerage Practices. Brokerage for the Fund is allocated subject to the
provisions of the investment advisory agreement and the Sub-Advisory agreement
and the procedures and rules described above. Generally, the Sub-Adviser's
portfolio traders allocate brokerage based upon recommendations from the Fund's
portfolio manager. In certain instances, portfolio managers may directly place
trades and allocate brokerage. In either case, the Sub-Adviser's executive
officers supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so.
The Sub-Adviser serves as investment manager to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Sub-Adviser to allocate
purchase or sale transactions among the Fund and other clients whose assets it
manages in a manner it deems equitable. In making those allocations, the
Sub-Adviser considers several main factors, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and each other client's accounts.
When orders to purchase or sell the same security on identical terms are
placed by more than one of the funds and/or other advisory accounts managed by
the Sub-Adviser or its affiliates, the transactions are generally executed as
received, although a fund or advisory account that does not direct trades to a
specific broker (these are called "free trades") usually will have its order
executed first. Orders placed by accounts that direct trades to a specific
broker will generally be executed after the free trades. All orders placed on
behalf of the Fund are considered free trades. However, having an order placed
first in the market does not necessarily guarantee the most favorable price.
Purchases are combined where possible for the purpose of negotiating brokerage
commissions. In some cases that practice might have a detrimental effect on the
price or volume of the security in a particular transaction for the Fund.
Most purchases of debt obligations are principal transactions at net prices.
Instead of using a broker for those transactions, the Fund normally deals
directly with the selling or purchasing principal or market maker unless the
Sub-Adviser determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement and the Sub-Advisory agreement permit the
Manager and the Sub-Adviser to allocate brokerage for research services. The
research services provided by a particular broker may be useful only to one or
more of the advisory accounts of the Sub-Adviser and its affiliates. The
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of the Sub-Adviser's other accounts.
Investment research may be supplied to the Sub-Adviser by a third party at the
instance of a broker through which trades are placed.
Investment research services include information and analysis on particular
companies and industries as well as market or economic trends and portfolio
strategy, market quotations for portfolio evaluations, information systems,
computer hardware and similar products and services. If a research service also
assists the Sub-Adviser in a non-research capacity (such as bookkeeping or other
administrative functions), then only the percentage or component that provides
assistance to the Sub-Adviser in the investment decision-making process may be
paid in commission dollars.
The research services provided by brokers broadens the scope and supplements
the research activities of the Sub-Adviser. That research provides additional
views and comparisons for consideration, and helps the Sub-Adviser to obtain
market information for the valuation of securities that are either held in the
Fund's portfolio or are being considered for purchase. The Sub-Adviser provides
information to the Manager and the Board about the commissions paid to brokers
furnishing such services, together with the Sub-Adviser's representation that
the amount of such commissions was reasonably related to the value or benefit of
such services.
Because the Sub-Adviser was an affiliate of Oppenheimer & Co., Inc., a
broker-dealer ("OpCo"), until November 3, 1997, the table below includes
information about brokerage commissions paid to OpCo for the Fund's portfolio
transactions.
- ----------------------------------------------------------------------
Total $ Amount of
Total Transactions for
Brokerage Brokerage Commissions Which Brokerage
Fiscal Year CommissionsPaid to OpCo: Commissions Were Paid
Ended 10/31 Paid1 to OpCo:
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Dollar % of Total Dollar % of Total
Amount Amount
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1996 $1,346,575 $396,844 29.5% $363,554,1930.89%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1997 $2,600,457 $868,206 33.4% $872,725,6430.0%
- ------------------------
- ----------------------------------------------------------------------
1998 $3,748,6082
- ----------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. In the fiscal year ended 10/31/98, the amount of transactions directed to
brokers for research services was $204,779,908. and the amount of the
commissions paid to broker-dealers for those services was $233,470.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Trust, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of shares of the Fund's classes of shares. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
- --------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class
Year Sales Sales Shares Shares C Shares
Ended Charges on Charges Advanced Advanced Advanced
10/31: Class A Retained by by by
Shares by Distributor1Distributor1Distributor1
Distributor
- --------------------------------------------------------------------
- --------------------------------------------------------------------
19962 $ $ $ 882,212 $16,293,508 $1,170,910
8,912,792 2,935,080
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1997 $16,207,958 $ $ 433,379 $31,968,442 $2,164,436
4,243,241
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1998 $ $ $1,335,288 $16,257,319 $1,141,010
9,230,186 2,290,391
- --------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. For the period from 11/22/95 to 10/31/96.
- --------------------------------------------------------------------
Class A Class B Contingent Class C
Fiscal Contingent Deferred Sales Contingent
Year Deferred Sales Charges Retained Deferred Sales
Ended 9/30 Charges Retained by Distributor Charges Retained
by Distributor by Distributor
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1998 $15,446 $3,919,979 $133,923
- --------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted Distribution and Service
Plans for Class A, Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund compensates the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class. Each plan has been approved by
a vote of the Board of Trustees, including a majority of the Independent
Trustees1, cast in person at a meeting called for the purpose of voting on that
plan, and by shareholders of a majority of each class of shares of the Fund.
Under the plans, the Manager and the Distributor, in their sole discretion,
from time to time, may use their own resources (at no direct cost to the Fund)
to make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. The Manager may use its
profits from the advisory fee it receives from the Fund. In their sole
discretion, the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in effect
from year to year but only if the Fund's Board of Trustees and its Independent
Trustees specifically vote annually to approve its continuance. Approval must be
by a vote cast in person at a meeting called for the purpose of voting on
continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under a plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares of the Fund automatically convert into
Class A shares after six years, the Fund must obtain the approval of both Class
A and Class B shareholders for a proposed material amendment to the Class A plan
that would materially increase payments under the plan. That approval must be by
a "majority" (as defined in the Investment Company Act) of the shares of each
class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan, and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees.
Each plan states 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 the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in any
quarter in which the aggregate net asset value of all Fund shares of that class
held by the recipient for itself and its customers does not exceed a minimum
amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
|X| Service Plans. Under the service plans, the Distributor currently uses
the fees it receives from the Fund to pay brokers, dealers and other financial
institutions (they are referred to as "recipients") for personal services and
account maintenance services they provide for their customers who hold shares of
a particular Class, A, B or C. The services 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. The service plans
permit compensation to the Distributor at a rate of up to 0.25% of average
annual net assets of the applicable class. The Board has set the rate at that
level. While the plans permit the Board to authorize payments to the Distributor
to reimburse itself for services under the plan, the Board has not yet done so.
The Distributor makes payments to plan recipients quarterly at an annual rate
not to exceed 0.25% of the average annual net assets consisting of shares of the
applicable class held in the accounts of the recipients or their customers.
|X| Service and Distribution Plan Fees. Under each plan, service fees and
distribution 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 plans compensate the Distributor at a flat rate for its
services and costs in distributing shares and servicing accounts, whether the
Distributor's expenses are more or less than the amounts paid by the Fund under
the plans during the period for which the fee is paid. The types of services
that recipients provide are similar to the services provided under the service
plan described above.
The plans permit the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a quarterly
basis, without payment in advance. However, the Distributor currently intends to
pay the service fee to recipients in advance for the first year after the shares
are purchased. After the first year shares are outstanding, the Distributor
makes service fee payments quarterly on those shares. The advance payment is
based on the net asset value of shares sold. Shares purchased by exchange do not
qualify for the advance service fee payment. If shares are redeemed during the
first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment of the service fee made on those shares.
Under the Class A plan, the Distributor pays a portion of the asset-based
sales charge to brokers, dealers and financial institutions and retains the
balance. The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
it receives on Class C shares as an ongoing commission to the recipient on Class
C shares outstanding for a year or more. If a dealer has a special agreement
with the Distributor, the Distributor will pay the Class B and/or Class C
service fee and the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commissions and service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow investors
to buy shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class A,
Class B and Class C shares. The payments are made to the Distributor in
recognition that the Distributor:
o pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the service
fee payment to recipients under the plans, or may provide such financing
from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of shares, and
o bears the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
For the fiscal year ended October 31, 1998 payments under the Class A Plan
totaled $10,352,036 (including $369,544 paid to an affiliate of the
Distributor's parent company). The Distributor retained $3,819,141 of the total
amount paid.
For the fiscal year ended October 31, 1998, payments under the Class B plan
totaled $19,753,318(including $76,468 paid to an affiliate of the Distributor's
parent). The Distributor retained $16,531,832 of the total amount.
For the fiscal year ended October 31, 1998, payments under the Class C plan
totaled $4,871,049 (including $41,525 paid to an affiliate of the Distributor's
parent). The Distributor retained $2,684,276 of the total amount.
The Distributor's actual expenses in selling shares may be more than the
payments it receives from the contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. As of October 31, 1998, the
Distributor had incurred unreimbursed expenses under the Class B plan in the
amount of $45,846,802 (equal to 2.30% of the Fund's net assets represented by
Class B shares on that date) and unreimbursed expenses under the Class C plan of
$3,930,941 (equal to 0.83% of the Fund's net assets represented by Class C
shares on that date). If a 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.
All payments under the plans 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.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown 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 (or its submission for
publication).
Use of standardized performance calculations 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 the
Fund's performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each shareholder's
account. Your account's performance will vary from the model performance data if
your dividends are received in cash, or you buy or sell shares during the
period, or you bought your shares at a different time and price than the shares
used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
|X| Total Return Information. There are different types of "total returns"
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
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. 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 actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period. There is no sales charge on Class Y
shares.
|_| Average Annual Total Return. 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" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
ERV 1/n
--- -1 = Average Annual Total Return
P
|_| Cumulative Total Return. 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
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
- ----------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 10/31/98
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Cumulative Average Annual Total Returns
Class Total Returns
of (10 years or
Shares Life of Class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
5-Year 10-Year
1-Year (or (or
life-of-class) life-of-class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
After WithoutAfter WithoutAfter Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class A 352.15% 379.73%-.26% 5.83% 16.31% 17.70% 16.59%117.30%1
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class B 118.72% 119.72% .29% 5.29% 16.87% 17.09% 16.36%216.46%2
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class C 119.46% 119.46%4.29% 5.29% 17.06% 17.06% 16.43%316.43%3
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class Y N/A N/A 6.38% N/A 13.66% N/A N/A
27.13%
- ----------------------------------------------------------------------
1. Inception of Class A: 1/3/89
2. Inception of Class B: 9/1/93
3. Inception of Class C: 9/1/93
4. Inception of Class Y: 12/16/96
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other flexible portfolio funds. 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.
Lipper also publishes "peer-group" indices of the performance of all mutual
funds in a category that it monitors and averages of the performance of the
funds in particular categories.
|X| Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of 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. The Fund is ranked among domestic
stock funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) 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's)
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 a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), 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's)
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 date 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 rankings, 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.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include 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 or insured 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. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of 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 and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
- -------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
- -------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
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 ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors, and
|_|current purchases of Class A and Class B shares of the Fund and
other Oppenheimer funds to reduce the sales charge rate that applies
to current purchases of Class A shares, and
|_|Class A and Class B 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
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
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. 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 reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Bond Fund Oppenheimer Limited-Term
Government Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street California Fund
Municipal Fund Oppenheimer California Municipal Oppenheimer Main Street Growth &
Fund Income Fund Oppenheimer Champion Income Fund Oppenheimer MidCap Fund
Oppenheimer Convertible Oppenheimer Multiple Strategies Securities Fund Fund
Oppenheimer Developing Markets Oppenheimer Municipal Bond Fund Fund Oppenheimer
Disciplined Oppenheimer New York Municipal Fund Allocation Fund Oppenheimer
Disciplined Value Oppenheimer New Jersey Municipal Fund Fund Oppenheimer
Discovery Fund Oppenheimer Pennsylvania Municipal
Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Balanced Value
Fund
Oppenheimer Equity Income Fund Oppenheimer Quest Capital Value
Fund, Inc.
Oppenheimer Florida Municipal Oppenheimer Quest Global Value
Fund Fund, Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity
Value Fund
Oppenheimer Global Growth & Oppenheimer Quest Small Cap Value
Income Fund Fund
Oppenheimer Gold & Special Oppenheimer Quest Value Fund, Inc.
Minerals Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Oppenheimer Total Return Fund,
Fund Inc.
Oppenheimer Intermediate Oppenheimer U.S. Government Trust
Municipal Fund
Oppenheimer International Bond Oppenheimer World Bond Fund
Fund
Oppenheimer International Growth Limited-Term New York Municipal
Fund Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
Oppenheimer Large Cap Growth Fund
and the following money market
funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt
Trust
Centennial California Tax Exempt Centennial Tax Exempt Trust
Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund,
Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A and Class B shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate for
the Class A shares purchased during that period. You can include purchases made
up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may 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 of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the 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. However, 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. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor 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 a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total 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 Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
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.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent 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.
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.
|X| 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 offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended 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. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) 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
(2) 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 to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
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 Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. 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. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the plan's applicable investments
reach $5 million.
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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to a class of
shares and the dividends payable on a class of shares will be reduced by
incremental expenses borne solely by that class. Those expenses include the
asset-based sales charges to which Class A, Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. 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 shareholder 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 shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done 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
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the values of some of the
Fund's portfolio securities may change significantly on days when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Board of Trustees determines that the event is likely to effect a material
change in the value of the security. The Manager may make that determination,
under procedures established by the Board.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows:
(1) if last sale information is regularly reported, they are valued at the
last reported sale price on the principal exchange on which they
are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they
are valued 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, at the closing "bid" price
on the valuation date.
|_| Equity securities traded on a foreign securities exchange generally
are valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its last
trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the basis
of reasonable inquiry, from two market makers in the security.
|_| Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than 397 days when issued, (2) debt instruments that had a
maturity of 397 days or less when issued and
have a remaining maturity of more than 60 days, and (3) non-money market
debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
|_| 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 market makers
willing to give quotes, a 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).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale 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, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the 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 by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
or Class Y shares. 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.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $500 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, 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. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be 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.
Selling Shares by Wire. The wire of redemptions proceeds may be delayed if the
Fund's custodian bank is not open for business on a day when the Fund would
normally authorize the wire to be made, which is usually the Fund's next regular
business day following the redemption. In those circumstances, the wire will not
be transmitted until the next bank business day on which the Fund is open for
business. No dividends will be paid on the proceeds of redeemed shares awaiting
transfer by wire.
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: (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, 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 customers. Shareholders should contact their
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
an order placed by the dealer or broker. However, 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, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $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. Payments must also be sent to the address of record for
the account and the address must not have 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 Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal 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. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent 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.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. 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.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. 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
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share 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.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
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 after 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 to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another 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. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and 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.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only 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.
|_| Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
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. 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. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|X| How Exchanges Affect Contingent Deferred Sales Charges. 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 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. 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. Before exchanging
shares, shareholders should take into account how the exchange may affect 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 which class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans 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.
|X| Processing 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 Fund may refuse the
request.
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.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. 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. The Fund has no fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A and Class Y shares. That is
because of the effect of the higher asset-based sales charge on Class B and
Class C shares. Those dividends will also differ in amount as a consequence of
any difference in the net asset values of each class of shares.
Dividends, distributions and 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.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent,
is a division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. The Fund pays the Transfer Agent a fixed
annual maintenance fee for each shareholder account and reimburses the Transfer
Agent for its out-of-pocket expenses. It also acts as shareholder servicing
agent for the other Oppenheimer funds. Shareholders should direct inquiries
about their accounts to the Transfer Agent at the address and toll-free numbers
shown on the back cover.
|X| Shareholder Servicing Agent for Certain Shareholders. Unified
Management Corporation (1-800-346-4601) is the shareholder servicing agent for
shareholders of the Fund who were former shareholders of the AMA Family of Funds
and clients of AMA Investment Advisers, Inc. (which had been the investment
adviser of AMA Family of Funds). It is also the servicing agent for Fund
shareholders who are: (i) former shareholders of the Unified Funds and Liquid
Green Trusts, (ii) accounts that participated or participate in a retirement
plan for which
Unified Investment Advisers, Inc. or an affiliate acts as custodian
or trustee,
(iii) accounts that have a Money Manager brokerage account, and (iv) other
accounts for which Unified Management Corporation is the dealer of
record.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Accountants. PricewaterhouseCoopers, LLP are the independent
accountants of the Fund. They audit the Fund's financial statements and perform
other related audit services. They also act as accountants for certain other
funds advised by the Manager and its affiliates.
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
================================================================================
To the Board of Trustees and Shareholders of
Oppenheimer Quest for Value Funds
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 Quest Opportunity Value
Fund (one of the portfolios constituting Oppenheimer Quest for Value Funds,
hereafter referred to as the Fund) at October 31, 1998, 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 five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as financial statements) are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial 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 significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
November 20, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments October 31, 1998
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
================================================================================
Common Stocks--83.5%
- --------------------------------------------------------------------------------
Basic Materials--10.2%
- --------------------------------------------------------------------------------
Chemicals--8.6%
Dow Chemical Co. 1,200,000 $112,350,000
- --------------------------------------------------------------------------------
Du Pont (E.I.) De Nemours & Co. 3,200,000 184,000,000
- --------------------------------------------------------------------------------
Hercules, Inc. 500,000 16,656,250
- --------------------------------------------------------------------------------
Monsanto Co. 1,663,300 67,571,562
- --------------------------------------------------------------------------------
Solutia, Inc. 380,000 8,336,250
------------
388,914,062
- --------------------------------------------------------------------------------
Paper--1.6%
Champion International Corp. 2,243,800 71,661,362
- --------------------------------------------------------------------------------
Consumer Cyclicals--19.4%
- --------------------------------------------------------------------------------
Autos & Housing--0.9%
Security Capital Group, Inc., Cl. A(1) 48,627 38,901,600
- --------------------------------------------------------------------------------
Leisure & Entertainment--16.8%
Mattel, Inc. 3,600,000 129,150,000
- --------------------------------------------------------------------------------
McDonald's Corp. 3,900,000 260,812,500
- --------------------------------------------------------------------------------
Time Warner, Inc. 2,625,000 243,632,812
- --------------------------------------------------------------------------------
UAL Corp.(1) 1,950,000 126,628,125
------------
760,223,437
- --------------------------------------------------------------------------------
Media--0.5%
Reed International plc, Sponsored ADR 697,500 23,366,250
- --------------------------------------------------------------------------------
Retail: General--1.2%
Nordstrom, Inc. 2,000,000 54,625,000
- --------------------------------------------------------------------------------
Consumer Non-Cyclicals--7.7%
- --------------------------------------------------------------------------------
Food--3.0%
Diageo plc, Sponsored ADR 3,100,000 136,206,250
- --------------------------------------------------------------------------------
Healthcare/Supplies & Services--0.8%
Becton, Dickinson & Co. 850,000 35,806,250
- --------------------------------------------------------------------------------
Household Goods--0.8%
Avon Products, Inc. 906,200 35,964,812
- --------------------------------------------------------------------------------
Tobacco--3.1%
Philip Morris Cos., Inc. 2,750,000 140,593,750
13 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
- --------------------------------------------------------------------------------
Financial--25.0%
- --------------------------------------------------------------------------------
Banks--13.1%
BankBoston Corp. 3,025,000 $111,357,813
- --------------------------------------------------------------------------------
Citigroup, Inc. 4,587,500 215,899,219
- --------------------------------------------------------------------------------
M&T Bank Corp. 163,100 81,305,350
- --------------------------------------------------------------------------------
Wells Fargo & Co. 500,000 185,000,000
------------
593,562,382
- --------------------------------------------------------------------------------
Diversified Financial--6.8%
American Express Co. 175,000 15,465,625
- --------------------------------------------------------------------------------
Countrywide Credit Industries, Inc. 228,400 9,864,025
- --------------------------------------------------------------------------------
Freddie Mac 4,950,000 284,625,000
------------
309,954,650
- --------------------------------------------------------------------------------
Insurance--5.1%
ACE Ltd. 4,350,000 147,356,250
- --------------------------------------------------------------------------------
Exel Ltd., Cl. A 771,400 58,963,888
- --------------------------------------------------------------------------------
Transamerica Corp. 215,400 22,401,600
------------
228,721,738
- --------------------------------------------------------------------------------
Industrial--11.7%
- --------------------------------------------------------------------------------
Manufacturing--11.7%
Avery-Dennison Corp. 1,000,000 41,437,500
- --------------------------------------------------------------------------------
Caterpillar, Inc. 3,300,000 148,500,000
- --------------------------------------------------------------------------------
ITT Industries, Inc. 3,300,000 117,975,000
- --------------------------------------------------------------------------------
Minnesota Mining & Manufacturing Co. 1,250,000 100,000,000
- --------------------------------------------------------------------------------
Tenneco, Inc. (New) 1,500,000 45,562,500
- --------------------------------------------------------------------------------
Textron, Inc. 1,000,000 74,375,000
------------
527,850,000
14 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Technology--7.3%
- -----------------------------------------------------------------------------------------------
Aerospace/Defense--2.1%
Boeing Co. 2,567,500 $ 96,281,250
- -----------------------------------------------------------------------------------------------
Computer Hardware--0.0%
Adaptec, Inc.(1) 100,000 1,618,750
- -----------------------------------------------------------------------------------------------
Computer Software/Services--2.0%
Computer Associates International, Inc. 2,250,000 88,593,750
- -----------------------------------------------------------------------------------------------
Electronics--2.0%
Unitrode Corp.(1)(2) 3,110,000 39,069,375
- -----------------------------------------------------------------------------------------------
Varian Associates, Inc. 1,271,300 49,739,613
--------------
88,808,988
- -----------------------------------------------------------------------------------------------
Telecommunications/Technology--1.2%
Loral Space & Communications Ltd.(1) 700,000 13,256,250
- -----------------------------------------------------------------------------------------------
Tele-Communications, Inc. (New), TCI Ventures Group, Cl. A(1) 2,160,000 40,230,000
--------------
53,486,250
- -----------------------------------------------------------------------------------------------
Utilities--2.2%
- -----------------------------------------------------------------------------------------------
Telephone Utilities--2.2%
Sprint Corp. 1,325,000 101,693,750
--------------
Total Common Stocks (Cost $3,164,447,148) 3,776,834,281
Face
Amount
===============================================================================================
U.S. Government Obligations--5.1%
- -----------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
6.25%, 8/15/23 $100,000,000 112,031,300
6.375%, 8/15/27 100,000,000 115,093,800
- -----------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
7.50%, 11/15/01-5/15/02 2,000,000 2,188,752
7.875%, 8/15/01 550,000 600,188
--------------
Total U.S. Government Obligations (Cost $204,015,562) 229,914,040
</TABLE>
15 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
===========================================================================================
<S> <C> <C>
Short-Term Notes--11.2%(3)
- -------------------------------------------------------------------------------------------
Amex Credit Corp., 5.20%, 11/9/98 $50,000,000 $ 49,942,222
- -------------------------------------------------------------------------------------------
Federal Home Loan Bank, 4.78%, 11/18/98 1,025,000 1,022,686
- -------------------------------------------------------------------------------------------
Ford Motor Credit Corp.:
5.05%, 11/23/98 612,000 610,111
5.06%, 11/16/98 50,000,000 49,894,583
5.07%, 11/24/98 26,027,000 25,942,694
5.25%, 11/12/98 15,000,000 14,975,938
- -------------------------------------------------------------------------------------------
General Electric Capital Services, Inc., 5.49%, 12/14/98 39,512,000 39,271,778
- -------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.09%, 12/2/98 15,411,000 15,343,453
- -------------------------------------------------------------------------------------------
Household Finance Corp.:
5%, 12/3/98 50,000,000 49,777,778
5.09%, 11/19/98 50,000,000 49,872,750
5.10%, 12/1/98 42,164,000 41,984,803
5.25%, 11/12/98 1,396,000 1,393,761
- -------------------------------------------------------------------------------------------
IBM Corp., 5.27%, 11/13/98 42,708,000 42,632,976
- -------------------------------------------------------------------------------------------
IBM Credit Corp., 5.20%, 11/2/98 13,136,000 13,134,103
- -------------------------------------------------------------------------------------------
John Deere Capital Corp., 5.27%, 11/9/98 50,000,000 49,941,445
- -------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc.:
5.09%, 12/7/98 14,487,000 14,413,261
5.11%, 12/10/98 26,801,000 26,652,634
5.12%, 12/10/98 453,000 450,488
- -------------------------------------------------------------------------------------------
Prudential Funding Corp., 5.27%, 11/6/98 18,326,000 18,312,586
--------------
Total Short-Term Notes (Cost $505,570,050) 505,570,050
- -------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $3,874,032,760) 99.8% 4,512,318,371
- -------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.2 9,136,368
----------- --------------
Net Assets 100.0% $4,521,454,739
=========== ==============
</TABLE>
16 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Non-income producing security.
2. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended October 31, 1998.
The aggregate fair value of securities of all affiliated companies held by the
Fund as of October 31, 1998 amounts to $39,069,375. Transactions during the
period in which the issuer was an affiliate are as follows:
Shares Shares
October 31, Gross Gross October 31,
1997 Additions Reductions 1998
- --------------------------------------------------------------------------------
Unitrode Corp. 400,000 2,790,000 80,000 3,110,000
3. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
See accompanying Notes to Financial Statements.
17 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1998
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $3,829,668,339) $4,473,248,996
Affiliated companies (cost $44,364,421) 39,069,375
- --------------------------------------------------------------------------------
Cash 61,411
- --------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends 8,154,477
Shares of beneficial interest sold 4,837,508
Investments sold 4,350,985
Other 12,879
--------------
Total assets 4,529,735,631
================================================================================
Liabilities Payables and other liabilities:
Shares of beneficial interest redeemed 5,962,125
Distribution and service plan fees 909,599
Transfer and shareholder servicing agent fees 815,332
Shareholder reports 414,463
Trustees' fees 83,265
Other 96,108
--------------
Total liabilities 8,280,892
================================================================================
Net Assets $4,521,454,739
==============
================================================================================
Composition of Net Assets
Par value of shares of beneficial interest $ 1,253,235
- --------------------------------------------------------------------------------
Additional paid-in capital 3,628,889,262
- --------------------------------------------------------------------------------
Undistributed net investment income 26,521,050
- --------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 226,505,581
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 638,285,611
--------------
Net assets $4,521,454,739
==============
18 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$2,026,959,395 and 55,631,233 shares of beneficial interest outstanding) $36.44
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $38.66
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $1,996,142,360 and
55,769,627 shares of beneficial interest outstanding) $35.79
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $475,510,093 and
13,299,248 shares of beneficial interest outstanding) $35.75
- --------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $22,842,891 and 623,374 shares of beneficial interest outstanding)
$36.64
See accompanying Notes to Financial Statements.
19 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
===============================================================================
Investment Income
Dividends (net of foreign withholding taxes of $391,902) $ 66,005,512
- -------------------------------------------------------------------------------
Interest 42,943,910
-------------
Total income 108,949,422
===============================================================================
Expenses
Management fees--Note 4 39,225,283
- -------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 10,352,036
Class B 19,753,318
Class C 4,871,049
- -------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4:
Class A 2,685,670
Class B 2,615,343
Class C 627,909
Class Y 21,897
- -------------------------------------------------------------------------------
Shareholder reports 1,235,511
- -------------------------------------------------------------------------------
Registration and filing fees 275,214
- -------------------------------------------------------------------------------
Custodian fees and expenses 178,331
- -------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 141,153
- -------------------------------------------------------------------------------
Legal, auditing and other professional fees 100,363
- -------------------------------------------------------------------------------
Accounting service fees--Note 4 55,000
- -------------------------------------------------------------------------------
Other 268,924
-------------
Total expenses 82,407,001
===============================================================================
Net Investment Income 26,542,421
===============================================================================
Realized and Unrealized Gain (Loss) Net realized gain (loss) on investments:
Unaffiliated companies 227,181,722
Affiliated companies (661,273)
-------------
Net realized gain 226,520,449
- -------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments (42,135,039)
-------------
Net realized and unrealized gain 184,385,410
===============================================================================
Net Increase in Net Assets Resulting from Operations $ 210,927,831
=============
See accompanying Notes to Financial Statements.
20 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
1998 1997
==========================================================================================
<S> <C> <C>
Operations
Net investment income $ 26,542,421 $ 12,106,567
- ------------------------------------------------------------------------------------------
Net realized gain 226,520,449 119,527,334
- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (42,135,039) 409,132,436
-------------- --------------
Net increase in net assets resulting from operations 210,927,831 540,766,337
==========================================================================================
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A (9,231,256) (3,619,233)
Class B (2,214,613) (804,150)
Class C (509,042) (155,755)
Class Y (144,826) --
- ------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (54,377,169) (24,749,053)
Class B (51,630,451) (20,565,101)
Class C (13,039,020) (5,201,848)
Class Y (470,723) --
==========================================================================================
Beneficial Interest Transactions Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 146,362,570 709,459,770
Class B 259,717,702 786,575,074
Class C 33,985,827 201,535,805
Class Y 7,211,645 14,559,098
==========================================================================================
Net Assets
Total increase 526,588,475 2,197,800,944
- ------------------------------------------------------------------------------------------
Beginning of period 3,994,866,264 1,797,065,320
-------------- --------------
End of period (including undistributed net investment
income of $26,521,050 and $12,086,617, respectively) $4,521,454,739 $3,994,866,264
============== ==============
</TABLE>
See accompanying Notes to Financial Statements.
21 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Year Ended October 31,
1998 1997 1996(2) 1995 1994
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $35.62 $29.89 $24.59 $19.69 $18.71
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .31 .16 .10 .23(3) .18(3)
Net realized and unrealized gain 1.72 6.46 5.62 5.40 1.35
------ ------ ------ ------ ------
Total income from investment operations 2.03 6.62 5.72 5.63 1.53
- ------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.18) (.11) (.13) (.12) (.33)
Distributions from net realized gain (1.03) (.78) (.29) (.61) (.22)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.21) (.89) (.42) (.73) (.55)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $36.44 $35.62 $29.89 $24.59 $19.69
====== ====== ====== ====== ======
==================================================================================================================
Total Return, at Net Asset Value(4) 5.83% 22.66% 23.56% 29.88% 8.41%
==================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $2,027 $1,839 $897 $367 $163
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $2,071 $1,399 $609 $252 $137
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.85% 0.67% 0.64% 1.02% 0.96%
Expenses 1.54% 1.54% 1.62% 1.69% 1.78%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 45.1% 30.0% 25.4% 21.0% 42.0%
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
2. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
3. Based on average shares outstanding for the period.
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.
22 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------
Year Ended October 31,
1998 1997 1996(2) 1995 1994
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $35.05 $29.49 $24.33 $19.59 $18.70
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .06 .05 .11(3) .08(3)
Net realized and unrealized gain 1.68 6.31 5.47 5.36 1.34
------ ------ ------ ------ ------
Total income from investment operations 1.81 6.37 5.52 5.47 1.42
- ------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.04) (.03) (.07) (.12) (.31)
Distributions from net realized gain (1.03) (.78) (.29) (.61) (.22)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.07) (.81) (.36) (.73) (.53)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $35.79 $35.05 $29.49 $24.33 $19.59
====== ====== ====== ====== ======
==================================================================================================================
Total Return, at Net Asset Value(4) 5.29% 22.05% 22.92% 29.19% 7.84%
==================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $1,996 $1,706 $719 $218 $43
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $1,976 $1,239 $426 $117 $16
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.35% 0.17% 0.12% 0.48% 0.43%
Expenses 2.04% 2.03% 2.14% 2.21% 2.34%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 45.1% 30.0% 25.4% 21.0% 42.0%
</TABLE>
<TABLE>
<CAPTION>
Class C
--------------------
Year Ended October 31,
1998 1997
======================================================================
<S> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $35.01 $29.45
- ----------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .06
Net realized and unrealized gain 1.68 6.30
------ ------
Total income from investment operations 1.81 6.36
- ----------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.04) (.02)
Distributions from net realized gain (1.03) (.78)
------ ------
Total dividends and distributions
to shareholders (1.07) (.80)
- ----------------------------------------------------------------------
Net asset value, end of period $35.75 $35.01
====== ======
======================================================================
Total Return, at Net Asset Value(4) 5.29% 22.05%
======================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $476 $434
- ----------------------------------------------------------------------
Average net assets (in millions) $487 $316
- ----------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.35% 0.17%
Expenses 2.04% 2.04%
- ----------------------------------------------------------------------
Portfolio turnover rate(6) 45.1% 30.0%
</TABLE>
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended October 31, 1998 were $2,133,951,635 and $1,789,366,682, respectively.
23 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C (continued) Class Y
-------------------------------- ------------------
Year Ended October 31, Year Ended October 31,
1996(2) 1995 1994 1998 1997(1)
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $24.31 $19.58 $18.70 $35.77 $29.93
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .06 .08(3) .08(3) .48 .17
Net realized and unrealized gain 5.44 5.38 1.33 1.74 5.67
------ ------ ------ ------ ------
Total income from investment operations 5.50 5.46 1.41 2.22 5.84
- ----------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.07) (.12) (.31) (.32) --
Distributions from net realized gain (.29) (.61) (.22) (1.03) --
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.36) (.73) (.53) (1.35) --
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.45 $24.31 $19.58 $36.64 $35.77
====== ====== ====== ====== ======
==========================================================================================================
Total Return, at Net Asset Value(4) 22.89% 29.16% 7.78% 6.38% 19.51%
==========================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in millions) $181 $50 $7 $23 $15
- ----------------------------------------------------------------------------------------------------------
Average net assets (in millions) $105 $24 $3 $20 $6
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.12% 0.37% 0.43% 1.39% 1.30%(5)
Expenses 2.14% 2.31% 2.35% 1.00% 0.91%(5)
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 25.4% 21.0% 42.0% 45.1% 30.0%
</TABLE>
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
2. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
3. Based on average shares outstanding for the period.
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 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 October 31, 1998 were $2,133,951,635 and $1,789,366,682, respectively.
See accompanying Notes to Financial Statements.
24 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer Quest Opportunity Value Fund (the Fund), a series of Oppenheimer
Quest for Value Funds, is a diversified open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to seek growth of capital. The Fund seeks its investment
objective through investments in a diversified portfolio of common stocks, bonds
and cash equivalents, the proportions of which will vary based upon management's
assessment of the relative values of each investment under prevailing market
conditions. The Fund's investment advisor is OppenheimerFunds, Inc. (the
Manager). The Manager has entered into a sub-advisory agreement with OpCap
Advisors. The Fund offers Class A, Class B, Class C and Class Y shares. Class A
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 expenses directly attributable to that class and exclusive
voting rights with respect to matters affecting that class. Classes A, B and C
have separate distribution and/or service plans. No such plan has been adopted
for Class Y shares. Class B shares will automatically convert to Class A shares
six years after the date of purchase. The following is a summary of significant
accounting policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
the last sale price on the prior trading day. Long-term and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by 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.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), 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.
25 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
Trustees' Fees and Expenses. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
October 31, 1998, a provision of $83,265 was made for the Fund's projected
benefit obligations, resulting in an accumulated liability of $83,265 as of
October 31, 1998.
- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. 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 October 31, 1998, amounts have been reclassified to reflect a
decrease in undistributed net investment income of $8,252. Accumulated net
realized gain on investments was increased by the same amount.
- --------------------------------------------------------------------------------
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. Interest income is accrued on a daily basis. Realized gains
and losses on investments and unrealized appreciation and depreciation are
determined on an identified cost basis, which is the same basis used for federal
income tax purposes.
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.
26 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Year Ended October 31, 1998 Year Ended October 31, 1997(1)
------------------------------ ------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------
Class A:
<S> <C> <C> <C> <C>
Sold 15,821,067 $ 583,239,788 29,187,396 $ 963,814,139
Dividends and
distributions reinvested 1,742,757 61,154,538 895,931 27,272,152
Redeemed (13,576,905) (498,031,756) (8,466,400) (281,626,521)
------------- ------------- ------------- -------------
Net increase 3,986,919 $ 146,362,570 21,616,927 $ 709,459,770
============= ============= ============= =============
- -------------------------------------------------------------------------------------------
Class B:
Sold 12,868,364 $ 469,045,381 27,082,534 $ 879,940,989
Dividends and
distributions reinvested 1,478,196 51,190,003 673,907 20,277,098
Redeemed (7,254,611) (260,517,682) (3,442,467) (113,643,013)
------------- ------------- ------------- -------------
Net increase 7,091,949 $ 259,717,702 24,313,974 $ 786,575,074
============= ============= ============= =============
- -------------------------------------------------------------------------------------------
Class C:
Sold 3,470,557 $ 126,532,813 7,353,599 $ 238,923,162
Dividends and
distributions reinvested 374,287 12,946,527 171,000 5,140,248
Redeemed (2,934,835) (105,493,513) (1,283,150) (42,527,605)
------------- ------------- ------------- -------------
Net increase 910,009 $ 33,985,827 6,241,449 $ 201,535,805
============= ============= ============= =============
- -------------------------------------------------------------------------------------------
Class Y:
Sold 319,320 $ 11,839,211 478,353 $ 16,256,910
Dividends and
distributions reinvested 17,532 615,549 -- --
Redeemed (142,310) (5,243,115) (49,521) (1,697,812)
------------- ------------- ------------- -------------
Net increase 194,542 $ 7,211,645 428,832 $ 14,559,098
============= ============= ============= =============
</TABLE>
1. For the year ended October 31, 1997, for Class A, B and C shares and for the
period from December 16, 1996 (inception of offering) to October 31, 1997 for
Class Y shares.
================================================================================
3. Unrealized Gains and Losses on Investments
As of October 31, 1998, net unrealized appreciation on investments of
$638,285,611 was composed of gross appreciation of $814,313,957, and gross
depreciation of $176,028,346.
27 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 1.00% of the first
$400 million of average annual net assets, 0.90% of the next $400 million of
average annual net assets, 0.85% of the next $3.2 billion of average annual net
assets, 0.80% of the next $4 billion of average annual net assets, and 0.75% of
average annual net assets over $8 billion. The Fund's management fee for the
year ended October 31, 1998, was 0.86% of the average annual net assets for
Class A, Class B, Class C and Class Y shares. The Manager acts as the accounting
agent for the Fund at an annual fee of $55,000, plus out-of-pocket costs and
expenses reasonably incurred.
The Manager pays OpCap Advisors (the Sub-Advisor) monthly an annual
fee based on the fee schedule set forth in the Prospectus. For the year ended
October 31, 1998, the Manager paid $12,427,926 to the Sub-Advisor.
For the year ended October 31, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $9,230,186, of which $2,290,391
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 A, Class
B and Class C shares totaled $1,335,288, $16,257,319 and $1,141,010,
respectively. Amounts paid to an affiliated broker/dealer for Class B and Class
C shares were $993,082 and $35,945, respectively. During the year ended October
31, 1998, OFDI received contingent deferred sales charges of $15,446, $3,917,979
and $133,923, respectively, upon redemption of Class A, Class B and Class C
shares as reimbursement for sales commissions advanced by OFDI at the time of
sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund and other Oppenheimer
funds. The Fund pays OFS an annual maintenance fee of $18.00 for each Fund
shareholder account and reimburses OFS for its out-of-pocket expenses. During
the year ended October 31, 1998, the Fund paid OFS $5,314,732. Effective May 1,
1998, the Board of Trustees approved an increase in the annual maintenance fee
from $14.85 to $18.00 for each shareholder account.
28 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
The Fund has adopted a Distribution and Service Plan for Class A shares to
compensate OFDI for a portion of its costs incurred in connection with the
personal service and maintenance of shareholder accounts that hold Class A
shares. Under the Plan, the Fund pays an annual asset-based sales charge to OFDI
of 0.25% per year on Class A shares. The Fund also pays a service fee to OFDI of
0.25% per year. Each fee is computed on the average annual net assets of Class A
shares of the Fund, determined as of the close of each regular business day.
OFDI uses all of the service fee and a portion of the asset-based sales charge
to compensate brokers, dealers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their customers
that hold Class A shares. OFDI retains the balance of the asset-based sales
charge to reimburse itself for its other expenditures under the Plan. During the
year ended October 31, 1998, OFDI paid $369,544 to an affiliated broker/dealer
as compensation for Class A personal service and maintenance expenses and
retained $3,819,141 as compensation for Class A sales commissions and service
fee advances, as well as financing costs.
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 or Class C shares,
determined as of the close of each regular business day. During the year ended
October 31, 1998, OFDI paid $76,468 and $41,525, respectively, to an affiliated
broker/dealer as compensation for Class B and Class C personal service and
maintenance expenses and retained $16,531,832 and $2,684,276, 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. As of
October 31, 1998, OFDI had incurred excess distribution and servicing costs of
$45,846,802 for Class B and $3,930,941 for Class C.
29 Oppenheimer Quest Opportunity Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
5. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended October
31, 1998.
================================================================================
6. Other Matters
As of September 24, 1998, the Fund changed its custodian bank from State Street
Bank and Trust Company to Citibank, N.A.
================================================================================
7. Subsequent Event
Effective November 1, 1998, the Manager discontinued the accounting services fee
charged to the Fund. The Manager will continue to act as accounting agent for
the Fund.
Appendix A
- -------------------------------------------------------------------------------
RATINGS DEFINITIONS
- -------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- -------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- -------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- -------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
- -------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. 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 in periods of greater 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 likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. 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.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default: D-5: Issuer failed to meet scheduled principal and/or interest
payments.
<PAGE>
B-1
Appendix B
- -------------------------------------------------------------------------------
Industry Classifications
- -------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-13
Appendix C
- -------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- -------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by the Distributor or the
dealers or other financial institutions offering those shares to certain classes
of investors or in certain transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans1 (4)
Group Retirement Plans2 (5) 403(b)(7) custodial plan accounts (6) SEP-IRAs,
SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a waiver
in a particular case is determined solely by the Distributor or the Transfer
Agent of the fund. These waivers and special arrangements may be amended or
terminated at any time by the applicable Fund and/or the Distributor. Waivers
that apply at the time shares are redeemed must be requested by the shareholder
and/or dealer in the redemption request.
- --------------
1. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
2. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or 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 has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
<PAGE>
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Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
- -------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on these purchases the Distributor will pay the
applicable commission described in the Prospectus under "Class A Contingent
Deferred Sales Charge": |_| Purchases of Class A shares aggregating $1 million
or more. |_| Purchases by a Retirement Plan that: (1) buys shares costing
$500,000 or more, or (2) has, at the time of purchase, 100 or more eligible
participants or total
plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored 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 those
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.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan must
have $3 million or more of its assets invested in (a) mutual funds,
other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service
Agreement between Merrill Lynch and the mutual fund's principal
underwriter or distributor, and (b) funds advised or managed by
MLAM (the funds described in (a) and (b) are referred to as
"Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a 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 record
keeping service agreement with Merrill Lynch, the Plan must have $3
million or more of its assets (excluding assets invested in money
market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
- -------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- -------------------------------------------------------------------------------
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 (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term "immediate
family" refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees.
|_| Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are identified
as such to the Distributor) or with the Distributor. The purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or minor
children).
|_| Dealers, brokers, banks 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, bank or advisor for the purchase or sale of Fund shares.
|_| 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.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
|_| Clients of 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.
|_| 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.
|_| Accounts for which Oppenheimer Capital (or its successor) 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.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
|_| Retirement plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each
case if those purchases are made through a broker, agent or other financial
intermediary that has made special arrangements with the Distributor for those
purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995.
|_| A qualified Retirement Plan 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, if that arrangement was 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 sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| 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.
|_| Shares purchased and paid for with the proceeds of shares redeemed in
the prior 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
deferred sales charge was paid. This waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner. This waiver must be requested when the purchase
order is placed for shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
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:
|_| To make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies," in
the Prospectus).
|_| 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 a mutual fund
other than a fund managed by the Manager or a subsidiary. The fund must
be one that is 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. (11) Plan termination or
"in-service distributions," if the redemption proceeds are rolled over
directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
- -------------------------------------------------------------------------------
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
- -------------------------------------------------------------------------------
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
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:
|_| Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(a) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the account
value annually (measured from the date the Transfer Agent receives
the request), or
(b) following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability must
have occurred after the account was established).
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, 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.
|_| Returns of excess contributions to Retirement Plans.
|_| 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.
|_| Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1) for hardship withdrawals;
(2) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code;
(3) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(4) to make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code;
(5) for separation from service; or (6) for loans to participants or
beneficiaries.
|_| Distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
|_| Redemptions of Class B shares 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.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is
a party.
<PAGE>
- -------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds 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 described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap
Value Fund and Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds when
they merged into various Oppenheimer funds on November 24, 1995:
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
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.
Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if 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.
<PAGE>
- ----------------------------------------------------------------------
Number of Initial Sales
Eligible Initial Sales Charge as a % Commission as %
Employees or Charge as a % of of Net Amount of Offering
Members Offering 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 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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders 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.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| 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 purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
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.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
|X| 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, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the 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. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| 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.
|X| 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, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the 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
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the shareholder(s)
(as evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of the initial
value of the account; and
|_| 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, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
<PAGE>
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Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
- -------------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for
Class A and Class B shares described in the Prospectus or this Appendix for
Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below for
those shareholders who were shareholders of Connecticut Mutual Liquid Account,
Connecticut Mutual Government Securities Account, Connecticut Mutual Income
Account, Connecticut Mutual Growth Account, Connecticut Mutual Total Return
Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan Balanced
Account and CMIA Diversified Income Account (the "Former Connecticut Mutual
Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment
adviser to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
|X| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales
charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|X| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund or
any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
Code, or from IRAs, deferred compensation plans created under Section
457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate
the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
- -------------------------------------------------------------------------------
Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
- -------------------------------------------------------------------------------
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a result of
the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
- -------------------------------------------------------------------------------
Oppenheimer Quest Opportunity Value Fund
- -------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Sub-Adviser
OpCap Advisors
One World Financial Center
New York, New York 10281
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 Bank
Citibank, N.A.
111 Wall Street
New York, New York 10005
Independent Accountants
PricewaterhouseCoopers LLP
950 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
PX236.0299
<PAGE>
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Oppenheimer Quest Small Cap Value Fund
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Prospectus dated February 19, 1999
Oppenheimer Quest Small Cap Value Fund is a mutual fund that seeks capital
appreciation as its goal. It emphasizes investments in common stocks and other
equity securities of "small-cap" companies.
This Prospectus contains important information about the Fund's objective,
its investment policies, strategies and risks. It also contains important
information about how to buy and sell shares of the Fund and other account
features. Please read this Prospectus carefully before you invest and keep it
for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
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The Fund's Objective and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
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How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
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<PAGE>
About the Fund
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The Fund's Objective and Investment Strategies
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What Is the Fund's Investment Objective? The Fund's objective is to seek capital
appreciation.
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What Does the Fund Invest In? The Fund invests mainly in common stock of
companies that have market capitalizations under $1 billion. These are described
as "small-cap" companies. Under normal market conditions it will invest at least
65% of its total assets in equity securities of those issuers. They include both
domestic and foreign issuers. The Fund can also buy preferred stocks, securities
convertible into common stock and other securities having equity features. The
Fund emphasizes equity securities of companies that the portfolio managers
believe are undervalued in the marketplace.
The Fund can invest in debt securities to provide liquidity and can also
use hedging instruments to try to manage investment risks. These investments are
more fully explained in "About the Fund's Investments" below.
|X| How Do the Portfolio Managers Decide What Securities to Buy or Sell?
In selecting securities for purchase or sale by the Fund, the Fund's portfolio
managers, who are employed by the Sub-Adviser, OpCap Advisors, use a "value"
approach to investing. The portfolio managers search for securities of companies
believed to be undervalued in the marketplace, in relation to factors such as a
company's book value, sales, earnings, growth potential and cash flows. This
process and the inter-relationship of the factors used may change over time and
its implementation may vary in particular cases. In general, the selection
process includes the following techniques: |_| A "bottom up" analytical approach
using fundamental research to focus on
particular issuers before considering industry trends, by
evaluating each issuer's characteristics, financial results and
management.
|_| A search for securities of companies believed to be undervalued and
having a high return on capital, strong management committed to
shareholder value and strong cash flows.
|_| Ongoing monitoring of issuers for fundamental changes in the
company that might alter the portfolio managers' initial
expectations about the security and might result in a decision to
sell the security.
|_| A search for companies in businesses with barriers to entry that
might reduce the threat from new competitors.
Who Is the Fund Designed For? The Fund is designed primarily for investors
seeking capital growth in their investment over the long term. Those investors
should be willing to assume the greater risk of short-term share price
fluctuations that are typical for funds emphasizing small-cap stock investments.
The Fund does not seek current income and the income from its investments will
likely be small, so it is not designed for investors needing investment income
or preservation of capital. Because of its focus on long-term growth, the Fund
may be appropriate for a portion of a retirement plan investment. The Fund is
not a complete investment program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks are subject to changes in their value from a number of factors.
Investments in stocks can be volatile and are subject to changes in general
stock market movements (this is referred to as "market risk"). At times, the
Fund may increase the relative emphasis of its equity investments in a
particular industry. In that case, it will be subject to the risks that
economic, political or other events can have a negative effect on the values of
securities of issuers in that particular industry (this is referred to as
"industry risk").
Smaller capitalization companies may provide greater opportunities for
capital appreciation but may be more volatile than the stocks of larger
capitalization companies, especially in the short term. The Fund can also buy
foreign securities in both developed and emerging markets that have special
risks not associated with investments in domestic securities, such as the
effects of currency fluctuations on relative prices.
These risks collectively form the risk profile of the Fund, and can affect
the value of the Fund's investments, its investment performance and its price
per share. These risks mean that you can lose money by investing in the Fund.
When you redeem your shares, they may be worth more or less than what you paid
for them.
The Fund's investment Manager, OppenheimerFunds, Inc., has engaged the
Sub-Adviser, OpCap Advisors, to select securities for the Fund's portfolio. The
Sub-Adviser tries to reduce risks by carefully researching securities before
they are purchased and to reduce the Fund's exposure to market risks by
diversifying its investments. That means the Fund does not hold a substantial
percentage of the stock of any one company and does not invest too great a
percentage of its assets in any one issuer. Also, the Fund does not concentrate
25% or more of its investments in any one industry.
However, changes in the overall market prices of securities and the income
they pay can occur at any time. The share price of the Fund will change daily
based on changes in market prices of securities and market conditions, and in
response to other economic events. There is no assurance that the Fund will
achieve its investment objective.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and
their short-term volatility at times may be great. Because the Fund invests
primarily in equity securities of small-cap companies, the value of the Fund's
portfolio will be affected by changes in the stock markets and the special
economic and other factors that might primarily affect the prices of small-cap
stocks in the markets. Market risk will affect the Fund's net asset value per
share, which will fluctuate as the values of the Fund's portfolio securities
change.
A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly or
at the same time. Different stock markets may behave differently from each
other. Because the Fund can buy both foreign stocks and stocks of U.S. issuers,
it will be affected by changes in domestic and foreign stock markets.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer.
|X| Special Risks of Small-Cap Stocks. The Fund emphasizes its
investments in securities of companies having a market capitalization under $1
billion. While these companies might be established businesses, generally they
tend to be newer companies. Small-cap companies may have limited product lines
or markets for their products, limited access to financial resources and less
depth in management skill than larger, more established companies. Additionally,
smaller capitalization companies may be more reliant on the efforts of
particular members of their management team, and management changes may pose a
risk to the success of the business.
Small -cap stocks may be less liquid than those of larger issuers.
That means the Fund could have greater difficulty selling a security of a
small-cap issuer at an acceptable price, especially in periods of market
volatility. That factor increases the potential for losses to the Fund. Also, it
may take a substantial period of time before the Fund realizes a gain on an
investment in a small-cap company, if it realizes any gain at all.
|_| Industry Focus. At times the Fund may increase the relative
emphasis of its investments in stocks of companies in a single industry. Stocks
of issuers in a particular industry may be affected by changes in economic
conditions, government regulations, availability of basic resources or supplies,
or other events that affect that industry more than others. To the extent that
the Fund is emphasizing investments in a particular industry, its share values
may fluctuate in response to events affecting that industry.
How Risky is the Fund Overall? The Fund's investments in small-cap stocks can be
volatile, especially in the short term. The price of the Fund's shares can go up
and down substantially. The Fund generally does not use income-oriented
investments to help cushion the Fund's total return from changes in stock
prices, except for defensive or liquidity purposes. In the OppenheimerFunds
spectrum, the Fund is likely to experience greater price fluctuations than funds
that emphasize large-cap stocks or investment-grade bonds. It is designed for
investors willing to assume greater risks in the hope of achieving long-term
capital appreciation.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing
in the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the past ten calendar years and by showing how the
average annual total returns of the Fund's shares compare to those of a
broad-based market index. The Fund's past investment performance is not
necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]
Sales charges are not included in the calculations of return in this bar chart,
and if those charges were included, the returns would be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 21.72% (1stQ'91) and the lowest return for a calendar
quarter was -18.57% (3rdQ'90).
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Average Annual
Total 1 Year 5 Years 10 Years
Returns for the (or life of (or life of
periods class, if less) class, if less)
Ended December
31, 1998
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Class A Shares
(inception 1/3/89) -15.25% 7.10% 11.22%
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Russell 2000
Index -2.55% 11.87% 12.92%
(from 12/31/88)
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Class B Shares
(inception 9/1/93) -14.89% 7.51% 8.18%
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Russell 2000
Index -2.55% 11.87% 12.21%
(from 8/31/93)
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Class C Shares
(inception 9/1/93) -11.39% 7.80% 8.31%
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The Fund's average annual total returns in the table include the applicable
sales charge for Classes A, B and C shares: for Class A, the current maximum
initial sales charge of 5.75%; for Class B, the contingent deferred sales
charges of 5% (1-year), 2% (5-years) and 1% (life of class); and for Class C,
the 1% contingent deferred sales charge for the 1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund invests primarily in small-cap stocks, the Fund's
performance is compared to the Russell 2000 Index, an index of the 2000 smallest
capitalization securities in the Russell 3000 Index. It must be remembered that
the index performance reflects the reinvestment of income but does not consider
the effects of transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. 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
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
October 31, 1998.
Shareholder Fees (charges paid directly from your investment):
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Class A Class B Class C
Shares Shares Shares
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Maximum Sales Charge
(Load) on purchases 5.75% None None
(as % of offering
price)
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Maximum Deferred
Sales Charge (Load)
(as % of the lower None1 5%2 1%3
of the original
offering price or
redemption proceeds)
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1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Class A Class B Class C
Shares Shares Shares
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Management Fees 1.00% 1.00% 1.00%
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Distribution and/or .50% 1.00% 1.00%
Service (12b-1) Fees
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Other Expenses .30% .31% .31%
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Total Annual 1.80% 2.31% 2.31%
Operating Expenses
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Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The examples
assume that you invest $10,000 in a class of shares of the Fund for the time
periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that the
class's operating expenses remain the same. Your actual costs may be higher or
lower because expenses will vary over time. Based on these assumptions your
expenses would be as follows:
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If shares are 1 Year 3 Years 5 Years 10 Years1
redeemed:
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Class A Shares $747 $1,109 $1,494 $2,569
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Class B Shares $734 $1,021 $1,435 $2,402
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Class C Shares $334 $ 721 $1,235 $2,646
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If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
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Class A Shares $747 $1,109 $1,494 $2,569
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Class B Shares $234 $721 $1,235 $2,402
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Class C Shares $234 $721 $1,235 $2,646
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In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 1. Class
B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio will vary over time based upon the evaluation of economic and market
trends by the Sub-Adviser. The Fund's portfolio might not always include all of
the different types of investments described below. The Statement of Additional
Information contains more detailed information about the Fund's investment
policies and risks.
|X| Small-Cap Stock Investments. The Fund currently emphasizes investments
in equity securities, primarily common stocks. The portfolio managers look for
stocks of small-cap companies that they believe have been undervalued by the
market. These companies may have a low ratio of their stock price to earnings,
for example. The portfolio managers also look at the issuers cash flows and
earnings, to measure potential for capital growth. After looking at the
individual issuers in the small-cap universe that meet these criteria, the
portfolio managers may also look at broader industry and economic trends that
could affect the growth potential of particular small-cap stocks. Current
examples of industries offering value investing opportunities among small-cap
issuers include insurance, health care, capital goods and business services.
However, these opportunities and industries may change over time.
|_| Cyclical Opportunities. The Fund may seek to take advantage of changes
in the business cycle by investing in companies that are sensitive to those
changes if the Manager believes they are undervalued and have growth potential.
For example, when the economy is expanding, companies in the consumer durables
and technology sectors may benefit and present long-term growth opportunities.
Other cyclical industries include insurance and forest products, for example.
The Fund focuses on seeking growth over the long term, but may seek to take
tactical advantage of short-term market movements or events affecting particular
issuers or industries.
|_| Industry Focus. At times, the Fund may increase the relative emphasis
of its investments in a particular industry or group of industries. Stocks of
issuers in a particular industry may be affected by changes in economic
conditions that affect that industry more than others, or by changes in
government regulations, availability of basic resources or supplies, or other
events. To the extent that the Fund has a greater emphasis on investments in a
particular industry or group of industries, its share values may fluctuate in
response to events affecting those industries. To some extent that risk may be
limited by the Fund's policy of not concentrating its assets in investments in
any one industry.
|_|Other Equity Securities. While the Fund emphasizes investments in
common stocks, it can also buy preferred stocks and securities convertible into
common stock. Although they are debt securities, the Manager considers some
convertible securities to be "equity equivalents" because of the conversion
feature, and their rating has less impact on the investment decision than in the
case of other debt securities. Nevertheless, convertible securities are subject
to both "credit risk" (the risk that the issuer will not pay interest or repay
principal in a timely manner) and "interest rate risk" (the risk that the prices
of the securities will fluctuate inversely to changes in prevailing interest
rates). To the extent that the Fund buys convertible securities (or other debt
securities) it will focus primarily on investment-grade securities, which pose
less credit risk than lower-grade debt securities.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a majority of the Fund's outstanding voting
shares. The Fund's objective is a fundamental policy. Other investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund does not expect to engage frequently in
short-term trading to try to achieve its objective. Portfolio turnover affects
brokerage costs the Fund pays. If the Fund realizes capital gains when it sells
its portfolio investments, it must generally pay those gains out to
shareholders, increasing their taxable distributions. The Financial Highlights
table below shows the Fund's portfolio turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of the different types of techniques and investments described below.
These techniques involve certain risks, although some are designed to help
reduce investment or market risks.
|X| Foreign Investing. The Fund can buy foreign securities that are
listed on a domestic or foreign stock exchange, traded in domestic or foreign
over-the-counter markets, or represented by American Depository Receipts. The
Fund can invest in emerging markets, which have greater risks than developed
markets, making these investments more volatile than other foreign investments.
The Fund will hold foreign currency only in connection with buying and selling
foreign securities.
|_| Risks of Foreign Investing. While the Fund has no limits on the
percentage of its assets it can invest in foreign securities, normally it does
not expect to invest substantial amounts of its assets in foreign securities and
generally limits investments in emerging markets to not more than 5% of its
total assets. While foreign securities offer special investment opportunities,
there are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of foreign
investments may be affected by 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.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities. If they are not prepared,
there could be delays in settlements of securities trades and additional costs
of the Fund.
|X| Debt Securities. The Fund can also invest in debt securities, such as
U.S. government securities and corporate bonds and debentures. The Fund
typically does not hold significant amounts of debt securities to seek its goal
of capital appreciation. The Fund might buy short-term debt securities for
liquidity purposes pending the purchase of new investments or to have cash to
pay for redemptions of Fund shares. The Fund can invest up to 5% of its total
assets in "lower-grade" debt securities. These debt securities (commonly known
as "junk bonds") are rated below investment grade. That means that they are
rated lower than "Baa" by Moody's Investors Service or "BBB" by Standard &
Poor's Rating Service or have comparable ratings by other nationally-recognized
rating organizations or are unrated securities assigned an equivalent rating by
the Sub-Adviser.
|_| U.S. Government Securities. The Fund's investments in U.S.
government securities can include U.S. Treasury securities and securities
issued or guaranteed by agencies or instrumentalities of the U.S.
government. U.S. Treasury securities are backed by the full faith and credit
of the U.S. government and are subject to little credit risk. Securities of
U.S. government agencies and instrumentalities are not all backed by the full
faith and credit of the U.S. government but generally offer little credit
risk.
|_| Money Market Instruments. The Fund can also invest in "money
market instruments." These include U.S. government securities and high-quality
corporate debt securities having a remaining maturity of one year or less. They
include commercial paper, other short-term corporate debt obligations,
certificates of deposit, bankers' acceptances and repurchase agreements. They
would be used primarily for liquidity purposes and do not generate capital
growth if held to maturity.
|X| Risks in Using Hedging Instruments. The Fund can use certain hedging
instruments such as options, futures and forward contracts, to try to hedge
investment risks. The Fund does not currently use hedging extensively and is not
required to do so to seek its goal.
There are special risks in certain hedging strategies. The underlying
security or investment on which the hedging instrument is based, and the hedging
instrument itself, may not perform the way the Manager expected it to perform.
If that happens, the Fund's share price could decline. The Fund has limits on
the amount of particular types of hedging instruments it can hold. However,
hedging can cause the Fund to lose money on its investments and/or increase the
volatility of its share prices.
|X| Investing in Small, Unseasoned Companies. The Fund can invest up to 5%
of its total assets in securities of small, unseasoned companies. These are
companies that have been in continuous operation for less than three years,
counting the operations of any predecessors. These securities may have limited
liquidity, so that the Fund could have difficulty selling them at an acceptable
price when it wants to. The values of these securities may be very volatile,
especially in the short term.
|X| Illiquid and Restricted Securities. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund
cannot invest more than 15% of its net assets in illiquid or restricted
securities. Certain restricted securities that are eligible for resale to
qualified institutional purchasers may not be subject to that limit. The Manager
and Sub-Adviser monitor holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity.
Temporary Defensive Investments. In times of unstable or adverse market or
economic conditions, the Fund can invest up to 100% of its assets in temporary
defensive investments. Generally they would be U.S. government securities and
the types of money market instruments described above. To the extent the Fund
invests defensively in these securities, it might not achieve its investment
objective of capital appreciation.
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. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in 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 investments and returns.
The Manager, the Sub-Adviser, the Distributor and the Transfer Agent have
been 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, the services they
provide depend on the interaction of their computer systems with those of
brokers, information services, the Fund's custodian and other parties.
Therefore, any failure of the computer systems of those parties to deal with the
year 2000 may also have a negative effect on the services they provide to the
Fund. The extent of that risk cannot be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., supervises
the Fund's investment program and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board of
Trustees, under an Investment Advisory Agreement that 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 became the Fund's investment adviser on
November 22, 1995.
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 $95 billion as of December 31, 1998,
and with more than 4 million shareholder accounts. The Manager is located at Two
World Trade Center, 34th Floor, New York, New York 10048-0203.
|X| The Manager's Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 1.00% of the first $400 million of average annual net
assets of the Fund, 0.90% of the next $400 million, and 0.85% of average annual
net assets in excess of $800 million. The Fund's management fee for its last
fiscal year ended October 31, 1998 was 1.00% of average annual net assets for
each class of shares.
The Sub-Adviser. On November 22, 1995, the Manager retained the Sub-Adviser to
provide day-to-day portfolio management for the Fund. Prior to that date and
from the inception of the Fund, the Sub-Adviser had been the Fund's investment
adviser. The Sub-Adviser has operated as an investment adviser to investment
companies and other investors since its organization in 1980, and as of December
31, 1998, the Sub-Adviser or its parent advised accounts having assets in excess
of $62 billion. It is located at One World Financial Center, 200 Liberty Street,
New York New York 10281.
The Manager, not the Fund, pays the Sub-Adviser an annual fee under the
Sub-Advisory Agreement between the Manager and the Sub-Adviser. The fee is
calculated as a percentage of the fee the Fund pays the Manager. The rate is 40%
of the advisory fee collected by the Manager based on the net assets of the Fund
as of November 22, 1995, and 30% of the fee collected by the Manager on assets
in excess of that amount.
|X|Portfolio Managers. The Fund's portfolio managers, Timothy McCormack
and Mark Degenhart, are employed by the Sub-Adviser and are the persons
primarily responsible for the selection of the Fund's portfolio securities. Mr.
McCormack has been a portfolio manager of the Fund since May 1996, and Mr.
Degenhart became a portfolio manager of the Fund effective January 7, 1999.
Mr. McCormack, a Vice President of Oppenheimer Capital, the
Sub-Adviser's parent company, joined that firm in 1994; from 1993 to 1994, he
was a securities analyst at U.S. Trust Company. Mr. Degenhart, a Vice
President of Oppenheimer Capital, joined that firm in January 1999. He was
previously the Director of Research and portfolio manager of Palisades
Capital Management, which he joined in 1993.
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About Your Account
- -------------------------------------------------------------------------------
How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any dealer,
broker or financial institution that has a sales agreement with the Fund's
Distributors, or directly through the Distributor, or automatically through an
Asset Builder Plan under the OppenheimerFunds AccountLink service. The
Distributor may appoint certain servicing agents to accept purchase (and
redemption) orders. The Distributor, in its sole discretion, may reject any
purchase order for the Fund's shares.
|X| Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X| 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
with a financial advisor before you make a purchase to be sure that the Fund is
appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
shares are purchased for your account on the regular business day the
Distributor is instructed by you to initiate the Automated Clearing House (ACH)
transfer to buy the shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. Please refer to "AccountLink,"
below for more details.
|X| Buying Shares Through 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 Asset Builder Application and the
Statement of Additional Information.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
|_| With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent investments for as
little as $25. Subsequent purchases of at least $25 can be made by telephone
through AccountLink.
|_| Under retirement plans, such as IRAs, pension and profit-sharing plans
and 401(k) plans, you can start your account with as little as $250. If your IRA
is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
|_| The minimum investment requirement does not apply to 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 reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the net
asset value per share plus any initial sales charge that applies). The offering
price that applies to a purchase order is based on the next calculation of the
net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. (All references to time in this Prospectus mean "New York time").
The net asset value per share is determined 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. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be readily
obtained. Because some foreign securities trade in markets and exchanges that
operate on U.S. holidays and weekends, the values of some of the Fund's foreign
investments may change significantly on days when investors cannot buy or redeem
Fund shares.
|_| To receive the offering price for a particular day, in most cases the
Distributor or its designated agent must receive your order by the time of day
The New York Stock Exchange closes that day. If your order is received on a day
when the Exchange is closed or after it has closed, the order will receive the
next offering price that is determined after your order is received.
|_| If you buy shares through a dealer, your dealer must receive the order
by the close of The New York Stock Exchange and transmit it to the Distributor
so that it is received before the Distributor's close of business on a regular
business day (normally 5:00 P.M.) to receive that day's offering price.
Otherwise, the order will receive the next offering price that is determined.
<PAGE>
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What Classes of Shares Does the Fund Offer? The Fund offers investors three
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million for regular accounts or $500,000 for
certain retirement plans). The amount of that initial sales charge will vary
depending on the amount you invest. The sales charge rates are listed in "How
Can I Buy Class A Shares?" below. There is also an asset-based sales charge on
Class A shares.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That contingent deferred
sales charge varies depending on how long you own your shares, as described in
"How Can I Buy Class B Shares?" below.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
|X| Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but you will pay an annual asset-based sales charge, and
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 "How Can I Buy Class C
Shares?" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider 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.
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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares, and not a
combination of shares of different classes.
|X| How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B or Class C.
|_| Investing for the Short Term. If you have a relatively short-term
investment horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares rather
than Class B shares. That is because of the effect of the Class B contingent
deferred sales charge if you redeem within six 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 as 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.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than $100,000
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 appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders. 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. Therefore, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are not
borne by Class A shares, such as the Class B and Class C asset-based sales
charge described below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares, and if you are
considering using your shares as collateral for a loan, that may be a factor to
consider.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares than
for selling another class. It is important to remember that Class B and Class C
contingent deferred sales charges and asset-based sales charges have the same
purpose as the front-end sales charge on sales of Class A shares: to compensate
the Distributor for commissions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional 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.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions.
How Can I Buy Class A Shares? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. 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 or allocated to
your dealer as commission. The Distributor reserves the right to reallow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
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Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Amount Offering Price
Invested
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
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$25,000 or more
but less than 5.50% 5.82% 4.75%
$50,000
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$50,000 or more
but less than 4.75% 4.99% 4.00%
$100,000
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$100,000 or more
but less than 3.75% 3.90% 3.00%
$250,000
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$250,000 or more
but less than 2.50% 2.56% 2.00%
$500,000
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$500,000 or more
but less than $1 2.00% 2.04% 1.60%
million
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|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 aggregating $1 million or more or for certain purchases by particular
types of retirement plans described in Appendix C to the Statement of Additional
Information. The Distributor pays dealers of record commissions in an amount
equal to 1.0% of purchases of $1 million or more other than by those retirement
accounts. For those retirement plan accounts, the commission is 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. In either case, the
commission will be paid only on purchases that were not previously subject to a
front-end sales charge and dealer commission.1
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent deferred sales charge") may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares at the time of redemption
(excluding shares purchased by reinvestment of dividends or capital gain
distributions) or (2) 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
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of dividends and
capital gains. Then the Fund will redeem other shares in the order in which you
purchased them. The Class A contingent deferred sales charge is waived in
certain cases described in Appendix C to the Statement of Additional
Information.
The Class A contingent deferred sales charge is not charged on exchanges
of shares under the Fund's exchange privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 calendar months of the end of
the calendar month in which the exchanged shares were originally purchased, then
the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and contingent
deferred sales charges are not imposed in the circumstances described in
Appendix C to 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 when purchasing shares whether any of the special conditions
apply.
How Can I Buy 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. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
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
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, |_| shares purchased by the
reinvestment of dividends or capital gains distributions, or |_| shares
redeemed in the special circumstances described in Appendix C to the
Statement of Additional Information.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains
distributions,
(2) shares held for over 6 years, and
(3) shares held the longest during the 6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
- ----------------------------------------------------------------------
Contingent Deferred Sales Charge
Years Since Beginning of Month in on Redemptions in That Year
Which Purchase Order was Accepted (As % of Amount Subject to
Charge)
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0 - 1 5.0%
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1 - 2 4.0%
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2 - 3 3.0%
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3 - 4 3.0%
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4 - 5 2.0%
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5 - 6 1.0%
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6 and following None
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In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first regular business day of
the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares 72 months after you purchase them. 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 the Statement of Additional Information.
How Can I Buy 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. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
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
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,
|_| shares purchased by the reinvestment of dividends or capital gains
distributions, or
|_| shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
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.
Distribution and Service (12b-1) Plans. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than other types of sales charges.
|X| Distribution and Service Plan for Class A Shares. The Fund has adopted
a Distribution and Service Plan for Class A shares. Under the plan the Fund pays
an asset-based sales charge to the Distributor at an annual rate of 0.25% of
average annual net assets of Class A shares the Fund. The Fund also pays a
service fee to the Distributor of 0.25% of the average annual net assets of
Class A shares. The Distributor currently uses all of the fee and a portion of
the asset-based sales charge to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares. The Distributor pays out
the portion of the asset-based sales charge equal to 0.15% of average annual net
assets representing Class A shares purchased before September 1, 1993, and 0.10%
of average annual net assets representing Class A shares purchased on or after
that date.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C shares
to pay 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
shares and on Class C shares. The Distributor also receives a service fee of
0.25% per year under each plan. The asset-based sales charge and service fees
increase Class B and Class C expenses by 1.00% of the 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. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after the shares were sold by the dealer. 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 commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sales of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
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.
Including the advance of the service fee, the total amount 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 pays 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.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
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.
|X| 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.
|X| Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established by
calling the special PhoneLink number.
|X| 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.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1-800-525-7048 for information about which transactions may be handled this
way. 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. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFunds
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C or Class Y shares. You must be
sure to ask the Distributor for this privilege when you send your payment.
Retirement Plans. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be used
by individuals and employers:
|X|Individual Retirement Accounts (IRAs), including regular IRAs, Roth
IRAs, SIMPLE IRAs, rollover and Education IRAs.
|X|SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for small
business owners or self-employed individuals.
|X|403(b)(7) Custodial Plans, that are tax deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and charitable
organizations.
|X|401(k) Plans, which are special retirement plans for businesses.
|X|Pension and Profit-Sharing Plans, designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter or by telephone. You can also set up
Automatic Withdrawal Plans to redeem shares on a regular basis. 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 account, please call the Transfer Agent first, at
1-800-525-7048, for assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that also
require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check |_| The
redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| 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.
|X| Retirement Plan Accounts. There are special procedures to sell shares
in an OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements apply to
distributions from retirement plans. You must submit a withholding form with
your redemption request to avoid delay in getting your money and if you do not
want tax withheld. If your employer holds your retirement plan account for you
in the name of the plan, you must ask the plan trustee or administrator to
request the sale of the Fund shares in your plan account.
|X| Sending Redemption Proceeds by Wire. While the Fund normally sends
your money by check, you can arrange to have the proceeds of the shares you sell
sent by Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The minimum
redemption you can have sent by wire is $2,500. There is a $10 fee for each
wire. To find out how to set up this feature on your account or to arrange a
wire, call the Transfer Agent at 1-800-852-8457.
How Do I Sell Shares by Mail? Write a letter of instructions that includes:
|_| Your name |_| The Fund's name |_| Your Fund account number (from your
account statement) |_| The dollar amount or number of shares to be
redeemed |_| Any special payment instructions |_| Any share certificates
for the shares you are selling |_| The signatures of all registered owners
exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
- -------------------------------------------------------------------------------
Use the following address for requests by mail:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OppenheimerFunds Services
- -------------------------------------------------------------------------------
P.O. Box 5270
Denver, Colorado 80217-5270
- -------------------------------------------------------------------------------
Send courier or express mail requests to:
- -------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell Shares by Telephone? You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price on a
regular business day, your call must be received by the Transfer Agent by the
close of The New York Stock Exchange that day, which is normally 4:00 P.M., but
may be earlier on some days. You may not redeem shares held in an
OppenheimerFunds retirement plan account or under a share certificate by
telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of record
of the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an account.
|X| Telephone Redemptions Through AccountLink. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer 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.
Can I Sell Shares Through My 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
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. To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available for sale in
your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them. After the account is open 7 days,
you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund 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. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale 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. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
address on the Back Cover. Exchanges of shares held under certificates cannot be
processed unless the Transfer Agent receives the certificates with the request.
|X| 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 obtain one by calling a service
representative at 1-800-525-7048. That list can change from time to time.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to seven days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time
and/or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|_| The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
|_| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying, selling
and exchanging shares is contained in the Statement of Additional Information.
|X| 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.
|X| 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 the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| 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. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions, and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.
|X| The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less than
their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink or by Federal Funds wire (as elected
by the shareholder) within seven days after the Transfer Agent receives
redemption instructions in proper form. However, under unusual circumstances
determined by the Securities and Exchange Commission, payment may be delayed or
suspended. For accounts registered in the name of a broker-dealer, payment will
normally be forwarded within three business days after redemption.
|X| 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 with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase payment
has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $500 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such as
a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with securities from the Fund's
portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis, normally in December on a
date selected by the Board of Trustees. Dividends and distributions paid on
Class A shares will generally be higher than dividends for Class B and Class C
shares, which normally have higher expenses than Class A. The Fund has no fixed
dividend rate and cannot guarantee that it will pay any dividends or
distributions.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
What Choices Do I Have for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
|X| 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.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends by
check or having them sent to your bank account through AccountLink.
|X| 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 through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state or
local taxes. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Long-term capital gains are taxable as
long-term capital gains when distributed to shareholders. It does not matter how
long you have held your shares. Whether you reinvest your distributions in
additional shares or take them in cash, the tax treatment is the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
|X| Avoid "Buying a Dividend". If you buy shares on or just before the
ex-dividend date or just before the Fund declares a capital gain 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.
|X| Remember, There May be Taxes on Transactions. Because the Fund's share
price fluctuates, you may have a capital gain or loss when you sell or exchange
your shares. A capital gain or loss is the difference between the price you paid
for the shares and the price you received when you sold them.
Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax adviser about the effect
of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past 5 fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, the Fund's
independent accountants, whose report, along with the Fund's financial
statements, is included in the Statement of Additional Information, which is
available on request.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Year Ended October 31,
1998 1997 1996(1) 1995 1994
============================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $22.26 $19.03 $17.31 $16.33 $17.68
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.09) (.07) .03 .11(2) (.03)(2)
Net realized and unrealized gain (loss) (3.02) 5.66 2.79 1.29 .01
------ ------ ------ ------ ------
Total income (loss) from investment operations (3.11) 5.59 2.82 1.40 (.02)
- ------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- -- (.11) -- --
Distributions from net realized gain (1.86) (2.36) (.99) (.42) (1.33)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.86) (2.36) (1.10) (.42) (1.33)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.29 $22.26 $19.03 $17.31 $16.33
====== ====== ====== ====== ======
============================================================================================================
Total Return, at Net Asset Value(3) (15.05)% 32.72% 17.17% 8.82% 0.04%
============================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $183,567 $181,973 $102,746 $116,307 $120,102
- ------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $201,952 $131,503 $117,765 $119,440 $115,276
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.42)% (0.32)% 0.11% 0.67% (0.14)%
Expenses 1.80% 1.78% 1.90% 1.80% 1.88%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 65.0% 82.1% 70.4% 76.0% 67.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
2. Based on average shares outstanding for the period.
3. 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. 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
October 31, 1998 were $265,305,166 and $184,939,375, respectively.
1
<PAGE>
Financial Highlights
(continued)
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------
Year Ended October 31,
1998 1997 1996(1) 1995 1994
============================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $21.83 $18.79 $17.11 $16.24 $17.66
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.12) (.05) (.06) .02(2) (.11)(2)
Net realized and unrealized gain (loss) (3.01) 5.45 2.76 1.27 .02
------ ------ ------ ------ ------
Total income (loss) from investment operations (3.13) 5.40 2.70 1.29 (.09)
- ------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- -- (.03) -- --
Distributions from net realized gain (1.86) (2.36) (.99) (.42) (1.33)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.86) (2.36) (1.02) (.42) (1.33)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.84 $21.83 $18.79 $17.11 $16.24
====== ====== ====== ====== ======
============================================================================================================
Total Return, at Net Asset Value(3) (15.47)% 32.05% 16.57% 8.17% (0.39)%
============================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $98,041 $79,754 $30,766 $23,440 $16,144
- ------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $97,818 $47,462 $26,478 $20,105 $9,401
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.92)% (0.80)% (0.37)% 0.09% (0.70)%
Expenses 2.31% 2.27% 2.38% 2.37% 2.48%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 65.0% 82.1% 70.4% 76.0% 67.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
2. Based on average shares outstanding for the period.
3. 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. 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
October 31, 1998 were $265,305,166 and $184,939,375, respectively.
2
<PAGE>
Financial Highlights
(continued)
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------
Year Ended October 31,
1998 1997 1996(1) 1995 1994
=======================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $21.79 $18.76 $17.11 $16.23 $17.67
- -------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.13) (.08) (.05) .01(2) (.13)(2)
Net realized and unrealized gain (loss) (2.99) 5.47 2.75 1.29 .02
------ ------ ------ ------ ------
Total income (loss) from investment operations (3.12) 5.39 2.70 1.30 (.11)
- -------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- -- (.06) -- --
Distributions from net realized gain (1.86) (2.36) (.99) (.42) (1.33)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.86) (2.36) (1.05) (.42) (1.33)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.81 $21.79 $18.76 $17.11 $16.23
====== ====== ====== ====== ======
=======================================================================================================
Total Return, at Net Asset Value(3) (15.45)% 32.05% 16.55% 8.24% (0.51)%
=======================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $26,707 $24,512 $13,181 $9,068 $3,344
- -------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,647 $17,401 $11,501 $6,114 $1,381
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.92)% (0.81)% (0.40)% 0.08% (0.81)%
Expenses 2.31% 2.28% 2.40% 2.38% 2.59%
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 65.0% 82.1% 70.4% 76.0% 67.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
2. Based on average shares outstanding for the period.
3. 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. 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
October 31, 1998 were $265,305,166 and $184,939,375, respectively.
3
For More Information About Oppenheimer Quest Small Cap Value Fund: The following
additional information about the Fund is available without charge upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
- ----------------------------------------------------------------------------
How to Get More Information:
- ----------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com You can also obtain copies of the Statement of
Additional Information and other Fund documents and reports by visiting the
SEC's Public Reference Room in Washington, D.C. (Phone 1-800-SEC-0330) or the
SEC's Internet web site at http://www.sec.gov. Copies may be obtained upon
payment of a duplicating fee by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.
SEC File No. 811-5225
PR0251.001.0299 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Quest Small Cap Value Fund
Graphic Material included in the Prospectus of Oppenheimer Quest Small
Cap Value Fund (the "Fund") under the heading: "Annual Total Returns (Class
A) (as of 12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the Fund
for the past ten calendar years, without deducting sales charges. Set forth
below are the relevant data points that will appear on the bar chart.
Calendar
Year Annual Total
Ended Return
- ----- ------
12/31/89 11.89%
12/31/90 -12.99%
12/31/91 47.58%
12/31/92 20.96%
12/31/93 18.21%
12/31/94 -0.29%
12/31/95 12.42%
12/31/96 19.30%
12/31/97 24.32%
12/31/98 -10.08%
- --------
1 No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another 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 Oppenheimer funds are added as an
investment option under that plan.
<PAGE>
- -------------------------------------------------------------------------------
Oppenheimer Quest Small Cap Value Fund
- -------------------------------------------------------------------------------
Two World Trade Center, 34th Floor, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated February 19, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 19, 1999. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217, or by calling the Transfer Agent at the toll-free number shown above, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks 2
The Fund's Investment Policies............................ 2
Other Investment Techniques and Strategies................ 9
Investment Restrictions................................... 23
How the Fund is Managed ..................................... 25
Organization and History.................................. 25
Trustees and Officers..................................... 26
The Manager............................................... 31
Brokerage Policies of the Fund............................... 34
Distribution and Service Plans............................... 36
Performance of the Fund...................................... 39
About Your Account
How To Buy Shares............................................ 43
How To Sell Shares........................................... 52
How To Exchange Shares....................................... 57
Dividends, Capital Gains and Taxes........................... 59
Additional Information About the Fund........................ 60
Financial Information About the Fund
Report of Independent Accountants............................
Financial Statements.........................................
Appendix A: Ratings Definitions.............................. A-1
Appendix B: Corporate Industry Classifications............... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.... C-1
- -------------------------------------------------------------------------------
<PAGE>
ABOUT THE FUND
- -------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund invests in. Additional information is also
provided about the Fund's investment Manager, OppenheimerFunds, Inc., and the
strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Sub-Advisor, OpCap Advisors, may use
in selecting portfolio securities will vary over time. The Fund is not required
to use all of the investment techniques and strategies described below at all
times in seeking its goal. It may use some of the special investment techniques
and strategies at some times or not at all.
In selecting securities for the Fund's portfolio, the Sub-Advisor
evaluates the merits of particular securities primarily through the exercise of
its own investment analysis. In the case of corporate issuers, that process may
include, among other things, evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part, the issuer's financial
condition, its pending product developments and business (and those of
competitors), the effect of general market and economic conditions on the
issuer's business, and legislative proposals that might affect the issuer. In
the case of foreign securities, the Sub-Advisor may also consider the conditions
of a particular country's economy in relation to the U.S. economy or other
foreign economies, general political conditions on a country or region, the
effect of taxes, the efficiencies and costs of particular markets and other
factors when evaluating the securities of issuers in a particular country.
O Investments in Equity Securities. The Fund emphasizes investments
in equity securities of small-cap companies. Equity securities include common
stocks, preferred stocks, rights and warrants, and securities convertible into
common stock. The Fund's investments primarily include stocks of companies
having a market capitalization under $1 billion, but the Fund can purchase
securities of issuers having a larger market capitalization.
Current income is not a criterion used to select equity securities, as the
Fund does not seek income as part of its goal. However, certain debt securities
can be selected for the Fund's portfolio for liquidity needs or for defensive
purposes (including debt securities that the Manager believes might offer some
opportunities for capital appreciation when stocks are disfavored).
Securities of newer small-cap companies might offer greater opportunities
for capital appreciation than securities of large, more established companies.
However, these securities also involve greater risks than securities of larger
companies. Securities of small-capitalization issuers may be subject to greater
price volatility in general than securities of large-cap and mid-cap companies.
Therefore, to the degree that the Fund has investments in smaller-capitalization
companies at times of market volatility, the Fund's share price may fluctuate
more than that of funds focusing in larger-capitalization issuers.
|_| Value Investing. In selecting equity investments for the Fund's
portfolio, the portfolio managers currently use a value investing style. In
using a value approach, the portfolio managers seek stock and other equity
securities that appear to be temporarily undervalued, by various measures, such
as price/earnings ratios. This approach is subject to change and might not
necessarily be used in all cases. Value investing seeks stocks having prices
that are low in relation to their real worth or future prospects, in the hope
that the Fund will realize appreciation in the value of its holdings when other
investors realize the intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying
financial condition and prospects. Some of the measures that can be used to
identify these securities include, among others:
|_| Price/Earnings ratio, which is the stock's price divided by its
earnings per share. A stock having a price/earnings ratio lower than its
historical range, or the market as a whole or that of similar companies
may offer attractive investment opportunities. |_| Price/book value ratio,
which is the stock price divided by the book value of the company per
share, which measures the company's stock price in relation to its asset
value. |_| Dividend Yield is measured by dividing the annual dividend by
the stock price per share. |_| Valuation of Assets, which compares the
stock price to the value of the company's underlying assets, including
their projected value in the marketplace and liquidation value.
|_| Preferred Stocks. Preferred stock, unlike common stock, has a
stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative. "Cumulative" dividend provisions
require all or a portion of prior unpaid dividends to be paid before dividends
can be paid on the issuer's common stock.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as provisions allowing calls
or redemptions prior to maturity, which can also have a negative impact on
prices when interest rates decline. Preferred stock generally has a preference
over common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation. The rights of preferred stock on distribution of
a corporation's assets in the event of a liquidation are generally subordinate
to the rights associated with a corporation's debt securities. Preferred stock
may be "participating" stock, which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases.
|_| Rights and Warrants. The Fund can invest up to 5% of its total
assets in warrants and rights. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
|_| Convertible Securities. Convertible securities are debt
securities that are convertible into an issuer's common stock. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore are subject to less risk of loss than common stock in case of the
issuers bankruptcy or liquidation.
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease when
interest rates rise. If the conversion value exceeds the investment value, the
security will behave more like an equity security: it will likely sell at a
premium over its conversion value, and its price will tend to fluctuate directly
with the price of the underlying security.
While convertible securities are a form of debt security, in many cases
their conversion feature (allowing conversion into equity securities) may cause
them to be regarded more as "equity equivalents." As a result, the rating
assigned to the security has less impact on the Sub-Advisor's investment
decision with respect to convertible securities than in the case of
non-convertible fixed income securities. To determine whether convertible
securities should be regarded as "equity equivalents," the Sub-Advisor may
consider the following factors: (1) whether, at the option of the investor, the
convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible securities),
and
(3) the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation in
the price of the issuer's common stock.
O Investments In Debt Securities. While the Fund does not invest for
the purpose of seeking current income, at times the portfolio managers may
select certain debt securities (besides convertible debt securities described
above) for investment by the Fund for liquidity or defensive purposes. For
example, when the stock market is volatile, or when the portfolio managers
believe that growth opportunities in stocks are not attractive, debt securities
might offer defensive opportunities and also some opportunities for capital
appreciation. These investments could include corporate bonds and notes of
foreign or U.S. companies, as well as U.S. and foreign government securities. It
is not expected that this will be a significant portfolio strategy of the Fund
under normal market conditions.
|_| Credit Risk. Debt securities are subject to credit risk.
Credit risk relates to the ability of the issuer of a debt security to make
interest or principal payments on the security as they become due. If the issuer
fails to pay interest, the Fund's income may be reduced and if the issuer fails
to repay principal, the value of that bond and of the Fund's shares may be
reduced. The Sub-Advisor may rely to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities selected
for the Fund's portfolio. It may also use its own research and analysis. Many
factors affect an issuer's ability to make timely payments, and the credit risks
of a particular security may change over time. The Fund can invest up to 5% of
its total assets in higher-yielding lower-grade debt securities (that is,
securities below investment grade).
O Special Risks of Lower-Grade Securities. The Fund can invest up to
5% of its total assets in lower-grade securities. Lower-grade securities
(commonly known as "junk bonds") are rated less than "BBB" by Standard & Poor's
Rating Services or less than "Baa" by Moody's Investors Service, Inc., or have a
comparable rating from another rating organization. If unrated, a security is
considered to be below investment grade if the Sub-Advisor deems it to be of
comparable quality to securities rated less than investment grade. The Fund does
not intend to invest in securities that are in default.
High yield, lower-grade securities, whether rated or unrated, often have
speculative characteristics and special risks that make them riskier investments
than investment grade securities. They may be subject to greater market
fluctuations and risk of loss of income and principal than lower yielding,
investment-grade securities. There may be less of a market for them and
therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
make the payments of interest due on the bonds. The issuer's low
creditworthiness may increase the potential for its insolvency.
These risks mean that the Fund may not achieve the expected income from
lower-grade securities, and that the Fund's net asset value per share may be
affected by declines in value of these securities. However, the Fund's
limitations on investments in these types of securities may reduce some of the
risk, as will the Fund's policy of diversifying its investments.
|_| Interest Rate Risk. In addition to credit risks, debt
securities are subject to changes in value when prevailing interest rates
change. When interest rates fall, the values of outstanding debt securities
generally rise, and the bonds may sell for more than their face amount. When
interest rates rise, the values of outstanding debt securities generally
decline, and the bonds may sell at a discount from their face amount. The
magnitude of these price changes is generally greater for bonds with longer
maturities. Therefore, when the average maturity of the Fund's debt securities
is longer, its share price may fluctuate more when interest rates change.
|_| U.S. Government Securities. These are securities issued or
guaranteed by the U.S. Treasury or other U.S. government agencies or
federally-chartered corporate entities referred to as "instrumentalities." The
obligations of U.S. government agencies or instrumentalities in which the Fund
may invest may or may not be guaranteed or supported by the "full faith and
credit" of the United States. "Full faith and credit" means generally that the
taxing power of the U.S. government is pledged to the payment of interest and
repayment of principal on a security. If a security is not backed by the full
faith and credit of the United States, the owner of the security must look
principally to the agency issuing the obligation for repayment. The owner might
not be able to assert a claim against the United States if the issuing agency or
instrumentality does not meet its commitment. The Fund will invest in securities
of U.S. government agencies and instrumentalities only if the Sub-Advisor is
satisfied that the credit risk with respect to such instrumentality is minimal.
While U.S. government securities have little credit risk, prior to their
maturity they are subject to price fluctuations from changes in interest rates.
|_| Money Market Instruments. The following is a brief
description of the types of money market securities the Fund can invest in.
Those money market securities include high-quality, short-term debt
instruments that are issued by the U.S. government, corporations, banks or
other entities. They may have fixed, variable or floating interest rates.
|_| U.S. Government Securities. These include obligations
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities.
|_| Bank Obligations. The Fund can buy time deposits,
certificates of deposit and bankers' acceptances. Time deposits, other than
overnight deposits, may be subject to withdrawal penalties and, if so, they are
deemed "illiquid" investments.
The Fund can purchase bank obligations that are fully insured by the
Federal Deposit Insurance Corporation. The FDIC insures the deposits of member
banks up to $100,000 per account. Insured bank obligations may have a limited
market and a particular investment of this type may be deemed "illiquid" unless
the Board of Trustees of the Fund determines that a readily-available market
exists for that particular obligation, or unless the obligation is payable at
principal amount plus accrued interest on demand or within seven days after
demand.
|_| Commercial Paper. The Fund can invest in commercial paper if it
is rated within the top two rating categories of Standard & Poor's and Moody's.
If the paper is not rated, it may be purchased if issued by a company having a
credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
|_| Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by the
Fund at varying rates of interest under direct arrangements between the Fund, as
lender, and the borrower. They permit daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may prepay up to the full amount of the note without penalty. These
notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and
borrower, it is not expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. Accordingly, the Fund's right to redeem such notes is
dependent upon the ability of the borrower to pay principal and interest on
demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an ongoing
basis, the Sub-Advisor will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation
on investments by the Fund in illiquid securities, described in the Prospectus.
The Fund does not intend that its investments in variable amount master demand
notes will exceed 5% of its total assets.
|X| Foreign Securities. The Fund can purchase equity and debt securities
issued by foreign companies or foreign governments or their agencies. "Foreign
securities" include equity and debt securities of companies organized under the
laws of countries other than the United States and debt securities of foreign
governments and their agencies and instrumentalities. Those securities may be
traded on foreign securities exchanges or in the foreign over-the-counter
markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are considered "foreign securities" for the purpose of
the Fund's investment allocations. That is because they are subject to some of
the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Because the Fund can purchase securities denominated in foreign
currencies, a change in the value of a foreign currency against the U.S. dollar
could result in a change in the amount of income the Fund has available for
distribution. Because a portion of the Fund's investment income may be received
in foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income, which
could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign
governments and their agencies and instrumentalities may or may not be supported
by the full faith and credit of the foreign government. The Fund can buy
securities issued by certain "supra-national" entities, which include entities
designated or supported by governments to promote economic reconstruction or
development, international banking organizations and related government
agencies. Examples are the International Bank for Reconstruction and Development
(commonly called the "World Bank"), the Asian Development bank and the
Inter-American Development Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
|_| Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange; o lack of public information about
foreign issuers; o lack of uniform accounting, auditing and financial reporting
standards
in foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing
markets abroad may also offer special opportunities for growth investing but
have greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject
to the risk of greater political and economic instability, which can greatly
affect the volatility of prices of securities in those countries. The
Sub-Advisor will consider these factors when evaluating securities in these
markets. The Fund currently limits these investments to not more than 5% of its
total assets.
|_| Risks of Conversion to Euro. On January 1, 1999, eleven countries
in the European Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress securities
values. o vendors the Fund depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Fund buys), the
Manager (which must price the Fund's investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in
settlements and additional costs to the Fund. o exchange contracts and
derivatives that are outstanding during the transition to the euro. The
lack of currency rate calculations between the affected currencies and the
need to update the Fund's contracts could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's custodian bank has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|X| 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 the year, its portfolio
turnover rate would have been 100% annually. The Fund's portfolio turnover rate
will fluctuate from year to year, but the Fund does not expect to have a
portfolio turnover rate of 100% or more. Increased portfolio turnover creates
higher brokerage and transaction costs for the Fund, which may reduce its
overall performance. Additionally, the realization of capital gains from selling
portfolio securities may result in distributions of taxable long-term capital
gains to shareholders, since the Fund will normally distribute all of its
capital gains realized each year, to avoid excise taxes under the Internal
Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
|X| Investing in Small, Unseasoned Companies. The Fund can invest in
securities of small, unseasoned companies. These are companies that have been in
operation for less than three years, including the operations of any
predecessors. Securities of these companies may be subject to volatility in
their prices. They may have a limited trading market, which may adversely affect
the Fund's ability to dispose of them and can reduce the price the Fund might be
able to obtain for them. Other investors that own a security issued by a small,
unseasoned issuer for which there is limited liquidity might trade the security
when the Fund is attempting to dispose of its holdings of that security. In that
case the Fund might receive a lower price for its holdings than might otherwise
be obtained.
|X| Investing in Other Investment Companies. The Fund can invest up to 10%
of its total assets in shares of other investment companies. It can invest up to
5% of its total assets in any one investment company (but cannot own more than
3% of the outstanding voting stock of that company). These limits do not apply
to shares acquired in a merger, consolidation, reorganization or acquisition of
another investment company. Because the Fund would be subject to its ratable
share of the other investment company's expenses, the Fund will not make these
investments unless the Sub-Advisor believes that the potential investment
benefits justify the added costs and expenses.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund may invest
in securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" or "forward commitment" basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.
When these transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Sub-Advisor before
settlement will affect the value of such securities and may cause a loss to the
Fund. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund from the investment.
No income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at the settlement of the trade.
The Fund can engage in when-issued transactions to secure what the
Sub-Advisor considers to be an advantageous price and yield at the time of
entering into the obligation. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause the Fund to lose the opportunity to
obtain the security at a price and yield the Sub-Advisor considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purpose of investment
leverage. Although the Fund will enter into delayed-delivery or when-issued
purchase transactions to acquire securities, it may dispose of a commitment
prior to settlement. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
delivery or receive against a forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
The Fund will not enter into when-issued commitments if more than 15% of the
Fund's net assets would be committed under these transactions.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's net assets that may be subject to repurchase agreements having
maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Sub-Advisor will monitor the vendor's creditworthiness to confirm
that the vendor is financially sound and will continuously monitor the
collateral's value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
|X| Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Trustees. It might do so to try to provide income or to raise cash or income for
liquidity purposes. These loans are limited to not more than 10% of the value of
the Fund's total assets. There are some risks in connection with securities
lending. The Fund might experience a delay in receiving additional collateral to
secure a loan, or a delay in recovery of the loaned securities. The Fund
presently does not intend to engage in loans of securities.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finders, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
|X| Borrowing. As a fundamental policy, the Fund cannot borrow money
except as a temporary measure for extraordinary or emergency purposes. Loans may
not exceed 33-1/3% of the value of the Fund's total assets. Additionally, as
part of that fundamental policy, the Fund will not purchase securities at times
when loans exceed 5% of its total assets.
The Fund may borrow only from banks. Under current regulatory
requirements, borrowings can be made only to the extent that the value of the
Fund's assets, less its liabilities other than borrowings, is equal to at least
300% of all borrowings (including the proposed borrowing). If the value of the
Fund's assets fails to meet this 300% asset coverage requirement, the Fund will
reduce its bank debt within three days to meet the requirement. To do so, the
Fund might have to sell a portion of its investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow.
Additionally, the Fund's net asset value per share might fluctuate more than
that of funds that do not borrow.
|X| Hedging. Although the Fund can use hedging instruments, it is not
obligated to use them in seeking its objective. It does not currently
contemplate using them to any significant degree. To attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund to
retain unrealized gains in the value of portfolio securities that have
appreciated, or to facilitate selling securities for investment reasons, the
Fund could:
|_| sell futures contracts, |_| buy puts on futures or on securities, or
|_| write covered calls on securities or futures.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case the
Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so, the Fund could:
|_| buy futures, or
|_| buy calls on futures or on securities.
The Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate
to (1) broadly-based stock indices (these are referred to as "stock index
futures"), (2) foreign currencies (these are referred to as "forward
contracts"), and (3) commodities (these are referred to as "commodity futures").
A broadly-based stock index is used as the basis for trading stock index
futures. These indices may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index cannot
be purchased or sold directly. These contracts obligate the seller to deliver,
and the purchaser to take, cash to settle the futures transaction. There is no
delivery made of the underlying securities to settle the futures obligation.
Either party may also settle the transaction by entering into an offsetting
contract.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4)
industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts and
options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as
other types of commodities.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions (except forward contracts)
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
|_| Put and Call Options. The Fund can buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including options on
broadly-based indices, securities, and stock index futures. The Trustees have
adopted a non-fundamental policy that the Fund may write covered call options or
write covered put options with respect to not more than 5% of the value of its
net assets. Similarly, the Fund may purchase call or put options only if, after
the purchase, the value of all call and put options held by the Fund will not
exceed 5% of the Fund's total assets.
|_| Writing Covered Call Options. The Fund can write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered. For options
on securities, that means the Fund must own the security subject to the call
while the call is outstanding. For stock index options, that means the call must
be covered by segregating liquid assets to enable the Fund to satisfy its
obligations if the call is exercised.
When the Fund writes a call on a security, it receives cash (a premium).
For calls on securities, the Fund agrees to sell the underlying security to a
purchaser of a corresponding call on the same security during the call period at
a fixed exercise price regardless of market price changes during the call
period. The call period is usually not more than nine months. The exercise price
may differ from the market price of the underlying security. The Fund has the
risk of loss that the price of the underlying security may decline during the
call period. That risk may be offset to some extent by the premium the Fund
receives. If the value of the investment does not rise above the call price, it
is likely that the call will lapse without being exercised. In that case, the
Fund would keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by a specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised in that case, the Fund would keep the cash premium.
If the buyer of a call on a stock index exercises it, the Fund will pay an
amount of cash equal to the difference between the closing price of the call and
the exercise price, multiplied by a specified multiple that determines the total
value of the call for each point of difference. If the value of the underlying
investment does not rise above the call price, it is likely that the call will
lapse without being exercised. In that case the Fund would keep the cash
premium.
Settlement of puts and calls on broadly-based stock indices is in cash.
Gain or loss on options on stock indices depends on changes in the index in
question (and thus on price movements in the stock market generally).
The Fund's custodian bank, or a securities depository acting for the
custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the premium it received when it wrote the call. Any
such profits are considered short-term capital gains for Federal income tax
purposes, as are the premiums on lapsed calls. When distributed by the Fund they
are taxable as ordinary income. If the Fund cannot effect a closing purchase
transaction due to the lack of a market, it will have to hold the escrowed
assets in escrow until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
require the Fund to deliver a futures contract. It would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging policies.
|_| Writing Put Options. The Fund can sell put options on
broadly-based stock indices or stock index futures. A put option on securities
gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying investment at the exercise price during the option period. If the
Fund writes a put, the put must be covered by liquid assets identified on the
Fund's books in an amount at least equal to the exercise price of the underlying
securities. The Fund therefore foregoes the opportunity of investing the
segregated assets or writing calls against those assets.
The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to settle the transaction in cash with the buyer of the put at
the exercise price, even if the value of the underlying investment falls below
the exercise price. If a put the Fund has written expires unexercised, the Fund
realizes a gain in the amount of the premium less the transaction costs
incurred. If the put is exercised, the Fund must fulfill its obligation to
settle in cash at the exercise price. That price will usually exceed the market
value of the investment at that time. In that case, the Fund might incur a loss
if it sells the underlying investment. That loss will be equal to the sum of the
sale price of the underlying investment and the premium recovered minus the sum
of the exercise price and any transaction costs the Fund incurred.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to settle the transaction in cash at the
exercise price. The Fund has no control over when it may be required to settle
the transaction, since it may be assigned an exercise notice at any time prior
to the termination of its obligation as the writer of the put. That obligation
terminates upon expiration of the put. It may also terminate if, before it
receives an exercise notice, the Fund effects a closing purchase transaction by
purchasing a put of the same series as it sold. Once the Fund has been assigned
an exercise notice, it cannot effect a closing purchase transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. The Fund will realize a profit or loss from a closing
purchase transaction depending on whether the cost of the transaction is less or
more than the premium received from writing the put option. Any profits from
writing puts are considered short-term capital gains for Federal tax purposes,
and when distributed by the Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can buy calls to protect
against the possibility that the Fund's portfolio will not participate in an
anticipated rise in the securities market. When the Fund buys a call (other than
in a closing purchase transaction), it pays a premium. Buying a call on a
security or future gives the Fund the right to buy the underlying investment
from a seller of a corresponding call on the same investment during the call
period at a fixed exercise price. The Fund benefits only if it sells the call at
a profit or if, during the call period, the market price of the underlying
investment is above the sum of the call price plus the transaction costs and the
premium paid for the call and the Fund exercises the call. If the Fund does not
exercise the call or sell it (whether or not at a profit), the call will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to purchase the underlying investment.
In the case of a purchase of a call on a stock index, if the Fund
exercises the call during the call period, a seller of a corresponding call on
the same index will pay the Fund an amount of cash to settle the call if the
closing level of the stock index upon which the call is based is greater than
the exercise price of the call. That cash payment is equal to the difference
between the closing price of the call and the exercise price of the call times a
specified multiple (the "multiplier") which determines the total dollar value
for each point of difference.
When the Fund buys a put, it pays a premium. It has the right during the
put period to require a seller of a corresponding put, upon the Fund's exercise
of its put, to buy the underlying security (in the case of puts on securities or
futures) or in the case of puts on stock indices, to deliver cash to the Fund to
settle the put if the closing level of the stock index upon which the put is
based is less than the exercise price of the put. That cash payment is
determined by the multiplier, in the same manner as described above as to calls.
Buying a put on a security or future enables the Fund to sell the
underlying investment to a seller of a corresponding put on the same investment
during the put period at a fixed exercise price. Buying a put on securities or
Futures the Fund owns enables the Fund to attempt to protect itself during the
put period against a decline in the value of the underlying investment below the
exercise price by selling the underlying investment at the exercise price to a
seller of a corresponding put. If the market price of the underlying investment
is equal to or above the exercise price and, as a result, the put is not
exercised or resold, the put will become worthless at its expiration date. In
that case the Fund will have paid the premium but lost the right to sell the
underlying investment. However, the Fund may sell the put prior to its
expiration. That sale may or may not be at a profit.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
When the Fund purchases a put on a stock index, the put protects the Fund
to the extent that the index moves in a similar pattern to the securities the
Fund holds. The Fund can resell the put. The resale price of the put will vary
inversely with the price of the underlying investment. If the market price of
the underlying investment is above the exercise price, and as a result the put
is not exercised, the put will become worthless on the expiration date. In the
event of a decline in price of the underlying investment, the Fund could
exercise or sell the put at a profit to attempt to offset some or all of its
loss on its portfolio securities.
|_| Buying and Selling Options on Foreign Currencies. The Fund can
buy and sell calls and puts on foreign currencies. They include puts and calls
that trade on a securities or commodities exchange or in the over-the-counter
markets or are quoted by major recognized dealers in such options. The Fund
could use these calls and puts to try to protect against declines in the dollar
value of foreign securities and increases in the dollar cost of foreign
securities the Fund wants to acquire.
If the Sub-Advisor anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Sub-Advisor anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Sub-Advisor uses a hedging instrument at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce the Fund's return. The
Fund could also experience losses if the prices of its futures and options
positions were not correlated with its other investments. The Fund's option
activities may affect its costs.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market may
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
|_| Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess.
As one alternative, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price. As another
alternative, the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases, the Sub-Advisor might decide to
sell the security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same advisor as the Fund (or an advisor that is an affiliate of the Fund's
advisor or Sub-Advisor). The exchanges also impose position limits on futures
transactions. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it. The account must be a segregated account or
accounts held by the Fund's custodian bank.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign currency
exchange contracts in which the Fund may invest are treated as "Section 1256
contracts" under the Internal Revenue Code. In general, gains or losses relating
to Section 1256 contracts are characterized as 60% long-term and 40% short-term
capital gains or losses under the Code. However, foreign currency gains or
losses arising from Section 1256 contracts that are forward contracts generally
are treated as ordinary income or loss. In addition, Section 1256 contracts held
by the Fund at the end of each taxable year are "marked-to-market," and
unrealized gains or losses are treated as though they were realized. These
contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under
rules prescribed pursuant to the Internal Revenue Code. An election can be made
by the Fund to exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that
occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in
a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a
foreign currency between the date of acquisition of a debt security
denominated in a foreign currency or foreign currency forward
contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or |_| more than 50% of the
outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
G The Fund cannot invest more than 5% of the value of its total assets in
the securities of any one issuer. This limitation applies to 75% of the Fund's
total assets.
G The Fund cannot purchase more than 10% of any class of security of any
issuer. All outstanding debt securities and all preferred stock of an issuer are
considered as one class. This restriction does not apply to securities issued by
the U.S. government or any of its agencies or instrumentalities.
G The Fund cannot concentrate its investments. That means it cannot invest
25% or more of its total assets in any industry. If deemed appropriate for
attaining its investment objective, the Fund may invest less than but up to 25%
of its total assets in any one industry classification used by the Fund for
investment purposes. For this purpose, a foreign government is considered an
industry.
G The Fund cannot borrow money in excess of 33-1/3% of the value of the
Fund's total assets. The Fund may borrow only from banks and only as a temporary
measure for extraordinary or emergency purposes. The Fund will make no
additional investments while borrowings exceed 5% of the Fund's total assets.
The Fund can borrow only if it maintains a 300% ratio of assets to borrowings at
all times in the manner set forth in the Investment Company Act of 1940.
G The Fund cannot invest in physical commodities or physical commodity
contracts. However, the Fund may buy and sell hedging instruments to the extent
specified in its Prospectus or Statement of Additional Information from time to
time. The Fund can also buy and sell options, futures, securities or other
instruments backed by, or the investment return from which is linked to, changes
in the price of physical commodities.
G The Fund cannot invest in real estate or real estate limited
partnerships (direct participation programs). However, the Fund may purchase
securities of issuers that engage in real estate operations and securities which
are secured by real estate or interests in real estate.
G The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
G The Fund cannot invest in securities of any issuer if, to the knowledge
of the Trust, officers, directors or trustees of the Trust, the Manager or the
Sub-Advisor who own more than 1/2 of 1% of the outstanding securities of such
issuer together own more than 5% of the outstanding securities of such issuer.
G The Fund cannot pledge its assets or assign or otherwise encumber its
assets in excess of 10% of its net assets. It can pledge, assign or encumber its
assets only to secure borrowings effected within the limitations set forth in
the Prospectus.
? The Fund cannot invest for the purpose of exercising control or
management of another company.
G The Fund cannot issue senior securities (as defined in the Investment
Company Act of 1940). However, the Fund can enter into any repurchase agreement,
borrow money in accordance with restrictions described above and lend its
portfolio securities.
G The Fund cannot make loans to any person or individual. However, the
Fund may loan portfolio securities within the limitations set forth in the
Prospectus.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. 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.
For purposes of the Fund's policy not to concentrate its investments as
described above, the Fund has adopted the industry classifications set forth in
Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
|X| Does the Fund Have Any Restrictions That Are Not Fundamental? The Fund
has other investment restrictions that are not fundamental policies, which means
that they can be changed by the Board of Trustees without shareholder approval.
G The fund cannot make short sales or purchase securities on margin.
However, the Fund can make short-term borrowings when necessary for the
clearance of purchases of portfolio securities. Collateral arrangements in
connection with futures and options are not deemed to be margin transactions
under this restriction.
G The Fund cannot invest in interests in oil, gas or other mineral
exploration or development programs or leases.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company. The Fund is one of three series of Oppenheimer Quest for
Value Funds, an open-end management investment company organized as a
Massachusetts business trust in April 1987 (and which is referred to as the
"Trust").
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. 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.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Trust into two or more
series and each series into two or more classes. The Board has done so, and the
Fund currently has four classes of shares: Class A, Class B and, Class C. All
classes invest in the same investment portfolio. Each class of shares: o has its
own dividends and distributions, o pays certain expenses which may be different
for the different classes, o may have a different net asset value, o may have
separate voting rights on matters in which interests of one
class are different from interests of another class, and o votes as a
class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series of the Trust and new
classes of shares of the Fund. The Trustees may reclassify unissued shares of
the Fund into additional series or classes of shares. The Trustees also may
divide or combine the shares of a class into a greater or lesser number of
shares without 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 at shareholder
meetings.
|X| Meetings of Shareholders. Although the Fund is not required by
Massachusetts law to hold annual meetings, it may hold shareholder meetings from
time to time on important matters. The Fund's shareholders have the right to
call a meeting to remove a Trustee or to take certain other action described in
the Declaration of Trust.
The Fund will hold meetings when required to do so by the Investment
Company Act or other applicable law. The Fund will hold a meeting when the
Trustees call a meeting or upon proper request of shareholders. If the Fund
receives a written request of the record holders of at least 25% of the
outstanding shares eligible to be voted at a meeting to call a meeting for a
specified purpose (which might include the removal of a Trustee), the Fund will
call a meeting of shareholders for that specified purpose.
Shareholders of the different classes of the Fund vote together in the
aggregate on certain matters at shareholders' meetings. Those matters include
the election of Trustees and ratification of appointment of the independent
auditors. Shareholders of a particular series or class vote separately on
proposals that affect that series or class. Shareholders of a series or class
that is not affected by a proposal are not entitled to vote on the proposal. For
example, only shareholders of a particular series vote on any material amendment
to the investment advisory agreement for that series. Only shareholders of a
particular class of a series vote on certain amendments to the Distribution
and/or Service Plans if the amendments affect only that class.
|X| Shareholder and Trustee Liability. The Trust's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Trustees and officers and their principal
occupations and business affiliations during the past five years are listed
below. Trustees denoted with an asterisk (*) below are deemed to be "interested
persons" of the Fund under the Investment Company Act. All of the Trustees are
also trustees, directors or managing general partners of the following
Oppenheimer funds:
Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest For Value Funds, a series Fund having the following series:
Oppenheimer Quest Small Cap Value Fund,
Oppenheimer Quest Balanced Value Fund and
Oppenheimer Quest Opportunity Value Fund),
Oppenheimer Quest Global Value Fund, Inc.,
Oppenheimer Quest Capital Value Fund, Inc.,
Rochester Portfolio Series, a series Fund having one series: Limited-Term New
York
Municipal Fund,
Rochester Fund Municipals,
Bond Fund Series (a series Fund having one series: Oppenheimer Convertible
Securities Fund, and Oppenheimer MidCap Fund
Ms. Macaskill and Messrs. Bishop, Bowen, Doll, Donohue, Farrar and Zack, who
are officers of the Fund, respectively hold the same offices of the other listed
Oppenheimer funds. As of February 1, 1999, the Trustees and the officers of the
Fund as a group owned less than 1% of the outstanding shares of the Fund. The
foregoing statement does not reflect shares held of record by an employee
benefit plan for employees of the Manager other than shares beneficially owned
under that plan by the officers of the Fund listed below. Ms. Macaskill and Mr.
Donohue, are trustees of that plan.
Bridget A. Macaskill, Chairman of the Board of Trustees and President; Age: 50*
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 advisor 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");
Chairman, President and a director of Oppenheimer Millennium Funds plc (since
October 1997); President and a director of other Oppenheimer funds; Member,
Board of Governors, NASD, Inc.; a director of Hillsdown Holdings plc (a U.K.
food company); formerly an Executive Vice President of the Manager, a director
of the NASDAQ Stock Market, Inc.
Paul Y. Clinton, Trustee; Age: 68
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, both 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.
Thomas W. Courtney, Trustee; Age: 65
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, both 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.
Robert G. Galli, Trustee; Age: 65
19750 Beach Road, Jupiter Island, FL 33469
Formerly he held the following positions: Vice Chairman of OppenheimerFunds,
Inc. (the "Manager") (October 1995 to December 1997), Vice President (June
1990 to March 1994) and Counsel of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company.
Lacy B. Herrmann, Trustee; Age: 69
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-Advisor 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 advisor to CCMT; Chairman, President
and a Director of InCap Management Corporation, formerly Sub-Advisor 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: 84
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: 48
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); 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; Vice President and a director of OFIL and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.
George C. Bowen, Treasurer; Age: 62
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); Assistant Treasurer of OAC (since March 1998); Treasurer
of OPHI (since November 1989); Vice President and Treasurer of Oppenheimer Real
Asset Management, Inc. (since July 1996); Treasurer of OFIL and Oppenheimer
Millennium Fund plc (since October 1997); a director or trustee and an officer
of other Oppenheimer funds; formerly Treasurer of OAC (June 1990-March 1998).
Robert Bishop, Assistant Treasurer; Age: 40
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: 33
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: 50
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 OFIL and Oppenheimer Millennium
Funds plc (since October 1997); an officer of other Oppenheimer funds.
|X| Remuneration of Trustees. The officers of the Fund and one Trustee, Ms.
Macaskill,
are affiliated with the Manager and receive no salary or fee from the Fund. The
remaining Trustees received the compensation shown below. The compensation from
the Fund was paid during its fiscal year ended October 31, 1998. The table below
also shows the total compensation from all of the Oppenheimer funds listed
above, including the compensation from the Fund and two other funds that are not
Oppenheimer funds but for which the Sub-Advisor acts as investment advisor. That
amount represents compensation received as a director, trustee, or member of a
committee of the Board during the calendar year 1998.
<PAGE>
- --------------------------------------------------------------------
Total
Compensation
From all
Aggregate Retirement Oppenheimer
Compensation Benefits Quest/Rochester
Trustee's Name From Fund1 Accrued as Part Funds
of Fund Expenses (11 Funds)2 and
Two Other Funds3
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Paul Y. Clinton $7,641 $2,061 $135,100
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Thomas W. $7,084 $1,504 $135,100
Courtney
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Robert G. Galli $2,434 None
$113,383.33
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Lacy B. $7,817 $2,317 $135,100
Herrmann
- --------------------------------------------------------------------
- --------------------------------------------------------------------
George Loft $8,013 $2,432 $135,100
- --------------------------------------------------------------------
1. Aggregate compensation includes fees and any retirement benefits accrued for
a Trustee.
2. For the 1998 calendar year. Includes compensation for a portion of the year
paid by Oppenheimer Quest Officers Value Fund, which was reorganized into
another fund in June 1998. Each series of an investment company is considered
a separate "fund" for this purpose. For Mr. Galli, compensation is for period
from 6/2/98 to 10/31/98.
3. Includes compensation paid by two funds for which the Sub-Advisor acts
as investment advisor. Those funds are not Oppenheimer funds and are not
affiliated with the Oppenheimer funds, the Manager or the Distributor. The
amount of aggregate compensation paid to certain Fund Trustees by those two
other funds was as follows: Mr. Clinton: $63,400; Mr. Courtney: $63,400;
Mr. Hermann: $63,400; and Mr. Loft: $63,400.
4. For Mr. Galli, the aggregate compensation from the Fund is for the period
from 6/2/98 to 10/31/98, and his total compensation for the 1998 calendar
year also includes compensation from 20 other Oppenheimer funds for which he
serves as a trustee or director.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five years of service in which the
highest compensation was received. A Trustee must serve as Trustee for any of
the Oppenheimer Quest/Rochester/MidCap funds listed above for at least 15 years
to be eligible for the maximum payment. Each Trustee's retirement benefits will
depend on the amount of the Trustee's future compensation and length of service.
Therefore the amount of those benefits cannot be determined at this time, nor
can we estimate the number of years of credited service that will be used to
determine those benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested Trustees that enables
them 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 and 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 without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of February 1, 1999, the only person who
owned of record or was known by the Fund to own beneficially 5% or more of
any class of the Fund's outstanding shares was:
Merrill Lynch Pierce Fenner & Smith, Inc., 4800 Deer Lake Dr. E Floor 3,
Jacksonville, FL 32246, which owned 1,788,358.57 Class C shares
(representing approximately 6.84% of then-outstanding Class C shares), for
the benefit of its customers.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. 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 enforced by the
Manager.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund's parent Trust. The Manager handles
the Fund's day-to-day business, and the agreement permits the Manager to enter
into sub-advisory agreements with other registered investment advisors to obtain
specialized services for the Fund, as long as the Fund is not obligated to pay
any additional fees for those services. The Manager has retained the Sub-Advisor
pursuant to a separate Sub-Advisory Agreement, described below, under which the
Sub-Advisor buys and sells portfolio securities for the Fund. The portfolio
managers of the Fund are employed by the Sub-Advisor and are the persons who are
principally responsible for the day-to-day management of the Fund's portfolio,
as described below.
The investment advisory agreement between the Fund and the Manager requires
the Manager, at its expense, to provide the Fund with adequate office space,
facilities and equipment. It also requires the Manager to provide and supervise
the activities of all administrative and clerical personnel required to provide
effective administration for the Fund. Those responsibilities include the
compilation and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of proxy materials
and registration statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. Expenses for the Trust's three series are allocated to the
series in proportion to their net assets, unless allocations of expenses can be
made directly to a series. The advisory agreement lists examples of expenses
paid by the Fund. The major categories relate to calculation of the Fund's net
asset values per share, interest, taxes, brokerage commissions, fees to certain
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs and non-recurring
expenses, including litigation costs. The management fees paid by the Fund to
the Manager are calculated at the rates described in the Prospectus, which are
applied to the assets of the Fund as a whole. The fees are allocated to each
class of shares based upon the relative proportion of the Fund's net assets
represented by that class.
<PAGE>
- ---------------------------------------------------------------------
Fees Paid to Manager
Management Fees Paid to to Calculate Fund's
Fiscal Year ended OppenheimerFunds, Inc. Net Asset Values2
10/31:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
19961 $1,467,707 $51,634
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1997 $1,959,159 $58,334
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1998 $3,283,570 $55,000
- ---------------------------------------------------------------------
1. For the 11 month fiscal period commencing November 22, 1995, when the Manager
became the Fund's investment advisor. For the period from November 1, 1995 to
November 22, 1995, the Fund paid an advisory fee of $90,775 and accounting
services fees of $2,292 to the Sub-Advisor, which was then the Fund's
investment advisor.
2. During the fiscal years noted, the Fund paid the Manager a fee for accounting
services, consisting of a base fee of $55,000 per year plus out-of-pocket
expenses. The Manager has voluntarily agreed to eliminate its fee for
providing those services for fiscal years commencing on or after November 1,
1998.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
The agreement permits the Manager to act as investment advisor for any other
person, firm or corporation and to use the names "Oppenheimer" and "Quest for
Value" in connection with other investment companies for which it may act as
investment advisor or general distributor. If the Manager shall no longer act as
investment advisor to the Fund, the Manager may withdraw the right of the Fund
to use the names "Oppenheimer" or "Quest for Value" as part of its name.
The Sub-Advisor. The Sub-Advisor is a majority-owned subsidiary of Oppenheimer
Capital, a registered investment advisor. From the Fund's inception on April 30,
1980, until November 22, 1995, the Sub-Advisor (which was then named Quest for
Value Advisors) or the Sub-Advisor's parent served as the Fund's investment
advisor. The Sub-Advisor acts as investment advisor to other investment
companies and for individual investors.
On November 4, 1997, PIMCO Advisors L.P., a registered investment advisor
with $125 billion in assets under management through various subsidiaries and
affiliates, acquired control of Oppenheimer Capital and the Sub-Advisor. On
November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors. As a result, Oppenheimer Capital and the Sub-Advisor became indirect
wholly-owned subsidiaries of PIMCO Advisors. PIMCO Advisors has two general
partners: PIMCO Partners, G.P., a California general partnership, and PIMCO
Advisors Holdings L.P. (formerly Oppenheimer Capital, L.P.), an New York Stock
Exchange-listed Delaware limited partnership of which PIMCO Partners, G.P. is
the sole general partner.
PIMCO Partners, G.P. beneficially owns or controls (through its general
partner interest in Oppenheimer Capital, L.P.) more than 80% of the units of
limited partnership of PIMCO Advisors. PIMCO Partners, G.P. has two general
partners. The first of these is Pacific Investment Management Company, a
wholly-owned subsidiary of Pacific Financial Asset Management Company, a
direct subsidiary of Pacific Life Insurance Company ("Pacific Life").
The managing general partner of PIMCO Partners, G.P. is PIMCO Partners
L.L.C. ("PPLLC"), a California limited liability company. PPLLC's members
are the Managing Directors (the "PIMCO Managers") of Pacific Investment
Management Company, a subsidiary of PIMCO Advisors (the "PIMCO
Subpartnership"). The PIMCO Managers are: William H. Gross, Dean S. Meiling,
James F. Muzzy, William F. Podlich, III, Brent R. Harris, John L. Hague,
William S. Thompson Jr., William C. Powers, David H. Edington, Benjamin
Trosky, William R. Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by a Management Board, which consists of
sixteen members, pursuant to a delegation by its general partners. PIMCO
Partners G.P. has the power to designate up to nine members of the Management
Board and the PIMCO Subpartnership, of which the PIMCO Managers are the Managing
Directors, has the power to designate up to two members. In addition, PIMCO
Partners, G.P., as the controlling general partner of PIMCO Advisors, has the
power to revoke the delegation to the Management Board and exercise control of
PIMCO Advisors. As a result, Pacific Life and/or the PIMCO Managers may be
deemed to control PIMCO Advisors. Pacific Life and the PIMCO Managers disclaim
such control.
|X| The Sub-Advisory Agreement. Under the Sub-Advisory Agreement between
the Manager and the Sub-Advisor, the Sub-Advisor shall regularly provide
investment advice with respect to the Fund and invest and reinvest cash,
securities and the property comprising the assets of the Fund. Under the
Sub-Advisory Agreement, the Sub-Advisor agrees not to change the portfolio
manager of the Fund without the written approval of the Manager. The Sub-Advisor
also agrees to provide assistance in the distribution and marketing of the Fund.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Advisor an
annual fee in monthly installments, based on the average daily net assets of the
Fund. The fee paid to the Sub-Advisor under the Sub-Advisory agreement is paid
by the Manager, not by the Fund. The fee is equal to 40% of the investment
advisory fee collected by the Manager from the Fund based on the total net
assets of the Fund as of November 22, 1995 (the "Base Amount") plus 30% of the
investment advisory fee collected by the Manager based on the total net assets
of the Fund that exceed the Base Amount.
The Sub-Advisory Agreement states that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations, the Sub-Advisor shall not be liable to the Manager for any act or
omission in the course of or connected with rendering services under the
Sub-Advisory Agreement or for any losses that may be sustained in the purchase,
holding or sale of any security.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement and the Sub-Advisory
Agreement. One of the duties of the Sub-Advisor under the Sub-Advisory Agreement
is to arrange the portfolio transactions for the Fund. The Fund's investment
advisory agreement with the Manager and the Sub-Advisory Agreement contain
provisions relating to the employment of broker-dealers to effect the Fund's
portfolio transactions. The Manager and the Sub-Advisor are authorized to employ
broker-dealers, including "affiliated" brokers, as that term is defined in the
Investment Company Act. They may employ broker-dealers that, in their best
judgment based on all relevant factors, will implement the policy of the Fund to
obtain, at reasonable expense, the "best execution" of the Fund's portfolio
transactions. "Best execution" means prompt and reliable execution at the most
favorable price obtainable.
The Manager and the Sub-Advisor need not seek competitive commission
bidding. However, they are expected to be aware of the current rates of eligible
brokers and to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund as established by its Board of Trustees.
The Manager and the Sub-Advisor may select brokers (other than affiliates)
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager, the Sub-Advisor or their respective affiliates
have investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would charge, if the Manager or Sub-Advisor, as
applicable, makes a good faith determination that the commission is fair and
reasonable in relation to the services provided. Subject to those
considerations, as a factor in selecting brokers for the Fund's portfolio
transactions, the Manager and the Sub-Advisor may also consider sales of shares
of the Fund and other investment companies for which the Manager or an affiliate
serves as investment advisor.
The Sub-Advisory Agreement permits the Sub-Advisor to enter into
"soft-dollar" arrangements through the agency of third parties to obtain
services for the Fund. Pursuant to these arrangements, the Sub-Advisor will
undertake to place brokerage business with broker-dealers who pay third parties
that provide services. Any such "soft-dollar" arrangements will be made in
accordance with policies adopted by the Board of the Trust and in compliance
with applicable law.
Brokerage Practices Followed by the Manager. Brokerage for the Fund is allocated
subject to the provisions of the investment advisory agreement and the
Sub-Advisory agreement and the procedures and rules described above. Generally,
the Sub-Advisor's portfolio traders allocate brokerage based upon
recommendations from the Fund's portfolio manager. In certain instances,
portfolio managers may directly place trades and allocate brokerage. In either
case, the Sub-Advisor's executive officers supervise the allocation of
brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so.
The Sub-Advisor serves as investment manager to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Sub-Advisor to allocate
purchase or sale transactions among the Fund and other clients whose assets it
manages in a manner it deems equitable. In making those allocations, the
Sub-Advisor considers several main factors, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and each other client's accounts.
When orders to purchase or sell the same security on identical terms are
placed by more than one of the funds and/or other advisory accounts managed by
the Sub-Advisor or its affiliates, the transactions are generally executed as
received, although a fund or advisory account that does not direct trades to a
specific broker (these are called "free trades") usually will have its order
executed first. Orders placed by accounts that direct trades to a specific
broker will generally be executed after the free trades. All orders placed on
behalf of the Fund are considered free trades. However, having an order placed
first in the market does not necessarily guarantee the most favorable price.
Purchases are combined where possible for the purpose of negotiating brokerage
commissions. In some cases that practice might have a detrimental effect on the
price or volume of the security in a particular transaction for the Fund.
Most purchases of debt obligations are principal transactions at net prices.
Instead of using a broker for those transactions, the Fund normally deals
directly with the selling or purchasing principal or market maker unless the
Sub-Advisor determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement and the Sub-Advisory agreement permit the
Manager and the Sub-Advisor to allocate brokerage for research services. The
research services provided by a particular broker may be useful only to one or
more of the advisory accounts of the Sub-Advisor and its affiliates. The
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of the Sub-Advisor's other accounts.
Investment research may be supplied to the Sub-Advisor by a third party at the
instance of a broker through which trades are placed.
Investment research services include information and analysis on particular
companies and industries as well as market or economic trends and portfolio
strategy, market quotations for portfolio evaluations, information systems,
computer hardware and similar products and services. If a research service also
assists the Sub-Advisor in a non-research capacity (such as bookkeeping or other
administrative functions), then only the percentage or component that provides
assistance to the Sub-Advisor in the investment decision-making process may be
paid in commission dollars.
The research services provided by brokers broadens the scope and supplements
the research activities of the Sub-Advisor. That research provides additional
views and comparisons for consideration, and helps the Sub-Advisor to obtain
market information for the valuation of securities that are either held in the
Fund's portfolio or are being considered for purchase. The Sub-Advisor provides
information to the Manager and the Board about the commissions paid to brokers
furnishing such services, together with the Sub-Advisor's representation that
the amount of such commissions was reasonably related to the value or benefit of
such services.
Because the Sub-Advisor was an affiliate of Oppenheimer & Co., Inc., a
broker-dealer ("OpCo"), until November 3, 1997, the table below includes
information about brokerage commissions paid to OpCo for the Fund's portfolio
transactions.
- ----------------------------------------------------------------------
Total $ Amount of
Total Transactions for
Brokerage Brokerage Commissions Which Brokerage
Fiscal Year CommissionsPaid to OpCo: Commissions Were Paid
Ended 10/31 Paid1 to OpCo:
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Dollar % of Total Dollar % of Total
Amount Amount
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1996 $362,454 $147,765 40.8% $61,029,69229.1%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1997 $548,930 $177,714 32.4% $75,367,68921.9%
- ------------------------
- ----------------------------------------------------------------------
1998 $855,3832
- ----------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. In the fiscal year ended 10/31/98, the amount of transactions directed to
brokers for research services was $32,515,727 and the amount of the
commissions paid to broker-dealers for those services was $84,047.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Trust, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of shares of the Fund's classes of shares. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
- --------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class
Year Sales Sales Shares Shares C Shares
Ended Charges on Charges Advanced Advanced Advanced
10/31: Class A Retained by by by
Shares by Distributor1Distributor1Distributor1
Distributor
- --------------------------------------------------------------------
- --------------------------------------------------------------------
19962 $ 297,166 $115,180 $ 52,950 $ 317,703 $ 58,943
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1997 $ 765,109 $219,548 $ 25,462 $1,252,786 $104,539
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1998 $1,143,435 $295,105 $123,967 $1,799,099 $133,944
- --------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. For the period from 11/22/95 to 10/31/96.
- --------------------------------------------------------------------
Class A Class B Contingent Class C
Fiscal Contingent Deferred Sales Contingent
Year Deferred Sales Charges Retained Deferred Sales
Ended Charges Retained by Distributor Charges Retained
10/31 by Distributor by Distributor
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1998 None $212,431 $16,482
- --------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted Distribution and Service
Plans for Class A, Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund compensates the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class. Each plan has been approved by
a vote of the Board of Trustees, including a majority of the Independent
Trustees1, cast in person at a meeting called for the purpose of voting on that
plan, and by shareholders of a majority of each class of shares of the Fund.
Under the plans, the Manager and the Distributor, in their sole discretion,
from time to time, may use their own resources (at no direct cost to the Fund)
to make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. The Manager may use its
profits from the advisory fee it receives from the Fund. In their sole
discretion, the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in effect
from year to year but only if the Fund's Board of Trustees and its Independent
Trustees specifically vote annually to approve its continuance. Approval must be
by a vote cast in person at a meeting called for the purpose of voting on
continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under a plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares of the Fund automatically convert into
Class A shares after six years, the Fund must obtain the approval of both Class
A and Class B shareholders for a proposed material amendment to the Class A plan
that would materially increase payments under the plan. That approval must be by
a "majority" (as defined in the Investment Company Act) of the shares of each
class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. The reports
on the Class B plan and Class C plan shall also include the Distributor's
distribution costs for that quarter and such costs for previous fiscal periods
that have been carried forward. Those reports are subject to the review and
approval of the Independent Trustees.
Each plan states 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 the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in any
quarter in which the aggregate net asset value of all Fund shares of that class
held by the recipient for itself and its customers does not exceed a minimum
amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
|X| Service Plans. Under the service plans, the Distributor currently uses
the fees it receives from the Fund to pay brokers, dealers and other financial
institutions (they are referred to as "recipients") for personal services and
account maintenance services they provide for their customers who hold shares of
a particular Class, A, B or C. The services 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. The service plans
permit compensation to the Distributor at a rate of up to 0.25% of average
annual net assets of the applicable class. The Board has set the rate at that
level. While the plans permit the Board to authorize payments to the Distributor
to reimburse itself for services under the plan, the Board has not yet done so.
The Distributor makes payments to plan recipients quarterly at an annual rate
not to exceed 0.25% of the average annual net assets consisting of shares of the
applicable class held in the accounts of the recipients or their customers.
|X| Service and Distribution Plan Fees. Under each plan, service fees and
distribution 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 plans compensate the Distributor at a flat rate for its
services and costs in distributing shares and servicing accounts, whether the
Distributor's expenses are more or less than the amounts paid by the Fund under
the plans during the period for which the fee is paid. The types of services
that recipients provide are similar to the services provided under the service
plan described above.
The plans permit the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a quarterly
basis, without payment in advance. However, the Distributor currently intends to
pay the service fee to recipients in advance for the first year after the shares
are purchased. After the first year shares are outstanding, the Distributor
makes service fee payments quarterly on those shares. The advance payment is
based on the net asset value of shares sold. Shares purchased by exchange do not
qualify for the advance service fee payment. If shares are redeemed during the
first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment of the service fee made on those shares.
Under the Class A plan, the Distributor pays a portion of the asset-based
sales charge to brokers, dealers and financial institutions and retains the
balance. The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
it receives on Class C shares as an ongoing commission to the recipient on Class
C shares outstanding for a year or more. If a dealer has a special agreement
with the Distributor, the Distributor will pay the Class B and/or Class C
service fee and the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commissions and service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow investors
to buy shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class A,
Class B and Class C shares. The payments are made to the Distributor in
recognition that the Distributor: o pays sales commissions to authorized brokers
and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the service
fee payment to recipients under the plans, or may provide such financing
from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of shares, and
o bears the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
For the fiscal year ended October 31, 1998 payments under the Class A Plan
totaled $1,009,736 (including $24,233 paid to an affiliate of the Distributor's
parent company). The Distributor retained $362,025 of the total amount paid.
For the fiscal year ended October 31, 1998, payments under the Class B plan
totaled $977,677 (including $2,551 paid to an affiliate of the Distributor's
parent). The Distributor retained $849,276 of the total amount.
For the fiscal year ended October 31, 1998, payments under the Class C plan
totaled $286,409 (including $0 paid to an affiliate of the Distributor's
parent). The Distributor retained $175,804 of the total amount.
The Distributor's actual expenses in selling shares may be more than the
payments it receives from the contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. As of October 31, 1998, the
Distributor had incurred unreimbursed expenses under the Class B plan in the
amount of $2,391,281 (equal to 2.44% of the Fund's net assets represented by
Class B shares on that date) and unreimbursed expenses under the Class C plan of
$257,631 (equal to 0.96% of the Fund's net assets represented by Class C shares
on that date). If a 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.
All payments under the plans 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.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown 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 (or its submission for
publication).
Use of standardized performance calculations enable 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 the Fund's
performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each shareholder's
account. Your account's performance will vary from the model performance data if
your dividends are received in cash, or you buy or sell shares during the
period, or you bought your shares at a different time and price than the shares
used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
|X| Total Return Information. There are different types of "total returns"
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
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. 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 actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. 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" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
ERV 1/n
--- -1 = Average Annual Total Return
P
|_| Cumulative Total Return. 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
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
- ----------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 10/31/98
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Cumulative Average Annual Total Returns
Class Total Returns
of (10 years or
Shares Life of Class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
5-Year 10-Year
1-Year (or (or
life-of-class) life-of-class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
After WithoutAfter WithoutAfter Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class A 172.04% 188.63%-19.93% -15.05%6.27% 7.54% 10.72%111.34%1
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class B 43.06% -19.32% -15.47%6.70% 6.99%
44.04% 7.18%2 7.32%2
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class C 44.04% -16.22% -15.46%6.98% 6.98%
44.04% 7.32%3 7.32%3
- ----------------------------------------------------------------------
1. Inception of Class A: 1/3/89
2. Inception of Class B: 9/1/93
3. Inception of Class C: 9/1/93
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other small-cap funds. 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. Lipper also
publishes "peer-group" indices of the performance of all mutual funds in a
category that it monitors and averages of the performance of the funds in
particular categories.
|X| Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of 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. The Fund is ranked among domestic
stock funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) 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's)
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 a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), 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's)
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 date 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 rankings, 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.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include 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 or insured 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. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of 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 and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
- -------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
- -------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
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 ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors,
|_|current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
|_|Class A and Class B 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
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
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. 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 reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
<PAGE>
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-distributor
and currently include the following:
Oppenheimer Bond Fund Oppenheimer Limited-Term
Government Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street California Fund
Municipal Fund Oppenheimer California Municipal Oppenheimer Main Street Growth &
Fund Income Fund Oppenheimer Champion Income Fund Oppenheimer MidCap Fund
Oppenheimer Convertible Oppenheimer Multiple Strategies Securities Fund Fund
Oppenheimer Developing Markets Oppenheimer Municipal Bond Fund Fund Oppenheimer
Disciplined Oppenheimer New York Municipal Fund Allocation Fund Oppenheimer
Disciplined Value Oppenheimer New Jersey Municipal Fund Fund Oppenheimer
Discovery Fund Oppenheimer Pennsylvania Municipal
Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Balanced Value
Fund
Oppenheimer Equity Income Fund Oppenheimer Quest Capital Value
Fund, Inc.
Oppenheimer Florida Municipal Oppenheimer Quest Global Value
Fund Fund, Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity
Value Fund
Oppenheimer Global Growth & Oppenheimer Quest Small Cap Value
Income Fund Fund
Oppenheimer Gold & Special Oppenheimer Quest Value Fund, Inc.
Minerals Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Oppenheimer Total Return Fund,
Fund Inc.
Oppenheimer Intermediate Oppenheimer U.S. Government Trust
Municipal Fund
Oppenheimer International Bond Oppenheimer World Bond Fund
Fund
Oppenheimer International Growth Limited-Term New York Municipal
Fund Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
Oppenheimer Large Cap Growth Fund
and the following money market
funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt
Trust
Centennial California Tax Exempt Centennial Tax Exempt Trust
Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund,
Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A and Class B shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate for
the Class A shares purchased during that period. You can include purchases made
up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may 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 of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the 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. However, 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. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor 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 a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total 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 Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
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.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent 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.
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.
|X| 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 offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended 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. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) 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
(2) 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 to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
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 Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. 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. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the plan's applicable investments
reach $5 million.
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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to a class of
shares and the dividends payable on a class of shares will be reduced by
incremental expenses borne solely by that class. Those expenses include the
asset-based sales charges to which Class A, Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. 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
advisor, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder 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 shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done 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
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the Fund's values of some of
the portfolio securities may change significantly on those days when
shareholders may not purchase or redeem shares. Additionally, trading on
European and Asian stock exchanges and over-the-counter markets normally is
completed before the close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Board of Trustees determines that the event is likely to effect a material
change in the value of the security. The Manager may make that determination,
under procedures established by the Board.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows:
(1) if last sale information is regularly reported, they are valued at the
last reported sale price on the principal exchange on which they
are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they
are valued 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, at the closing "bid" price
on the valuation date.
|_| Equity securities traded on a foreign securities exchange generally
are valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the
Board of Trustees,
(2) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its last
trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the basis
of reasonable inquiry, from two market makers in the security.
|_| Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than 397 days when issued, (2) debt instruments that had a
maturity of 397 days or less when issued and
have a remaining maturity of more than 60 days, and (3) non-money market
debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
|_| 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 market makers
willing to give quotes, a 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).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale 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, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the 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 by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus. The
information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. 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.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of securities from the portfolio of
the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $500 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, 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. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be 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.
Selling Shares by Wire. The wire of redemption proceeds may be delayed if the
Fund's custodian bank is not open for business on a day when the Fund would
normally authorize the wire to be made, which is usually the Fund's next regular
business day following the redemption. In those circumstances, the wire will not
be transmitted until the next bank business day on which the Fund is open for
business. No dividends will be paid on the proceeds of redeemed shares awaiting
transfer by wire.
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: (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, 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 customers. Shareholders should contact their
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
an order placed by the dealer or broker. However, 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, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $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. Payments must also be sent to the address of record for
the account and the address must not have 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 Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal 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. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C to this
Statement of Additional Information.
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent 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.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. 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.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. 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
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share 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.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
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 after 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 to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another 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. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and 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.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only 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.
|_| Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
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. 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. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|X| How Exchanges Affect Contingent Deferred Sales Charges. 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 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. 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. Before exchanging
shares, shareholders should take into account how the exchange may affect 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 which class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans 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.
|X| Processing 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 Fund may refuse the
request.
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.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. 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. The Fund has no fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A shares. That is because of
the effect of the higher asset-based sales charge on Class B and Class C shares.
Those dividends will also differ in amount as a consequence of any difference in
the net asset values of each class of shares.
Dividends, distributions and 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.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent,
is a division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. The Fund pays the Transfer Agent a fixed
annual maintenance fee for each shareholder account and reimburses the Transfer
Agent for its out-of-pocket expenses. It also acts as shareholder servicing
agent for the other Oppenheimer funds. Shareholders should direct inquiries
about their accounts to the Transfer Agent at the address and toll-free numbers
shown on the back cover.
|X| Shareholder Servicing Agent for Certain Shareholders. Unified
Management Corporation (1-800-346-4601) is the shareholder servicing agent for
shareholders of the Fund who were former shareholders of the AMA Family of Funds
and clients of AMA Investment Advisors, Inc. (which had been the investment
advisor of AMA Family of Funds). It is also the servicing agent for Fund
shareholders who are: (i) former shareholders of the Unified Funds and Liquid
Green Trusts, (ii) accounts that participated or participate in a retirement
plan for which Unified Investment Advisors, Inc. or an affiliate acts as
custodian or trustee, (iii) accounts that have a Money Manager brokerage
account, and (iv) other accounts for which Unified Management Corporation is the
dealer of record.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Accountants. PricewaterhouseCoopers, LLP are the independent
accountants of the Fund. They audit the Fund's financial statements and perform
other related audit services. They also act as accountants for certain other
funds advised by the Manager and its affiliates.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
To the Board of Trustees and Shareholders of
Oppenheimer Quest for Value Funds
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 Quest Small Cap Value
Fund (one of the portfolios constituting Oppenheimer Quest for Value Funds,
hereafter referred to as the Fund) at October 31, 1998, 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 five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as financial statements) are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial 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 significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
November 20, 1998
<PAGE>
STATEMENT OF INVESTMENTS October 31, 1998
MARKET VALUE
SHARES SEE NOTE 1
=========================================================================
COMMON STOCKS--88.6%
- -------------------------------------------------------------------------
BASIC MATERIALS--6.0%
- -------------------------------------------------------------------------
CHEMICALS--6.0%
M. A. Hanna Co. 290,000 $ 4,259,375
- -------------------------------------------------------------------------
McWhorter Technologies, Inc.(1) 114,100 2,324,787
- -------------------------------------------------------------------------
Schulman (A.), Inc. 420,100 8,349,487
- -------------------------------------------------------------------------
Tetra Technologies, Inc.(1) 306,500 3,697,156
-----------
18,630,805
- -------------------------------------------------------------------------
CONSUMER CYCLICALS--13.0%
- -------------------------------------------------------------------------
AUTOS & HOUSING--2.8%
Borg-Warner Automotive, Inc. 147,400 6,909,375
- -------------------------------------------------------------------------
Security Capital Group, Inc., Cl. B(1) 103,451 1,648,750
-----------
8,558,125
- -------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--2.3%
Air Express International Corp. 331,400 6,959,400
- -------------------------------------------------------------------------
MEDIA--2.0%
Hollinger International, Inc. 483,700 6,288,100
- -------------------------------------------------------------------------
RETAIL: GENERAL--2.9%
Guilford Mills, Inc. 409,700 5,121,250
- -------------------------------------------------------------------------
WestPoint Stevens, Inc.(1) 134,200 3,816,312
-----------
8,937,562
- -------------------------------------------------------------------------
TEXTILES/APPAREL--3.0%
Paxar Corp.(1) 1,010,200 9,154,937
13 Oppenheimer Quest Small Cap Value Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
MARKET VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--10.6%
- -------------------------------------------------------------------------
FOOD--3.5%
Agribrands International, Inc.(1) 85,000 $ 2,491,563
- -------------------------------------------------------------------------
Triarc Cos.(1) 534,300 8,348,438
------------
10,840,001
- -------------------------------------------------------------------------
HEALTHCARE/DRUGS--1.8%
Dentsply International, Inc. 65,800 1,694,350
- -------------------------------------------------------------------------
Trigon Healthcare, Inc.(1) 105,100 3,941,250
------------
5,635,600
- -------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--5.3%
CorVel Corp.(1) 136,800 5,010,300
- -------------------------------------------------------------------------
Magellan Health Services, Inc.(1) 553,700 5,017,906
- -------------------------------------------------------------------------
United Wisconsin Services, Inc.(1) 480,100 4,080,850
Vital Signs, Inc. 141,800 2,268,800
------------
16,377,856
- -------------------------------------------------------------------------
ENERGY--5.5%
- -------------------------------------------------------------------------
ENERGY SERVICES & PRODUCERS--3.2%
Basin Exploration, Inc.(1) 242,700 3,883,200
- -------------------------------------------------------------------------
St. Mary Land & Exploration Co. 291,500 6,121,500
------------
10,004,700
- -------------------------------------------------------------------------
OIL-INTEGRATED--2.3%
KCS Energy, Inc. 675,400 3,419,213
- -------------------------------------------------------------------------
Nuevo Energy Co.(1) 177,600 3,762,900
------------
7,182,113
14 Oppenheimer Quest Small Cap Value Fund
<PAGE>
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------
FINANCIAL--21.1%
- ------------------------------------------------------------------------
INSURANCE--21.1%
American Medical Security Group, Inc. 527,800 $ 4,618,250
- ------------------------------------------------------------------------
Annuity & Life RE Holdings Ltd.(1) 510,800 11,939,950
- ------------------------------------------------------------------------
Chartwell Re Corp. 203,300 5,057,088
- ------------------------------------------------------------------------
CNA Surety Corp.(1) 375,300 5,277,656
- ------------------------------------------------------------------------
Delphi Financial Group, Inc., Cl. A 149,450 6,968,106
- ------------------------------------------------------------------------
E.W. Blanch Holdings, Inc. 152,500 5,937,969
- ------------------------------------------------------------------------
Enhance Financial Services Group, Inc. 295,300 7,253,306
- ------------------------------------------------------------------------
Horace Mann Educators Corp. 49,100 1,405,488
- ------------------------------------------------------------------------
RenaissanceRe Holdings Ltd. 246,100 9,290,275
- ------------------------------------------------------------------------
Terra Nova (Bermuda) Holdings Ltd., Cl. A 258,000 7,159,500
------------
64,907,588
- ------------------------------------------------------------------------
INDUSTRIAL--11.7%
- ------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.1%
Technitrol, Inc. 123,900 3,376,275
- ------------------------------------------------------------------------
INDUSTRIAL MATERIALS--1.5%
AEP Industries, Inc.(1) 47,300 1,016,950
- ------------------------------------------------------------------------
Interpool, Inc. 262,000 3,700,750
------------
4,717,700
- ------------------------------------------------------------------------
INDUSTRIAL SERVICES--5.4%
Albany International Corp., Cl. A 173,420 3,164,924
- ------------------------------------------------------------------------
GP Strategies Corp.(1) 349,300 4,038,781
- ------------------------------------------------------------------------
Lydall, Inc.(1) 393,100 3,980,138
- ------------------------------------------------------------------------
Wallace Computer Services, Inc. 252,200 5,516,875
------------
16,700,718
15 Oppenheimer Quest Small Cap Value Fund
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------
MANUFACTURING--3.7%
Baldwin Technology Co., Inc., Cl. A(1) 587,000 $ 3,301,875
- ------------------------------------------------------------------------
EASCO, Inc. 15,200 134,900
- ------------------------------------------------------------------------
Flowserve Corp. 379,400 6,829,200
- ------------------------------------------------------------------------
U.S. Industries, Inc. 63,900 1,042,369
-----------
11,308,344
- ------------------------------------------------------------------------
TECHNOLOGY--19.0%
- ------------------------------------------------------------------------
COMPUTER HARDWARE--5.7%
Adaptec, Inc.(1) 126,500 2,047,719
- ------------------------------------------------------------------------
Artesyn Technologies, Inc.(1) 299,600 4,325,475
- ------------------------------------------------------------------------
Wang Laboratories, Inc.(1) 521,300 11,142,788
-----------
17,515,982
- ------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES--1.6%
BancTec, Inc.(1) 395,800 4,898,025
- ------------------------------------------------------------------------
ELECTRONICS--5.9%
CTS Corp. 178,400 5,285,100
- ------------------------------------------------------------------------
Exar Corp.(1) 357,400 6,165,150
- ------------------------------------------------------------------------
Unitrode Corp.(1) 528,700 6,641,794
-----------
18,092,044
- ------------------------------------------------------------------------
TELECOMMUNICATIONS/TECHNOLOGY--5.8%
General Semiconductor, Inc.(1) 414,900 3,293,269
- ------------------------------------------------------------------------
Harman International Industries, Inc. 171,900 6,951,206
- ------------------------------------------------------------------------
Volt Information Sciences, Inc.(1) 313,500 7,504,406
-----------
17,748,881
- ------------------------------------------------------------------------
UTILITIES--1.7%
- ------------------------------------------------------------------------
GAS UTILITIES--1.7%
Cabot Oil & Gas Corp., Cl. A 310,600 5,280,200
-------------
Total Common Stocks (Cost $298,434,701) 273,114,956
16 Oppenheimer Quest Small Cap Value Fund
<PAGE>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
===============================================================================
SHORT-TERM NOTES--11.3%(2)
- -------------------------------------------------------------------------------
American Express Credit Corp., 5.28%, 11/3/98 $11,589,000 $ 11,585,749
- -------------------------------------------------------------------------------
Ford Motor Credit Corp., 5.06%, 11/16/98 4,626,000 4,616,247
- -------------------------------------------------------------------------------
General Electric Capital Services, 5.49%, 12/14/98 1,268,000 1,260,291
- -------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.09%, 12/2/98 501,000 498,804
- -------------------------------------------------------------------------------
Household Finance Corp., 5.25%, 11/12/98 2,952,000 2,947,264
- -------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5.09%, 12/7/98 5,674,000 5,645,119
- -------------------------------------------------------------------------------
Norwest Financial, Inc., 5.11%, 12/1/98 8,117,000 8,082,435
- -------------------------------------------------------------------------------
UBS Finance, Inc., 5.65%, 11/2/98 130,000 129,980
------------
Total Short-Term Notes (Cost $34,765,889) 34,765,889
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $333,200,590) 99.9% 307,880,845
- -------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.1 434,258
------- ------------
NET ASSETS 100.0% $308,315,103
======= ============
1. Non-income producing security.
2. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
See accompanying Notes to Financial Statements.
17 Oppenheimer Quest Small Cap Value Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES October 31, 1998
<TABLE>
========================================================================================
<S> <C>
ASSETS
Investments, at value (cost $333,200,590)--see accompanying statement $307,880,845
- ----------------------------------------------------------------------------------------
Cash 16,522
- ----------------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold 1,713,714
Interest and dividends 94,244
Investments sold 46,930
Other 34,360
------------
Total assets 309,786,615
========================================================================================
LIABILITIES Payables and other liabilities:
Investments purchased 893,001
Shares of beneficial interest redeemed 357,758
Distribution and service plan fees 60,191
Shareholder reports 58,490
Transfer and shareholder servicing agent fees 43,421
Trustees' fees 8,314
Other 50,337
-----------
Total liabilities 1,471,512
========================================================================================
NET ASSETS $308,315,103
============
========================================================================================
COMPOSITION OF NET ASSETS
Par value of shares of beneficial interest $ 180,246
- ----------------------------------------------------------------------------------------
Additional paid-in capital 323,683,887
- ----------------------------------------------------------------------------------------
Accumulated net investment loss (8,314)
- ----------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 9,779,029
- ----------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Note 3 (25,319,745)
------------
Net assets $308,315,103
============
</TABLE>
18 Oppenheimer Quest Small Cap Value Fund
<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
$183,566,647 and 10,613,924 shares of beneficial interest outstanding) $17.29
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $18.34
- -----------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $98,041,456 and
5,822,034 shares of beneficial interest outstanding) $16.84
- -----------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $26,707,000 and
1,588,622 shares of beneficial interest outstanding) $16.81
See accompanying Notes to Financial Statements.
</TABLE>
19 Oppenheimer Quest Small Cap Value Fund
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS For the Year Ended October 31, 1998
========================================================================================
<S> <C>
INVESTMENT INCOME
Interest $ 2,431,612
- ----------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $1,544) 2,123,922
------------
Total income 4,555,534
========================================================================================
EXPENSES
Management fees--Note 4 3,283,570
- ----------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 1,009,736
Class B 977,677
Class C 286,409
- ----------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 616,141
- ----------------------------------------------------------------------------------------
Shareholder reports 117,609
- ----------------------------------------------------------------------------------------
Registration and filing fees 93,722
- ----------------------------------------------------------------------------------------
Accounting service fees--Note 4 55,000
- ----------------------------------------------------------------------------------------
Trustees' fees and expenses 32,989
- ----------------------------------------------------------------------------------------
Legal, auditing and other professional fees 26,838
- ----------------------------------------------------------------------------------------
Custodian fees and expenses 26,231
- ----------------------------------------------------------------------------------------
Other 34,351
------------
Total expenses 6,560,273
========================================================================================
NET INVESTMENT LOSS (2,004,739)
========================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on investments 9,954,218
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (64,930,588)
------------
Net realized and unrealized loss (54,976,370)
========================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(56,981,109)
============
</TABLE>
See accompanying Notes to Financial Statements.
20 Oppenheimer Quest Small Cap Value Fund
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
===============================================================================================
<S> <C> <C>
OPERATIONS
Net investment loss $ (2,004,739) $ (949,721)
- -----------------------------------------------------------------------------------------------
Net realized gain 9,954,218 26,283,370
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (64,930,588) 26,186,257
----------- ------------
Net increase (decrease) in net assets resulting from operations (56,981,109) 51,519,906
===============================================================================================
DISTRIBUTIONS TO SHAREHOLDERS Distributions from net realized gain:
Class A (15,926,177) (12,867,588)
Class B (7,220,162) (4,078,752)
Class C (2,252,552) (1,743,582)
===============================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 51,212,817 56,911,663
Class B 43,679,239 41,289,209
Class C 9,563,688 8,515,292
===============================================================================================
NET ASSETS
Total increase 22,075,744 139,546,148
- -----------------------------------------------------------------------------------------------
Beginning of period 286,239,359 146,693,211
------------ ------------
End of period (including accumulated net investment loss
of $8,314 for the year ended October 31, 1998) $308,315,103 $286,239,359
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
21 Oppenheimer Quest Small Cap Value Fund
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CLASS A
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996(1) 1995 1994
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $22.26 $19.03 $17.31 $16.33 $17.68
- -----------------------------------------------------------------------------------------------------------------------
Income(loss) from investment operations:
Net investment income(loss) (.09) (.07) .03 .11(2) (.03)(2)
Net realized and
unrealized gain(loss) (3.02) 5.66 2.79 1.29 .01
------ ------- ------- ------- -------
Total income(loss) from
investment operations (3.11) 5.59 2.82 1.40 (.02)
- -----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- -- (.11) -- --
Distributions from net realized gain (1.86) (2.36) (.99) (.42) (1.33)
Total dividends and distributions ------ ------ ------ ------- ------
to shareholders (1.86) (2.36) (1.10) (.42) (1.33)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.29 $22.26 $19.03 $17.31 $16.33
====== ====== ====== ====== ======
=======================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) (15.05)% 32.72% 17.17% 8.82% 0.04%
=======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $183,567 $181,973 $102,746 $116,307 $120,102
- -----------------------------------------------------------------------------------------------------------------------
Average net assets(in thousands) $201,952 $131,503 $117,765 $119,440 $115,276
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income(loss) (0.42)% (0.32)% 0.11% 0.67% (0.14)%
Expenses 1.80% 1.78% 1.90% 1.80% 1.88%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 65.0% 82.1% 70.4% 76.0% 67.0%
</TABLE>
22 Oppenheimer Quest Small Cap Value Fund
<PAGE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996(1) 1995 1994
================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $21.83 $18.79 $17.11 $16.24 $17.66
- ----------------------------------------------------------------------------------------------------------------
Income(loss) from investment operations:
Net investment income(loss) (.12) (.05) (.06) .02(2) (.11)(2)
Net realized and
unrealized gain(loss) (3.01) 5.45 2.76 1.27 .02
------ ------ ----- ----- ------
Total income(loss) from
investment operations (3.13) 5.40 2.70 1.29 (.09)
- ----------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- -- (.03) -- --
Distributions from net realized gain (1.86) (2.36) (.99) (.42) (1.33)
------ ------ ----- ----- ------
Total dividends and distributions
to shareholders (1.86) (2.36) (1.02) (.42) (1.33)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.84 $21.83 $18.79 $17.11 $16.24
====== ====== ====== ====== ======
================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) (15.47)% 32.05% 16.57% 8.17% (0.39)%
================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $98,041 $79,754 $30,766 $23,440 $16,144
- ----------------------------------------------------------------------------------------------------------------
Average net assets(in thousands) $97,818 $47,462 $26,478 $20,105 $9,401
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income(loss) (0.92)% (0.80)% (0.37)% 0.09% (0.70)%
Expenses 2.31% 2.27% 2.38% 2.37% 2.48%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 65.0% 82.1% 70.4% 76.0% 67.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1998 1997 1996(1) 1995 1994
==================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA
Net asset value, beginning of period $21.79 $18.76 $17.11 $16.23 $17.67
- ------------------------------------------------------------------------------------------------------------------
Income(loss) from investment operations:
Net investment income(loss) (.13) (.08) (.05) .01(2) (.13)(2)
Net realized and
unrealized gain(loss) (2.99) 5.47 2.75 1.29 .02
------ ----- ----- ----- -----
Total income(loss) from
investment operations (3.12) 5.39 2.70 1.30 (.11)
- ------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- -- (.06) -- --
Distributions from net realized gain (1.86) (2.36) (.99) (.42) (1.33)
------ ----- ----- ----- -----
Total dividends and distributions
to shareholders (1.86) (2.36) (1.05) (.42) (1.33)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.81 $21.79 $18.76 $17.11 $16.23
======= ======= ======= ======= =======
==================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) (15.45)% 32.05% 16.55% 8.24% (0.51)%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) $26,707 $24,512 $13,181 $9,068 $3,344
- ------------------------------------------------------------------------------------------------------------------
Average net assets(in thousands) $28,647 $17,401 $11,501 $6,114 $1,381
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income(loss) (0.92)% (0.81)% (0.40)% 0.08% (0.81)%
Expenses 2.31% 2.28% 2.40% 2.38% 2.59%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 65.0% 82.1% 70.4% 76.0% 67.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor
to the Fund.
2. Based on average shares outstanding for the period.
3. 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. 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 October 31, 1998, were $265,305,166 and $184,939,375, respectively.
See accompanying Notes to Financial Statements.
23 Oppenheimer Quest Small Cap Value Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Quest Small Cap Value Fund (the Fund), a series of Oppenheimer Quest
for Value Funds, is a diversified open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to seek capital appreciation. The Fund seeks its
investment objective through investments in a diversified portfolio which under
normal conditions will have at least 65% of its total assets invested in equity
securities of companies with market capitalizations under $1 billion. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Manager has
entered into a sub-advisory agreement with OpCap Advisors. The Fund offers Class
A, Class B and Class C shares. Class A 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 that class and exclusive voting
rights with respect to matters affecting that 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 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 and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by 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.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), 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.
24 Oppenheimer Quest Small Cap Value Fund
<PAGE>
================================================================================
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
October 31, 1998, a provision of $8,314 was made for the Fund's projected
benefit obligations, resulting in an accumulated liability of $8,314 as of
October 31, 1998.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. 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 October 31, 1998, amounts have been reclassified to reflect a
decrease in additional paid-in capital of $2,000,652, a decrease in accumulated
net investment loss of $1,996,425, and an increase in accumulated net realized
gain on investments of $4,227.
- --------------------------------------------------------------------------------
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. Interest income is accrued on a daily basis. Realized gains
and losses on investments and unrealized appreciation and depreciation are
determined on an identified cost basis, which is the same basis used for federal
income tax purposes.
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.
25 Oppenheimer Quest Small Cap Value Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1998 YEAR ENDED OCTOBER 31, 1997
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 5,051,210 $102,403,615 4,335,222 $ 89,701,871
Distributions reinvested 768,695 15,266,280 702,966 12,330,011
Redeemed (3,380,773) (66,457,078) (2,262,183) (45,120,219)
---------- ------------ ---------- ------------
Net increase 2,439,132 $ 51,212,817 2,776,005 $ 56,911,663
========== ============ ========== ============
- -----------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 3,034,078 $ 60,041,228 2,332,167 $ 48,062,468
Distributions reinvested 356,031 6,914,130 224,295 3,875,823
Redeemed (1,222,121) (23,276,119) (539,908) (10,649,082)
---------- ------------ ---------- ------------
Net increase 2,167,988 $ 43,679,239 2,016,554 $ 41,289,209
========== ============ ========== ============
- -----------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 941,618 $ 18,583,330 824,415 $ 16,750,151
Distributions reinvested 109,265 2,118,649 98,870 1,705,500
Redeemed (587,036) (11,138,291) (501,181) (9,940,359)
---------- ------------ ---------- ------------
Net increase 463,847 $ 9,563,688 422,104 $ 8,515,292
========== ============ ========== ============
</TABLE>
================================================================================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
As of October 31, 1998, net unrealized depreciation on investments of
$25,319,745 was composed of gross appreciation of $19,588,855, and gross
depreciation of $44,908,600.
================================================================================
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 1.00% of the first
$400 million of average annual net assets, 0.90% of the next $400 million and
0.85% of average annual net assets over $800 million. The Manager acts as the
accounting agent for the Fund at an annual fee of $55,000, plus out-of-pocket
costs and expenses reasonably incurred. The Fund's management fee for the year
ended October 31, 1998, was 1.00% of the average annual net assets for Class A,
Class B and Class C shares.
26 Oppenheimer Quest Small Cap Value Fund
<PAGE>
================================================================================
The Manager pays OpCap Advisors (the Sub-Advisor) based on the fee schedule set
forth in the Prospectus. For the year ended October 31, 1998, the Manager paid
$1,135,595 to the Sub-Advisor.
For the year ended October 31, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $1,143,435, of which $295,105
was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by affiliated broker/dealers. Sales charges
advanced to broker/dealers by OFDI on sales of the Fund's Class A, Class B and
Class C shares totaled $123,967, $1,799,099 and $133,944, respectively. Amounts
paid to an affiliated broker/dealer for Class B and Class C shares were $138,436
and $3,206, respectively. During the year ended October 31, 1998, OFDI received
contingent deferred sales charges of $212,431 and $16,482, 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.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund and other Oppenheimer
funds. The Fund pays OFS an annual maintenance fee of $18.00 for each Fund
shareholder account and reimburses OFS for its out-of-pocket expenses. During
the year ended October 31, 1998, the Fund paid OFS $573,830. Effective May 1,
1998, the Board of Trustees approved an increase in the annual maintenance fee
from $14.85 to $18.00 for each shareholder account.
The Fund has adopted a Distribution and Service Plan for Class A
shares to compensate OFDI for a portion of its costs incurred in connection with
the personal service and maintenance of shareholder accounts that hold Class A
shares. Under the Plan, the Fund pays an annual asset-based sales charge to OFDI
of 0.25% per year on Class A shares. The Fund also pays a service fee to OFDI of
0.25% per year. Each fee is computed on the average annual net assets of Class A
shares of the Fund, determined as of the close of each regular business day.
OFDI uses all of the service fee and a portion of the asset-based sales charge
to compensate brokers, dealers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their customers
that hold Class A shares. OFDI retains the balance of the asset-based sales
charge to reimburse itself for its other expenditures under the Plan. During the
year ended October 31, 1998, OFDI paid $24,233 to an affiliated broker/dealer as
compensation for Class A personal service and maintenance expenses and retained
$362,025 as compensation for Class A sales commissions and service fee advances,
as well as financing costs.
27 Oppenheimer Quest Small Cap Value Fund
<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 or Class C shares,
determined as of the close of each regular business day. During the year ended
October 31, 1998, OFDI paid $2,551 to an affiliated broker/dealer as
compensation for Class B personal service and maintenance expenses and retained
$849,276 and $175,804, 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. As of October 31, 1998, OFDI had incurred
excess distribution and servicing costs of $2,391,281 for Class B and $257,631
for Class C.
================================================================================
5. BANK BORROWINGS
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended October
31, 1998.
================================================================================
6. OTHER MATTERS
Effective September 24, 1998, the Fund changed its custodian bank from State
Street Bank and Trust Company to Citibank, N.A.
================================================================================
7. SUBSEQUENT EVENT
Effective November 1, 1998, the Manager discontinued the accounting services fee
charged to the Fund. The Manager will continue to act as accounting agent for
the Fund.
<PAGE>
Appendix A
- -------------------------------------------------------------------------------
RATINGS DEFINITIONS
- -------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- -------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- -------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- -------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
- -------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. 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 in periods of greater 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 likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. 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.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
<PAGE>
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
- -------------------------------------------------------------------------------
Corporate Industry Classifications
- -------------------------------------------------------------------------------
Aerospace/Defense Food
Air Transportation Gas Utilities
Auto Parts Distribution Gold
Automotive Health Care/Drugs
Bank Holding Companies Health Care/Supplies & Services
Banks Homebuilders/Real Estate
Beverages Hotel/Gaming
Broadcasting Industrial Services
Broker-Dealers Information Technology
Building Materials Insurance
Cable Television Leasing & Factoring
Chemicals Leisure
Commercial Finance Manufacturing
Computer Hardware Metals/Mining
Computer Software Nondurable Household Goods
Conglomerates Oil - Integrated
Consumer Finance Paper
Containers Publishing/Printing
Convenience Stores Railroads
Department Stores Restaurants
Diversified Financial Savings & Loans
Diversified Media Shipping
Drug Stores Special Purpose Financial
Drug Wholesalers Specialty Retailing
Durable Household Goods Steel
Education Supermarkets
Electric Utilities Telecommunications - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Toys
Environmental Trucking
Wireless Services
<PAGE>
C-12
Appendix C
- -------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- -------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by the Distributor or the
dealers or other financial institutions offering those shares to certain classes
of investors or in certain transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans1 (4)
Group Retirement Plans2 (5) 403(b)(7) custodial plan accounts (6) SEP-IRAs,
SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a waiver
in a particular case is determined solely by the Distributor or the Transfer
Agent of the fund. These waivers and special arrangements may be amended or
terminated at any time by the applicable Fund and/or the Distributor. Waivers
that apply at the time shares are redeemed must be requested by the shareholder
and/or dealer in the redemption request.
- --------------
1. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
2. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or 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 has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
<PAGE>
- -------------------------------------------------------------------------------
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
- -------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on these purchases the Distributor will pay the
applicable commission described in the Prospectus under "Class A Contingent
Deferred Sales Charge": |_| Purchases of Class A shares aggregating $1 million
or more. |_| Purchases by a Retirement Plan that: (1) buys shares costing
$500,000 or more, or (2) has, at the time of purchase, 100 or more eligible
participants or total
plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment advisor that
has made special arrangements with the Distributor for those
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.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan must
have $3 million or more of its assets invested in (a) mutual funds,
other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service
Agreement between Merrill Lynch and the mutual fund's principal
underwriter or distributor, and (b) funds advised or managed by
MLAM (the funds described in (a) and (b) are referred to as
"Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a 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 record
keeping service agreement with Merrill Lynch, the Plan must have $3
million or more of its assets (excluding assets invested in money
market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
- -------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- -------------------------------------------------------------------------------
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 (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, Trustees, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term "immediate
family" refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees.
|_| Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are identified
as such to the Distributor) or with the Distributor. The purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or minor
children).
|_| Dealers, brokers, banks 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, bank or advisor for the purchase or sale of Fund shares.
|_| 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.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
|_| Clients of 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.
|_| 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.
|_| Accounts for which Oppenheimer Capital (or its successor) 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.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisors 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 advisor provides administration services.
|_| Retirement plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each
case if those purchases are made through a broker, agent or other financial
intermediary that has made special arrangements with the Distributor for those
purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995.
|_| A qualified Retirement Plan 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, if that arrangement was 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 sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| 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.
|_| Shares purchased and paid for with the proceeds of shares redeemed in
the prior 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
deferred sales charge was paid. This waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner. This waiver must be requested when the purchase
order is placed for shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
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:
|_| To make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies," in
the Prospectus).
|_| 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 a mutual
fund other than a fund managed by the Manager or a subsidiary. The fund
must be one that is 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. (11) Plan termination or
"in-service distributions," if the redemption proceeds are rolled over
directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan. |_| For distributions from 401(k)
plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this
waiver.
<PAGE>
- -------------------------------------------------------------------------------
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
- -------------------------------------------------------------------------------
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
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:
|_|Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies,"
in the applicable Prospectus.
|_| Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(a) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the account
value annually (measured from the date the Transfer Agent receives
the request), or
(b) following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability must
have occurred after the account was established).
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, 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.
|_| Returns of excess contributions to Retirement Plans.
|_| 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.
|_|Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1) for hardship withdrawals;
(2) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code;
(3) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(4) to make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code;
(5) for separation from service; or (6) for loans to participants or
beneficiaries.
|_| Distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
|_| Redemptions of Class B shares 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.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is
a party.
- -------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds 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 described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap
Value Fund and Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds when
they merged into various Oppenheimer funds on November 24, 1995:
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
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.
Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if 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.
- ----------------------------------------------------------------------
Number of Initial Sales
Eligible Initial Sales Charge as a % Commission as %
Employees or Charge as a % of of Net Amount of Offering
Members Offering 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 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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders 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.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| 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 purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
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.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
|X| 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, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the 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. Those shares must have been
purchased prior to March 6, 1995 in connection with:
|_| withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| 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.
|X| 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, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the 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
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
|_| redemptions following the death or disability of the shareholder(s)
(as evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of the initial
value of the account; and
|_| 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, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
- -------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
- -------------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for
Class A and Class B shares described in the Prospectus or this Appendix for
Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below for
those shareholders who were shareholders of Connecticut Mutual Liquid Account,
Connecticut Mutual Government Securities Account, Connecticut Mutual Income
Account, Connecticut Mutual Growth Account, Connecticut Mutual Total Return
Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan Balanced
Account and CMIA Diversified Income Account (the "Former Connecticut Mutual
Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment
advisor to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue to
make additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales
charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund may
be purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more;
(3) Trustees of the Fund or any one or more of the Former Connecticut Mutual
Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund or
any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
Code, or from IRAs, deferred compensation plans created under Section
457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate
the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Trustees of the Fund.
- -------------------------------------------------------------------------------
Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
- -------------------------------------------------------------------------------
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a result of
the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Oppenheimer Quest Small Cap Value Fund
- -------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Sub-Advisor
OpCap Advisors
One World Financial Center
New York, New York 10281
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 Bank
Citibank, N.A.
111 Wall Street
New York, New York 10005
Independent Accountants
PricewaterhouseCoopers LLP
950 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
<PAGE>
- -------------------------------------------------------------------------------
Oppenheimer Quest Balanced Value Fund
- -------------------------------------------------------------------------------
Prospectus dated February 19, 1999
Oppenheimer Quest Balanced Value Fund is a mutual fund. The Fund's primary
objective is growth of capital, and the Fund also seeks investment income. The
Fund invests primarily in equity securities, but also buys debt securities.
This Prospectus contains important information about the Fund's objective,
its investment policies, strategies and risks. It also contains important
information about how to buy and sell shares of the Fund and other account
features. Please read this Prospectus carefully before you invest and keep it
for future reference about your account.
(OppenheimerFunds logo)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities nor has it determined that this
Prospectus is accurate or complete. It is a criminal offense to represent
otherwise.
<PAGE>
Contents
About the Fund
- -------------------------------------------------------------------------------
The Fund's Objectives and Investment Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
- -------------------------------------------------------------------------------
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
- -------------------------------------------------------------------------------
<PAGE>
About the Fund
- -------------------------------------------------------------------------------
The Fund's Objectives and Investment Strategies
- -------------------------------------------------------------------------------
What Are the Fund's Investment Objectives? The Fund's objectives are to seek
a combination of growth of capital and investment income. The Fund's primary
objective is growth of capital.
- -------------------------------------------------------------------------------
What Does the Fund Invest In? The Fund normally invests mainly in equity
securities to seek growth. These are primarily common stocks that pay dividends
but also preferred stock and securities convertible into common stock of U.S.
and foreign issuers that the portfolio manager believes are undervalued in the
marketplace. The Fund also buys corporate and government bonds, notes and other
debt securities for investment income, which can include securities below
investment grade.
Under normal market conditions, the Fund invests:
o at least 25% of its total assets in equity securities, including common
stocks and preferred stocks, and expects to have between 50% to 75% of its
total assets invested in equities, and
o at least 25% of its total assets in fixed-income senior securities.
The Fund's investments in fixed-income senior securities include bonds,
debentures, notes, participation interests in loans, convertible securities and
U.S. government securities. The Fund can also buy short-term debt securities,
such as U.S. government securities and money market instruments, for liquidity
and cash management purposes. The Fund can use hedging instruments to try to
manage investment risks. These investments are more fully explained in "About
the Fund's Investments," below.
|X| How Does the Portfolio Manager Decide What Securities to Buy or Sell?
In selecting securities for purchase or sale by the Fund, the Fund's portfolio
manager, who is employed by the Sub-Advisor, OpCap Advisors, uses a "value"
approach to investing. The portfolio manager searches primarily for securities
of established companies believed to be undervalued in the marketplace, in
relation to factors such as a company's assets, earnings, growth potential and
cash flows. This process and the inter-relationship of the factors used may
change over time and its implementation may vary in particular cases. In
general, the selection process for equity securities includes the following
techniques: |_| A "bottom up" analytical approach using fundamental research to
focus on
particular issuers before considering industry trends, by
evaluating each issuer's characteristics, financial results and
management.
|_| A search for securities of established companies believed to be
undervalued and having a high return on capital, strong management
committed to shareholder value, and positive cash flows.
|_| Ongoing monitoring of issuers for fundamental changes in the
company that might alter the portfolio manager's initial
expectations about the security and might result in a decision to
sell the security.
The portfolio manager allocates the Fund's investments among equity and
debt securities after assessing the relative values of these different types of
investments under prevailing market conditions. Within the parameters for stock
and bond investments described above under normal market conditions, the
portfolio might hold stocks, bonds and money market instruments in different
proportions at different times. The portfolio manager might increase the
relative emphasis of investments in bonds and other fixed-income securities,
instead of stocks, when he thinks that:
|_| common stocks in general appear to be overvalued, |_| debt
securities present capital growth and income opportunities relative
to common stocks because of declining interest rates or improved
issuer credit quality, or |_| it is desirable to maintain liquidity
pending investment in equity securities to seek capital growth
opportunities.
Who Is the Fund Designed For? The Fund is designed primarily for investors
seeking capital growth in their investment over the long term with the
opportunity for some income. Those investors should be willing to assume the
risk of short-term share price fluctuations that are typical for a fund
emphasizing equity investments. Since the Fund's income level will fluctuate, it
is not designed for investors needing an assured level of current income.
Because of its primary focus on long-term growth, with income as a secondary
goal, the Fund may be appropriate for moderately aggressive investors and for a
portion of a retirement plan investment. The Fund is not a complete investment
program.
Main Risks of Investing in the Fund
All investments carry risks to some degree. The Fund's investments in
stocks and bonds are subject to changes in their value from a number of factors.
They include changes in general bond and stock market movements (this is
referred to as "market risk"), or the change in value of particular stocks or
bonds because of an event affecting the issuer (in the case of bonds, this is
known as "credit risk").
At times, the Fund may increase the relative emphasis of its investments
in a particular industry. In that case, it will be subject to the risks that
economic, political or other events can have a negative effect on the values of
securities of issuers in that particular industry (this is referred to as
"industry risk"). Changes in interest rates can also affect stock and bond
prices (this is known as "interest rate risk"). The Fund can buy below
investment-grade bonds (known as "junk bonds") which have greater credit risks
than investment-grade bonds. Foreign investing involves special risks.
These risks collectively form the risk profile of the Fund, and can affect
the value of the Fund's investments, its investment performance and its price
per share. These risks mean that you can lose money by investing in the Fund.
When you redeem your shares, they may be worth more or less than what you paid
for them.
The Fund's investment Manager, OppenheimerFunds, Inc., has engaged the
Sub-Advisor, OpCap Advisors, to select securities for the Fund's portfolio. The
Sub-Advisor tries to reduce risks by carefully researching securities before
they are purchased and to reduce the Fund's exposure to market risks by
diversifying its investments. That means the Fund does not hold a substantial
percentage of the stock of any one company and does not invest too great a
percentage of the Fund's assets in any one issuer. Also, the Fund does not
concentrate 25% or more of its investments in any one industry.
However, changes in the overall market prices of securities and the income
they pay can occur at any time. The share price of the Fund will change daily
based on changes in market prices of securities and market conditions, and in
response to other economic events. There is no assurance that the Fund will
achieve its investment objectives.
|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund normally
emphasizes investments in common stocks and other equity securities, the value
of the Fund's portfolio will be affected by changes in the stock markets. Market
risk will affect the Fund's net asset value per share, which will fluctuate as
the values of the Fund's portfolio securities change. A variety of factors can
affect the price of a particular stock and the prices of individual stocks do
not all move in the same direction uniformly or at the same time. Different
stock markets may behave differently from each other. Because the Fund can buy
both foreign stocks and stocks of U.S. issuers, it will be affected by changes
in domestic and foreign stock markets.
Other factors can affect a particular stock's price, such as poor earnings
reports by the issuer, loss of major customers, major litigation against the
issuer, or changes in government regulations affecting the issuer. The Fund
invests primarily in securities of large companies but also can invest in small
and medium-size companies, which may have more volatile stock prices than large
companies.
|_| Industry Focus. At times the Fund may increase the relative
emphasis of its investments in stocks of companies in a single industry. Stocks
of issuers in a particular industry may be affected by changes in economic
conditions, government regulations, availability of basic resources or supplies,
or other events that affect that industry more than others. To the extent that
the Fund is emphasizing investments in a particular industry, its share values
may fluctuate in response to events affecting that industry.
|X| Interest Rate Risk.. The values of debt securities are subject to
change when prevailing interest rates change. When interest rates fall, the
value of already-issued debt securities generally rise. When interest rates
rise, the values of already-issued debt securities generally fall. The magnitude
of these fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of the
Fund's investments in debt securities.
|X| Credit Risk. Debt securities are subject to credit risk. Credit risk
relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income may be reduced and if the issuer fails to repay
principal, the value of that bond and of the Fund's shares may be reduced. While
the Fund's investments in U.S. government securities are subject to little
credit risk, the Fund's other investments in debt securities, particularly
high-yield lower-grade debt securities, are subject to risks of default.
How Risky is the Fund Overall? In the short term, stock markets can be volatile,
and the price of the Fund's shares can go up and down. The Fund's
income-oriented investments may help cushion the Fund's total return from
changes in stock prices, but fixed-income securities have their own risks that
can affect their values and the income they pay. In the OppenheimerFunds
spectrum, the Fund is more conservative than funds that invest only in growth
stocks, but may be more volatile than investment-grade bond funds.
<PAGE>
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing
in the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the full calendar years since the Fund's inception
and by showing how the average annual total returns of the Fund's shares compare
to those of a broad-based market index. The Fund's past investment performance
is not necessarily an indication of how the Fund will perform in the future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]
Sales charges are not included in the calculations of return in this bar chart,
and if those charges were included, the returns would be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 21.44% (4th Q'98) and the lowest return (not
annualized) for a calendar quarter was -3.46% (3rd Q'98).
-------------------------------------------------------------------
Average Annual Total
Returns for the
periods 1 Year 5 Years Life of Class
Ended December 31, 1998
-------------------------------------------------------------------
-------------------------------------------------------------------
Class A Shares 20.80% 19.37% 16.96%
(inception 11/1/91)
-------------------------------------------------------------------
-------------------------------------------------------------------
S&P 500 Index (from 28.60% 24.05% 20.11%
10/31/91)
-------------------------------------------------------------------
-------------------------------------------------------------------
Class B Shares 22.48% 19.91% 19.68%
(inception 9/1/93)
-------------------------------------------------------------------
-------------------------------------------------------------------
S&P 500 Index (from 28.60% 24.05% 22.76%
8/31/93)
-------------------------------------------------------------------
-------------------------------------------------------------------
Class C Shares 26.45% 20.00% 19.67%
(inception 9/1/93)
-------------------------------------------------------------------
The Fund's average annual total returns in the table include the applicable
sales charge for Classes A, B and C shares: for Class A, the current maximum
initial sales charge of 5.75%; for Class B, the contingent deferred sales
charges of 5% (1-year) 2% (5-years) and 1% (life of class); and for Class C, the
1% contingent deferred sales charge for the 1-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. Because the Fund normally invests primarily in stocks, the Fund's
performance is compared to the S&P 500 Index, an unmanaged index of equity
securities that is a measure of the general domestic stock market. However, it
must be remembered that the index performance reflects the reinvestment of
income but does not consider the effects of transaction costs and that the
Fund's stock investments will vary from those in the index. The index does not
include debt securities in which the Fund can invest.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. 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
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended
October 31, 1998.
<PAGE>
Shareholder Fees (charges paid directly from your investment):
- -----------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
- -----------------------------------------------------------
- -----------------------------------------------------------
Maximum Sales Charge
(Load) on purchases 5.75% None None
(as % of offering
price)
- -----------------------------------------------------------
- -----------------------------------------------------------
Maximum Deferred
Sales Charge (Load)
(as % of the lower None1 5%2 1%3
of the original
offering price or
redemption proceeds)
- -----------------------------------------------------------
1. A contingent deferred sales charge may apply to redemptions of investments of
$1 million or more ($500,000 for retirement plan accounts) of Class A shares.
See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent deferred
sales charge declines to 1% in the sixth year and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
- -----------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
- -----------------------------------------------------------
- -----------------------------------------------------------
Management Fees 0.85% 0.85% 0.85%
- -----------------------------------------------------------
- -----------------------------------------------------------
Distribution and/or 0.40% 1.00% 1.00%
Service
(12b-1) Fees
- -----------------------------------------------------------
- -----------------------------------------------------------
Other Expenses 0.30% 0.30% 0.30%
- -----------------------------------------------------------
- -----------------------------------------------------------
Total Annual 1.55% 2.15% 2.15%
Operating Expenses
- -----------------------------------------------------------
Expenses may vary in future years. "Other expenses" include transfer agent fees,
custodial expenses, and accounting and legal expenses the Fund pays.
Examples. These examples are intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The examples
assume that you invest $10,000 in a class of shares of the Fund for the time
periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end
of those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that
the class's operating expenses remain the same. Your actual costs may be
higher or lower because expenses will vary over time. Based on these assumptions
your expenses would be as follows:
- ----------------------------------------------------------------------
If shares are 1 Year 3 Years 5 Years 10 Years1
redeemed:
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class A Shares $724 $1,036 $1,371 $2,314
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class B Shares $718 $ 973 $1,354 $2,191
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class C Shares $318 $ 673 $1,154 $2,483
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
If shares are not 1 Year 3 Years 5 Years 10 Years1
redeemed:
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class A Shares $724 $1,036 $1,371 $2,314
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class B Shares $218 $ 673 $1,154 $2,191
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class C Shares $218 $ 673 $1,154 $2,483
- ----------------------------------------------------------------------
<PAGE>
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include the contingent deferred sales charges. 1. Class
B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
About the Fund's Investments
The Fund's Principal Investment Policies. The composition of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Sub-Advisor. The
Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.
|X| Stock and Other Equity Investments. The Fund invests in equity
securities for growth opportunities as well as secondarily for income from
dividends. While the Fund does not limit its investments to issuers in a
particular capitalization range, the portfolio manager currently focuses on
securities of larger established companies.
Although they are debt securities, the Sub-Advisor considers some
convertible securities to be "equity equivalents" because of the conversion
feature, and their rating must meet the fund's credit criteria for debt
securities described below but has less impact on the investment decision than
in the case of other debt securities. Other convertible securities may behave
more like other debt securities.
|X| Debt Securities. Debt securities are selected primarily for their
income possibilities and their relative emphasis in the portfolio may be greater
when the stock market is volatile. For example, when interest rates are falling,
or when the credit quality of a particular issuer is improving, the portfolio
manager might buy debt securities for their own appreciation possibilities. The
Fund has no limit on the range of maturities of the debt securities it can buy.
The Fund can buy short-term debt securities for liquidity, for example,
pending the purchase of new investments or to have cash to pay for redemptions
of Fund shares.
The Sub-Advisor does not rely solely on ratings by rating organizations in
selecting debt securities, but also uses its own judgment to evaluate particular
issues as well as business and economic factors affecting an issuer. The debt
securities the Fund buys may be rated by nationally-recognized rating
organizations or they may be unrated securities assigned a rating by the
Sub-Advisor.
The Fund's investments in debt securities, including convertible
securities, can be above or below investment grade in quality.
"Investment-grade" securities are those rated in the four highest rating
categories by Moody's Investors Service or other rating organizations, or, if
unrated, assigned a comparable rating by the Sub-Advisor. A list of the ratings
definitions of the principal ratings organizations is in Appendix A to the
Statement of Additional Information.
|_| U.S. Government Securities. The Fund can invest in U.S.
government securities that are U.S. Treasury securities and securities issued
or guaranteed by agencies or federally-chartered corporate entities referred
to as "instrumentalities" of the U.S. government. They can include
collateralized mortgage obligations (CMOs) and other mortgage-related
securities. U.S. Treasury securities are backed by the full faith and credit
of the U.S. government and are subject to little credit risk.
Some securities issued or guaranteed by agencies or instrumentalities of
the U.S. government have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right of
the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs"). These have
relatively little credit risk.
|_| Special Risks of Mortgage-Related Securities. Investments in
mortgage-related securities are subject to special risks of unanticipated
prepayment. The risk is that when interest rates fall, borrowers under the
mortgages that underlie a mortgage-related security the Fund owns will prepay
their mortgages more quickly than expected, causing the issuer of the security
to prepay the principal prior to the security's expected maturity. Securities
subject to prepayment risk, including the CMOs and other mortgage-related
securities that the Fund can buy, generally offer less potential for gains when
prevailing interest rates fall, and have greater potential for loss when
interest rates rise. The impact of prepayments on the price of a security may be
difficult to predict and may increase the volatility of the price. Additionally,
the Fund may buy mortgage-related securities at a premium. Accelerated
prepayments on those securities could cause the Fund to lose a portion of its
principal investment represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments may occur at slower rates than
expected, which could have the effect of lengthening the expected maturity of a
short or medium-term security. That could cause its value to fluctuate more
widely in response to changes in interest rates. In turn, this could cause the
value of the Fund's shares to fluctuate more.
|_| Special Risks of Lower-Grade Securities. Because the Fund can
invest as much as 25% of its total assets in securities below investment grade
to seek higher income, the Fund's credit risks are greater than those of funds
that buy only investment grade bonds. Lower-grade debt securities may be subject
to greater market fluctuations and greater risks of loss of income and principal
than higher-grade debt securities. Securities that are (or have fallen) below
investment grade entail a greater risk that the issuers of such securities may
not meet their debt obligations. However, by limiting its investments in
non-investment grade debt securities, the Fund may reduce the effect of some of
these risks on its share price and income. Currently, the portfolio manager does
not intend to buy these securities unless they offer relatively attractive
opportunities for both income and capital appreciation.
|_| Money Market Instruments. The Fund can also invest in "money
market instruments." These include U.S. government securities and high-quality
corporate debt securities having a remaining maturity of one year or less. They
also include commercial paper, other short-term corporate debt obligations,
certificates of deposit, bankers' acceptances and repurchase agreements. They do
not generate capital growth if held to maturity.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental investment policies without
shareholder approval, although significant changes will be described in
amendments to this Prospectus. Fundamental policies are those that cannot be
changed without the approval of a majority of the Fund's outstanding voting
shares. The Fund's objective is a fundamental policy. Other investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.
|X| Portfolio Turnover. The Fund can engage frequently in short-term
trading to try to achieve its objective. It may have a portfolio turnover rate
in excess of 100% annually. Portfolio turnover affects brokerage costs the Fund
pays. If the Fund realizes capital gains when it sells its portfolio
investments, it must generally pay those gains out to shareholders, increasing
their taxable distributions. The Financial Highlights table below shows the
Fund's portfolio turnover rates during prior fiscal years.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not always
use all of the different types of techniques and instruments described below.
These techniques involve certain risks, although some are designed to help
reduce investment or market risks.
|X| Foreign Investing. The Fund can buy foreign securities that are listed
on a domestic or foreign stock exchange, traded in domestic or foreign
over-the-counter markets, or represented by American Depository Receipts. The
Fund may invest in developed markets as well as emerging markets, which have
greater risks than developed markets, although the Fund currently does not
intend to purchase securities issued by governments or companies in emerging
markets. The Fund will hold foreign currency only in connection with buying and
selling foreign securities.
While the Fund has no limits on the amounts it can invest in foreign
securities, it normally does not expect to invest substantial amounts of its
assets in foreign securities. Foreign securities offer special investment
opportunities, but there are also special risks.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of foreign
investments may be affected by 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.
There may be transaction costs and risks from the conversion of certain
European currencies to the euro that commenced in January 1999. For example,
brokers and the Fund's custodian bank must convert their computer systems and
records to reflect the euro values of securities. If they are not prepared,
there could be delays in settlements of securities trades and additional costs
to the Fund.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "delayed-delivery" basis. These terms refer to securities that have been
created and for which a market exists, but which are not available for immediate
delivery. There is a risk that the value of the security might decline prior to
the settlement date. No income accrues to the Fund on a when-issued security
until the Fund receives the security on settlement of the trade. The Fund will
not commit more than 15% of its net assets under these transactions.
|X| Investing in Small, Unseasoned Companies. The Fund can invest up to 5%
of its total assets in securities of small, unseasoned companies. These are
companies that have been in continuous operation for less than three years,
counting the operations of any predecessors. These securities may have limited
liquidity, which means that the Fund could have difficulty selling them at an
acceptable price when it wants to. Their prices may be very volatile, especially
in the short term.
|X| Illiquid and Restricted Securities. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Fund
cannot invest more than 15% of its net assets in illiquid or restricted
securities. Certain restricted securities that are eligible for resale to
qualified institutional purchasers may not be subject to that limit. The Manager
and Sub-Advisor monitor holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity.
Temporary Defensive Investments. In times of unstable or adverse market or
economic conditions, the Fund can invest up to 100% of its assets in temporary
defensive investments. Generally they would be short-term U.S. government
securities and the types of money market instruments described above. To the
extent the Fund invests defensively in these securities, it might not achieve
its primary investment objective of capital growth.
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. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on handling securities
trades, pricing and accounting services. Data processing errors by government
issuers of securities could result in 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 investments and returns.
The Manager, the Sub-Advisor, the Distributor and the Transfer Agent have
been 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, the services they
provide depend on the interaction of their computer systems with those of
brokers, information services, the Fund's Custodian and other parties.
Therefore, any failure of the computer systems of those parties to deal with the
year 2000 may also have a negative effect on the services they provide to the
Fund. The extent of that risk cannot be ascertained at this time.
How the Fund Is Managed
The Manager. The Fund's investment Manager, OppenheimerFunds, Inc., supervises
the Fund's investment program and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board of
Trustees, under an Investment Advisory Agreement that 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 became the Fund's investment advisor on
November 22, 1995.
The Manager has operated as an investment advisor since 1959. The Manager
(including subsidiaries) currently manages investment companies, including other
Oppenheimer funds, with assets of more than $95 billion as of December 31, 1998,
and with more than 4 million shareholder accounts. The Manager is located at Two
World Trade Center, 34th Floor, New York, New York 10048-0203.
|X| The Manager's Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate of 0.85% of average annual
net assets. The Fund's management fee for its last fiscal year ended October 31,
1998 was 0.85% of average annual net assets for each class of shares.
The Sub-Advisor. On November 22, 1995, the Manager retained the Sub-Advisor to
provide day-to-day portfolio management for the Fund. Prior to that date and
from the inception of the Fund, the Sub-Advisor had been the Fund's investment
advisor. The Sub-Advisor has operated as an investment advisor to investment
companies and other investors since its organization in 1980, and as of December
31, 1998, the Sub-Advisor or its parent advised accounts having assets in excess
of $62 billion. It is located at One World Financial Center, 200 Liberty Street,
New York New York 10281.
The Manager, not the Fund, pays the Sub-Advisor an annual fee under the
Sub-Advisory Agreement between the Manager and the Sub-Advisor. The fee is
calculated as a percentage of the fee the Fund pays the Manager. The rate is 40%
of the advisory fee collected by the Manager based on the net assets of the Fund
as of November 22, 1995, and 30% of the fee collected by the Manager on assets
in excess of that amount.
|X| Portfolio Manager. The portfolio manager of the Fund is Colin
Glinsman, who is employed by the Sub-Advisor. He is the person primarily
responsible for the day-to-day management of the Fund's portfolio. Mr.
Glinsman is a Managing Director of Oppenheimer Capital, the immediate parent
company of the Sub-Advisor. He has been the Fund's portfolio manager since
December 1992 and prior to that was a securities analyst for Oppenheimer
Capital.
- -------------------------------------------------------------------------------
About Your Account
- -------------------------------------------------------------------------------
How to Buy Shares
How Are Shares Purchased? You can buy shares several ways -- through any dealer,
broker or financial institution that has a sales agreement with the Fund's
Distributor, or directly through the Distributor, or automatically through an
Asset Builder Plan under the OppenheimerFunds AccountLink service. The
Distributor may appoint certain servicing agents to accept purchase (and
redemption) orders. The Distributor, in its sole discretion, may reject any
purchase order for the Fund's shares.
|X| Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
|X| 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
with a financial advisor before you make a purchase to be sure that the Fund is
appropriate for you.
|X| Buying Shares by Federal Funds Wire. Shares purchased through the
Distributor may be paid for by Federal Funds wire. The minimum investment is
$2,500. Before sending a wire, call the Distributor's Wire Department at
1-800-525-7048 to notify the Distributor of the wire, and to receive further
instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
shares are purchased for your account on the regular business day the
Distributor is instructed by you to initiate the Automated Clearing House (ACH)
transfer to buy the shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. Please refer to "AccountLink,"
below for more details.
|X| Buying Shares Through 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 Asset Builder Application and the
Statement of Additional Information.
How Much Must You Invest? You can open a Fund account with a minimum initial
investment of $1,000 and make additional investments at any time with as little
as $25. There are reduced minimum investments under special investment plans.
|_| With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent investments for as
little as $25. Subsequent purchases of at least $25 can be made by telephone
through AccountLink.
|_| Under retirement plans, such as IRAs, pension and profit-sharing plans
and 401(k) plans, you can start your account with as little as $250. If your IRA
is started under an Asset Builder Plan, the $25 minimum applies.
Additional purchases may be as little as $25.
|_| The minimum investment requirement does not apply to 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 reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price (the net
asset value per share plus any initial sales charge that applies). The offering
price that applies to a purchase order is based on the next calculation of the
net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
|_| The net asset value of each class of shares is determined as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. (All references to time in this Prospectus mean "New York time").
The net asset value per share is determined 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. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be readily
obtained. Because some foreign securities trade in markets and exchanges that
operate on U.S. holidays and weekends, the values of some of the Fund's foreign
investments may change significantly on days when investors cannot buy or redeem
Fund shares.
|_| To receive the offering price for a particular day, in most cases the
Distributor or its designated agent must receive your order by the time of day
The New York Stock Exchange closes that day. If your order is received on a day
when the Exchange is closed or after it has closed, the order will receive the
next offering price that is determined after your order is received.
|_| If you buy shares through a dealer, your dealer must receive the order
by the close of The New York Stock Exchange and transmit it to the Distributor
so that it is received before the Distributor's close of business on a regular
business day (normally 5:00 P.M.) to receive that day's offering price.
Otherwise, the order will receive the next offering price that is determined.
- -------------------------------------------------------------------------------
What Classes of Shares Does the Fund Offer? When you buy shares, be sure to
specify the class of shares. If you do not choose a class, your investment
will be made in Class A shares. The Fund offers investors three different
classes of shares. The different classes of shares represent investments in
the same portfolio of securities, but the classes are subject to different
expenses and will likely have different share prices.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million for regular accounts or $500,000 for
certain retirement plans). The amount of that initial sales charge will vary
depending on the amount you invest. The sales charge rates are listed in "How
Can I Buy Class A Shares?" below. There is also an asset-based sales charge on
Class A shares.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales charge,
and if you sell your shares within six years of buying them, you will
normally pay a contingent deferred sales charge. That contingent deferred
sales charge varies depending on how long you own your shares, as described in
"How Can I Buy Class B Shares?" below.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
|X| Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but you will pay an annual asset-based sales charge, and
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 "How Can I Buy Class C
Shares?" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider 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.
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 discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial advisor. The discussion
below assumes that you will purchase only one class of shares, and not a
combination of shares of different classes.
|X| How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B or Class C.
|_| Investing for the Short Term. If you have a relatively short-term
investment horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares rather
than Class B shares. That is because of the effect of the Class B contingent
deferred sales charge if you redeem within six 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 as 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.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than $100,000
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 appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders. 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. Therefore, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes that are not
borne by Class A shares, such as the Class B and Class C asset-based sales
charge described below and in the Statement of Additional Information. Share
certificates are not available for Class B and Class C shares, and if you are
considering using your shares as collateral for a loan, that may be a factor to
consider.
|X| How Does It Affect Payments to My Broker? A salesperson, such as a
broker, may receive different compensation for selling one class of shares than
for selling another class. It is important to remember that Class B and Class C
contingent deferred sales charges and asset-based sales charges have the same
purpose as the front-end sales charge on sales of Class A shares: to compensate
the Distributor for commissions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional 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.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions.
How Can I Buy Class A Shares? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. 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 or allocated to
your dealer as commission. The Distributor reserves the right to re-allow the
entire commission to dealers. The current sales charge rates and commissions
paid to dealers and brokers are as follows:
<PAGE>
- ----------------------------------------------------------------------
Front-End Sales Front-End Sales
Charge As a Charge As a Commission As
Percentage of Percentage of Percentage of
Amount of Purchase Offering Price Net Amount Offering Price
Invested
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
$25,000 or more
but less than 5.50% 5.82% 4.75%
$50,000
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
$50,000 or more
but less than 4.75% 4.99% 4.00%
$100,000
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
$100,000 or more
but less than 3.75% 3.90% 3.00%
$250,000
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
$250,000 or more
but less than 2.50% 2.56% 2.00%
$500,000
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
$500,000 or more
but less than $1 2.00% 2.04% 1.60%
million
- ----------------------------------------------------------------------
|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 aggregating $1 million or more or for certain purchases by particular
types of retirement plans described in Appendix C to the Statement of Additional
Information. The Distributor pays dealers of record commissions in an amount
equal to 1.0% of purchases of $1 million or more other than by those retirement
accounts. For those retirement plan accounts, the commission is 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. In either case, the
commission will be paid only on purchases that were not previously subject to a
front-end sales charge and dealer commission.1
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent deferred sales charge") may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares at the time of redemption
(excluding shares purchased by reinvestment of dividends or capital gain
distributions) or (2) 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
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable when
shares are redeemed, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of dividends and
capital gains. Then the Fund will redeem other shares in the order in which you
purchased them. The Class A contingent deferred sales charge is waived in
certain cases described in Appendix C to the Statement of Additional
Information.
The Class A contingent deferred sales charge is not charged on exchanges
of shares under the Fund's exchange privilege (described below). However, if the
shares acquired by exchange are redeemed within 18 calendar months of the end of
the calendar month in which the exchanged shares were originally purchased, then
the sales charge will apply.
How Can I Reduce Sales Charges for Class A Share Purchases? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information.
|X| Waivers of Class A Sales Charges. The Class A initial and contingent
deferred sales charges are not imposed in the circumstances described in
Appendix C to 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 when purchasing shares whether any of the special conditions
apply.
How Can I Buy 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. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
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
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, |_| shares purchased by the
reinvestment of dividends or capital gains distributions, or |_| shares
redeemed in the special circumstances described in Appendix C to the
Statement of Additional Information.
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.
<PAGE>
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
- ----------------------------------------------------------------------
Contingent Deferred Sales Charge
Years Since Beginning of Month in on Redemptions in That Year
Which Purchase Order was Accepted (As % of Amount Subject to
Charge)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
0 - 1 5.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1 - 2 4.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
2 - 3 3.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
3 - 4 3.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
4 - 5 2.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
5 - 6 1.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
6 and following None
- ----------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first regular business day of
the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares 72 months after you purchase them. 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 the Statement of Additional Information.
How Can I Buy 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. The Class C contingent deferred
sales charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
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
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,
|_| shares purchased by the reinvestment of dividends or capital gains
distributions, or
|_| shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
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.
Distribution and Service (12b-1) Plans. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than other types of sales charges.
|X| Distribution and Service Plan for Class A Shares. The Fund has adopted
a Distribution and Service Plan for Class A shares. Under the plan the Fund pays
an asset-based sales charge to the Distributor at an annual rate of 0.15% of
average annual net assets of Class A shares the Fund. The Fund also pays a
service fee to the Distributor of 0.25% of the average annual net assets of
Class A shares. The Distributor currently uses all of the fee and a portion of
the asset-based sales charge to pay dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares. The Distributor pays out
the portion of the asset-based sales charge equal to 0.10% of average annual net
assets representing Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C shares
to pay 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
shares and on Class C shares. The Distributor also receives a service fee of
0.25% per year under each plan. The asset-based sales charge and service fees
increase Class B and Class C expenses by 1.00% of the 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. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after the shares were sold by the dealer. 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 commission of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sales of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
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.
Including the advance of the service fee, the total amount 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 pays 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.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|_| transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
|_| have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the Transfer
Agent for more information.
You may purchase shares 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.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a 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.
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.
|X| 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.
|X| Exchanging Shares. With the OppenheimerFunds exchange privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already established by
calling the special PhoneLink number.
|X| 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.
Can I Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1-800-525-7048 for information about which transactions may be handled this
way. 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. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1-800-525-7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another OppenheimerFund's
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
Retirement Plans. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be used
by individuals and employers:
|X| Individual Retirement Accounts (IRAs), including regular IRAs, Roth
IRAs, SIMPLE IRAs, rollover and Education IRAs.
|X| SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for small
business owners or self-employed individuals.
|X| 403(b)(7) Custodial Plans, that are tax deferred plans for employees
of eligible tax-exempt organizations, such as schools, hospitals and charitable
organizations.
|X| 401(k) Plans, which are special retirement plans for businesses.
|X| Pension and Profit-Sharing Plans, designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) 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 in proper form (which means it must comply with the procedures
described below) and is accepted by the Transfer Agent. The Fund lets you sell
your shares by writing a letter or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis. 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 account, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
|X| Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that also
require a signature guarantee):
|_| You wish to redeem $50,000 or more and receive a check |_| The
redemption check is not payable to all shareholders listed on
the account statement
|_| The redemption check is not sent to the address of record on your
account statement
|_| Shares are being transferred to a Fund account with a different
owner or name
|_| Shares are being redeemed by someone (such as an Executor) other
than the owners
|X| 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.
|X| Retirement Plan Accounts. There are special procedures to sell shares
in an OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements apply to
distributions from retirement plans. You must submit a withholding form with
your redemption request to avoid delay in getting your money and if you do not
want tax withheld. If your employer holds your retirement plan account for you
in the name of the plan, you must ask the plan trustee or administrator to
request the sale of the Fund shares in your plan account.
|X| Sending Redemption Proceeds by Wire. While the Fund normally sends
your money by check, you can arrange to have the proceeds of the shares you sell
sent by Federal Funds wire to a bank account you designate. It must be a
commercial bank that is a member of the Federal Reserve wire system. The minimum
redemption you can have sent by wire is $2,500. There is a $10 fee for each
wire. To find out how to set up this feature on your account or to arrange a
wire, call the Transfer Agent at 1-800-852-8457.
How Do I Sell Shares by Mail? Write a letter of instructions that includes:
|_| Your name |_| The Fund's name |_| Your Fund account number (from your
account statement) |_| The dollar amount or number of shares to be
redeemed |_| Any special payment instructions |_| Any share certificates
for the shares you are selling |_| The signatures of all registered owners
exactly as the account is
registered, and
|_| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
- -------------------------------------------------------------------------------
Use the following address for requests by mail:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OppenheimerFunds Services
- -------------------------------------------------------------------------------
P.O. Box 5270
Denver, Colorado 80217-5270
- -------------------------------------------------------------------------------
Send courier or express mail requests to:
- -------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do I Sell Shares by Telephone? You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price on a
regular business day, your call must be received by the Transfer Agent by the
close of The New York Stock Exchange that day, which is normally 4:00 P.M., but
may be earlier on some days. You may not redeem shares held in an
OppenheimerFunds retirement plan account or under a share certificate by
telephone.
|_| To redeem shares through a service representative, call
1-800-852-8457
|_| To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of record
of the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an account.
|X| Telephone Redemptions Through AccountLink. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer 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.
Can I Sell Shares Through My 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. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
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. To exchange shares, you must meet several conditions:
|_| Shares of the fund selected for exchange must be available for sale in
your state of residence.
|_| The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
|_| You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them. After the account is open 7 days,
you can exchange shares every regular business day.
|_| You must meet the minimum purchase requirements for the fund you
purchase by exchange.
|_| Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class of the Fund 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. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale 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. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
How Do I Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
address on the Back Cover. Exchanges of shares held under certificates cannot be
processed unless the Transfer Agent receives the certificates with the request.
|X| 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 obtain one by calling a service
representative at 1-800-525-7048. That list can change from time to time.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|_| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to seven days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time
and/or price.
|_| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|_| The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
|_| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying, selling
and exchanging shares is contained in the Statement of Additional Information.
|X| 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.
|X| 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 the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| 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. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions, and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.
|X| The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less than
their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink or by Federal Funds wire (as elected
by the shareholder) within seven days after the Transfer Agent receives
redemption instructions in proper form. However, under unusual circumstances
determined by the Securities and Exchange Commission, payment may be delayed or
suspended. For accounts registered in the name of a broker-dealer, payment will
normally be forwarded within three business days after redemption.
|X| 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 with your bank to provide
telephone or written assurance to the Transfer Agent that your purchase payment
has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $500 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such as
a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with securities from the Fund's
portfolio.
|X| "Backup Withholding" of Federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each annual and semi-annual report to shareholders
having the same last name and address on the Fund's records. However, each
shareholder may call the Transfer Agent at 1-800-525-7048 to ask that copies of
those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on a quarterly basis. The Fund intends to pay
dividends to shareholders in March, June, September and December on a date
selected by the Board of Trustees. Dividends and distributions paid on Class A
shares will generally be higher than dividends for Class B and Class C shares,
which normally have higher expenses than Class A shares. The Fund has no fixed
dividend rate and cannot guarantee that it will pay any dividends or
distributions.
Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term or
long-term capital gains in December of each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
What Choices Do I Have for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four options:
|X| 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.
|X| Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains distributions in the Fund while receiving dividends by
check or having them sent to your bank account through AccountLink.
|X| 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 through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state
or local taxes. Dividends paid from short-term capital gains and net
investment income are taxable as ordinary income. Long-term capital gains
are
<PAGE>
taxable as long-term capital gains when distributed to shareholders. It does not
matter how long you have held your shares. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information the
Fund sends you after the end of the calendar year.
|X| Avoid "Buying a Dividend". If you buy shares on or just before the
ex-dividend date or just before the Fund declares a capital gain 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.
|X| Remember, There May be Taxes on Transactions. Because the Fund's share
price fluctuates, you may have a capital gain or loss when you sell or exchange
your shares. A capital gain or loss is the difference between the price you paid
for the shares and the price you received when you sold them.
Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. 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.
This information is only a summary of certain federal tax information
about your investment. You should consult with your tax advisor about the effect
of an investment in the Fund on your particular tax situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
the Fund's independent accountants, whose report, along with the Fund's
financial statements, is included in the Statement of Additional Information,
which is available on request.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
Year Ended October 31,
1998 1997 1996(1) 1995 1994
========================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $13.99 $12.48 $10.92 $10.09 $11.24
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .26 .20 .23 .27(2) .32(2)
Net realized and unrealized gain 3.24 2.65 2.05 1.27 .55
------ ------ ------ ------ ------
Total income from investment operations 3.50 2.85 2.28 1.54 .87
- --------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.20) (.19) (.22) (.29) (.32)
Distributions from net realized gain (1.79) (1.15) (.50) (.42) (1.70)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.99) (1.34) (.72) (.71) (2.02)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.50 $13.99 $12.48 $10.92 $10.09
====== ====== ====== ====== ======
========================================================================================================
Total Return, at Net Asset Value(3) 27.91% 25.18% 21.84% 16.35% 8.64%
========================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $135,821 $79,751 $49,322 $37,082 $30,576
- --------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $103,244 $61,618 $43,428 $33,397 $29,112
- --------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.07% 1.68% 2.03% 2.60%(4) 3.16%(4)
Expenses 1.55% 1.58% 1.90%(5) 1.99%(4) 1.86%(4)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 165.3% 89.2% 124.2% 130.0% 113.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
2. Based on average shares outstanding for the period.
3. 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. During the
periods presented above, the former Advisor voluntarily waived a portion of its
fees. If such waivers had not been in effect, the ratios of net investment
income to average net assets and the ratios of expenses to average net assets
would have been 2.57% and 2.02%, respectively, for Class A, 1.73% and 2.57%,
respectively, for Class B and 1.43% and 2.84%, respectively, for Class C, for
the year ended October 31, 1995, and 2.70% and 2.32%, respectively, for Class A,
2.07% and 2.93%, respectively, for Class B and 1.91% and 3.10%, respectively,
for Class C, for the year ended October 31, 1994. 5. The expense ratio reflects
the effect of gross expenses paid indirectly by the Fund. 6. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
October 31, 1998 were $257,150,107 and $215,397,474, respectively.
1
<PAGE>
Financial Highlights
(continued)
<TABLE>
<CAPTION>
Class B
------------------------------------------------------
Year Ended October 31,
1998 1997 1996(1) 1995 1994
====================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $13.92 $12.42 $10.88 $10.07 $11.23
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .15 .17 .19(2) .25(2)
Net realized and unrealized gain 3.20 2.62 2.03 1.28 .56
------ ------ ------ ------ ------
Total income from investment operations 3.39 2.77 2.20 1.47 .81
- ----------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.12) (.12) (.16) (.24) (.27)
Distributions from net realized gain (1.79) (1.15) (.50) (.42) (1.70)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.91) (1.27) (.66) (.66) (1.97)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $15.40 $13.92 $12.42 $10.88 $10.07
====== ====== ====== ====== ======
====================================================================================================
Total Return, at Net Asset Value(3) 27.08% 24.55% 21.07% 15.65% 7.96%
====================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $60,807 $25,609 $13,175 $7,623 $2,928
- ----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $39,165 $19,230 $10,097 $4,856 $1,586
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.53% 1.09% 1.40% 1.71%(4) 2.53%(4)
Expenses 2.15% 2.17% 2.53% 2.59%(4) 2.47%(4)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 165.3% 89.2% 124.2% 130.0% 113.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
2. Based on average shares outstanding for the period.
3. 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. During the
periods presented above, the former Advisor voluntarily waived a portion of its
fees. If such waivers had not been in effect, the ratios of net investment
income to average net assets and the ratios of expenses to average net assets
would have been 2.57% and 2.02%, respectively, for Class A, 1.73% and 2.57%,
respectively, for Class B and 1.43% and 2.84%, respectively, for Class C, for
the year ended October 31, 1995, and 2.70% and 2.32%, respectively, for Class A,
2.07% and 2.93%, respectively, for Class B and 1.91% and 3.10%, respectively,
for Class C, for the year ended October 31, 1994. 5. The expense ratio reflects
the effect of gross expenses paid indirectly by the Fund. 6. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
October 31, 1998 were $257,150,107 and $215,397,474, respectively.
2
<PAGE>
Financial Highlights
(continued)
<TABLE>
<CAPTION>
Class C
----------------------------------------------------
Year Ended October 31,
1998 1997 1996(1) 1995 1994
==================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $13.92 $12.43 $10.89 $10.07 $11.23
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .18 .15 .17 .15(2) .24(2)
Net realized and unrealized gain 3.21 2.62 2.02 1.30 .56
------ ------ ------ ------ ------
Total income from investment operations 3.39 2.77 2.19 1.45 .80
- --------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.12) (.13) (.15) (.21) (.26)
Distributions from net realized gain (1.79) (1.15) (.50) (.42) (1.70)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.91) (1.28) (.65) (.63) (1.96)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $15.40 $13.92 $12.43 $10.89 $10.07
====== ====== ====== ====== ======
==================================================================================================
Total Return, at Net Asset Value(3) 27.12% 24.51% 20.97% 15.38% 7.91%
==================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $20,910 $6,687 $2,809 $1,828 $455
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $11,598 $4,724 $2,200 $968 $298
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.60% 1.09% 1.40% 1.39%(4) 2.39%(4)
Expenses 2.15% 2.17% 2.53% 2.88%(4) 2.62%(4)
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 165.3% 89.2% 124.2% 130.0% 113.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
2. Based on average shares outstanding for the period.
3. 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. During the
periods presented above, the former Advisor voluntarily waived a portion of its
fees. If such waivers had not been in effect, the ratios of net investment
income to average net assets and the ratios of expenses to average net assets
would have been 2.57% and 2.02%, respectively, for Class A, 1.73% and 2.57%,
respectively, for Class B and 1.43% and 2.84%, respectively, for Class C, for
the year ended October 31, 1995, and 2.70% and 2.32%, respectively, for Class A,
2.07% and 2.93%, respectively, for Class B and 1.91% and 3.10%, respectively,
for Class C, for the year ended October 31, 1994. 5. The expense ratio reflects
the effect of gross expenses paid indirectly by the Fund. 6. The lesser of
purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and sales of
investment securities (excluding short-term securities) for the period ended
October 31, 1998 were $257,150,107 and $215,397,474, respectively.
3
For More Information about Oppenheimer Quest Balanced Value Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
- ----------------------------------------------------------------------------
How to Get More Information:
- ----------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com You can also obtain copies of the Statement of
Additional Information and other Fund documents and reports by visiting the
SEC's Public Reference Room in Washington, D.C. (Phone 1-800-SEC-0330) or the
SEC's Internet web site at http://www.sec.gov. Copies may be obtained upon
payment of a duplicating fee by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.
SEC File No. 811-5225
PR0257B.001.0299 Printed on recycled paper.
<PAGE>
Appendix to Prospectus of
Oppenheimer Quest Balanced Value Fund
Graphic Material included in the Prospectus of Oppenheimer Quest
Balanced Value Fund: (the "Fund") "Annual Total Returns (Class A) (% as of
12/31 each year)":
A bar chart will be included in the Prospectus of the Fund depicting the
annual total returns of a hypothetical investment in Class A shares of the Fund
for each of the most recent full calendar years, since the Fund's inception,
without deducting sales charges. Set forth below are the relevant data points
that will appear on the bar chart.
Calendar Annual
Year Total
Ended Returns
- ----- -------
12/31/92 8.53%
12/31/93 11.77%
12/31/94 1.13%
12/31/95 28.41%
12/31/96 17.95%
12/31/97 31.01%
12/31/98 28.18%
- --------
1 No commission will be paid on sales of Class A shares purchased with the
redemption proceeds of shares of another 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 Oppenheimer funds are added as an
investment option under that plan.
<PAGE>
- -------------------------------------------------------------------------------
Oppenheimer Quest Balanced Value Fund
- -------------------------------------------------------------------------------
Two World Trade Center, 34th Floor, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated February 19, 1999
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 19, 1999. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado
80217, or by calling the Transfer Agent at the toll-free number shown above, or
by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks 2
The Fund's Investment Policies............................ 2
Other Investment Techniques and Strategies................ 9
Investment Restrictions................................... 25
How the Fund is Managed ..................................... 27
Organization and History.................................. 27
Trustees and Officers..................................... 28
The Manager............................................... 33
Brokerage Policies of the Fund............................... 36
Distribution and Service Plans............................... 38
Performance of the Fund...................................... 41
About Your Account
How To Buy Shares............................................ 45
How To Sell Shares........................................... 54
How To Exchange Shares....................................... 59
Dividends, Capital Gains and Taxes........................... 61
Additional Information About the Fund........................ 62
Financial Information About the Fund
Report of Independent Accountants............................
Financial Statements.........................................
Appendix A: Ratings Definitions.............................. A-1
Appendix B: Corporate Industry Classifications............... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.... C-1
- -------------------------------------------------------------------------------
<PAGE>
ABOUT THE FUND
- -------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objectives, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund invests in. Additional information is also
provided about the Fund's investment Manager, OppenheimerFunds, Inc., and the
strategies that the Fund might use to try to achieve its objectives.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Sub-Advisor, OpCap Advisors, may use
in selecting portfolio securities will vary over time. The Fund is not required
to use all of the investment techniques and strategies described below at all
times in seeking its goal. It may use some of the special investment techniques
and strategies at some times or not at all.
In selecting securities for the Fund's portfolio, the Sub-Advisor
evaluates the merits of particular securities primarily through the exercise of
its own investment analysis. In the case of corporate issuers, that process may
include, among other things, evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part, the issuer's financial
condition, its pending product developments and business (and those of
competitors), the effect of general market and economic conditions on the
issuer's business, and legislative proposals that might affect the issuer. In
the case of foreign securities, the Sub-Advisor may also consider the conditions
of a particular country's economy in relation to the U.S. economy or other
foreign economies, general political conditions in a country or region, the
effect of taxes, the efficiencies and costs of particular markets and other
factors when evaluating the securities of issuers in a particular country.
|X| Investments in Equity Securities. The Fund does not limit its
investments in equity securities to issuers having a market capitalization of a
specified size or range, and therefore the Fund can invest in securities of
small-, mid- and large-capitalization issuers. At times, the Fund may increase
the relative emphasis of its equity investments in securities of one or more
capitalization ranges, based upon the Sub-Advisor's judgment of where the best
market opportunities are to seek the Fund's objectives. At times, the market may
favor or disfavor securities of issuers of a particular capitalization range,
and securities of small-capitalization issuers may be subject to greater price
volatility in general than securities of larger companies. Therefore, if the
Fund has substantial investments in smaller-capitalization companies at times of
market volatility, the Fund's share price could fluctuate more than that of
funds focusing on larger-capitalization issuers.
|_| Value Investing. In selecting equity investments for the Fund's
portfolio, the portfolio manager currently uses a value investing style. In
using a value approach, the portfolio manager seeks stock and other equity
securities that appear to be temporarily undervalued, by various measures, such
as price/earnings ratios. This approach is subject to change and might not
necessarily be used in all cases. Value investing seeks stocks having prices
that are low in relation to their real worth or future prospects, in the hope
that the Fund will realize appreciation in the value of its holdings when other
investors realize the intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying
financial condition and prospects. While there are a variety of measures that
can be used to identify these securities, the portfolio manager looks primarily
at the issuer's price/earnings ratio, which is the stock's price divided by its
earnings per share. A stock having a price/earnings ratio lower than its
historical range, or the market as a whole or that of similar companies may
offer attractive investment opportunities.
|_| Preferred Stocks. Preferred stock, unlike common stock, has a
stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction rate.
"Cumulative" dividend provisions require all or a portion of prior unpaid
dividends to be paid before dividends can be paid on the issuer's common stock.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as provisions allowing calls
or redemptions prior to maturity, which can also have a negative impact on
prices when interest rates decline. Preferred stock generally has a preference
over common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation. The rights of preferred stock on distribution of
a corporation's assets in the event of a liquidation are generally subordinate
to the rights associated with a corporation's debt securities. Preferred stock
may be "participating" stock, which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases.
|_| Rights and Warrants. The Fund can invest up to 5% of its total
assets in warrants and rights. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. Their prices
do not necessarily move parallel to the prices of the underlying securities.
Rights are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
|_| Convertible Securities. Convertible securities are debt
securities that are convertible into an issuer's common stock. Convertible
securities rank senior to common stock in a corporation's capital structure and
therefore are subject to less risk than common stock in case of the issuer's
bankruptcy or liquidation.
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease when
interest rates rise. If the conversion value exceeds the investment value, the
security will behave more like an equity security: it will likely sell at a
premium over its conversion value, and its price will tend to fluctuate directly
with the price of the underlying security.
While convertible securities are a form of debt security in many cases,
their conversion feature (allowing conversion into equity securities) may cause
them in some cases to be regarded more as "equity equivalents." As a result, the
rating assigned to the security has less impact on the Sub-Advisor's investment
decision with respect to convertible securities than in the case of
non-convertible fixed income securities. To determine whether convertible
securities should be regarded as "equity equivalents," the Sub-Advisor may
consider the following factors: (1) whether, at the option of the investor, the
convertible security can be
exchanged for a fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible securities),
and
(3) the extent to which the convertible security may be a defensive "equity
substitute," providing the ability to participate in any appreciation in
the price of the issuer's common stock.
|X| Investments in Debt Securities. The Fund invests in a variety of
domestic and foreign debt securities, including corporate bonds, debentures and
other debt securities, and foreign and U.S. government securities including
mortgage-related securities, to seek investment income as part of its investment
objectives. It might invest in them also to seek capital growth or for liquidity
or defensive purposes. Although the Fund will invest at least 25% of its total
assets in fixed-income senior securities, the Fund currently emphasizes
investments in equity securities. Foreign debt securities are subject to the
risks of foreign investing described below. In general, domestic and foreign
debt securities are also subject to credit risk and interest rate risk.
|_| Credit Risk. Credit risk relates to the ability of the issuer of a
debt security to meet interest and principal payment obligations as they become
due. In making investments in debt securities, the Sub-Advisor may rely to some
extent on the ratings of ratings organizations or it may use its own research to
evaluate a security's creditworthiness. The Fund's debt investments can include
investment-grade bonds and non-investment grade bonds (commonly referred to as
"junk bonds"). Investment-grade bonds are bonds rated at least "Baa" by Moody's
Investors Service, Inc., at least "BBB" by Standard & Poor's Rating Services or
Duff & Phelps, Inc., or that have comparable ratings by another nationally
recognized rating organization. If securities the Fund buys are unrated, to be
considered part of the Fund's holdings of investment-grade securities, they must
be judged by the Sub-Advisor to be of comparable quality to bonds rated as
investment grade by a rating organization. The debt securities rating
definitions of the principal ratings organizations are included in Appendix A to
this Statement of Additional Information.
|_| Interest Rate Risk. Interest rate risk refers to the fluctuations in
value of debt securities resulting from the inverse relationship between price
and yield. For example, an increase in general interest rates will tend to
reduce the market value of already-issued fixed-income investments, and a
decline in general interest rates will tend to increase their value. In
addition, debt securities with longer maturities, which tend to have higher
yields, are subject to potentially greater fluctuations in value 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 income payable on those securities
(unless the security pays interest at a variable rate pegged to interest rate
changes). However, those price fluctuations will be reflected in the valuations
of the securities, and therefore the Fund's net asset values will be affected by
those fluctuations.
|_| Special Risks of Lower-Grade Securities. The Fund can invest up to
25% of its total assets in lower-grade debt securities. Because lowergrade
securities tend to offer higher yields than investment-grade securities, the
Fund may invest in lowergrade securities if the Sub-Advisor is trying to achieve
greater income. In some cases, the appreciation possibilities of lower-grade
securities may be a reason they are selected for the Fund's portfolio.
"Lower-grade" debt securities are those rated below "investment grade"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other rating
organizations. If they are unrated, and are determined by the Sub-Advisor to be
of comparable quality to debt securities rated below investment grade, they are
included in determining the maximum amount of the Fund's assets that can be
invested in lower-grade securities under the 25% limitation. The Fund can invest
in securities rated as low as "Caa" by Moody's or "CCC" by Standard and Poor's,
although currently it does not intend to invest in securities in those ratings
categories.
Some of the special credit risks of lower-grade securities are discussed
in the Prospectus. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of investment
grade securities. The issuer's low creditworthiness may increase the potential
for its insolvency. An overall decline in values in the high yield bond market
is also more likely during a period of a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the market for
high yield bonds, adversely affecting the values of outstanding bonds as well as
the ability of issuers to pay interest or repay principal. In the case of
foreign high yield bonds, these risks are in addition to the special risks of
foreign investing discussed in the Prospectus and in this Statement of
Additional Information.
However, the Fund's limitations on these investments may reduce some of
the risks to the Fund, as will the Fund's policy of diversifying its
investments. Additionally, to the extent they can be converted into stock,
convertible securities may be less subject to some of these risks than
non-convertible high yield bonds, since stock may be more liquid and less
affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics.
|_| Mortgage-Related Securities. Mortgage-related securities are a form
of derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests in
real estate mortgage investment conduits ("REMICs") and other real
estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. government have relatively little credit risk
(depending on the nature of the issuer) but are subject to interest rate risks
and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related securities
tend to move inversely to changes in interest rates. The Fund can buy
mortgage-related securities that have interest rates that move inversely to
changes in general interest rates, based on a multiple of a specific index.
Although the value of a mortgage-related security may decline when interest
rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened by
unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities may
be less effective as a means of "locking in" attractive long-term interest
rates, and they may have less potential for appreciation during periods of
declining interest rates, than conventional bonds with comparable stated
maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all or
part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes or
prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment than
were anticipated, the Fund may fail to recoup its initial investment on the
security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in response to changes in interest rates. If the prepayments on the
Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.
As with other debt securities, the values of mortgage-related securities
may be affected by changes in the market's perception of the creditworthiness of
the entity issuing the securities or guaranteeing them. Their values may also be
affected by changes in government regulations and tax policies.
|_| Collateralized Mortgage Obligations. CMOs are multi-class
bonds that are backed by pools of mortgage loans or mortgage pass-through
certificates. They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Ginnie Mae, Fannie
Mae, or Freddie Mac,
(2) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans' Affairs,
(3) unsecuritized conventional mortgages, (4) other mortgage-related securities,
or (5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal and
interest on the underlying mortgages may be allocated among the several classes
of a series of a CMO in different ways. One or more tranches may have coupon
rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse
floating rate CMOs have a coupon rate that moves in the reverse direction to an
applicable index. The coupon rate on these CMOs will increase as general
interest rates decrease. These are usually much more volatile than fixed rate
CMOs or floating rate CMOs.
|X| U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other U.S. government agencies or federally-chartered
corporate entities referred to as "instrumentalities." The obligations of U.S.
government agencies or instrumentalities in which the Fund may invest may or may
not be guaranteed or supported by the "full faith and credit" of the United
States. "Full faith and credit" means generally that the taxing power of the
U.S. government is pledged to the payment of interest and repayment of principal
on a security. If a security is not backed by the full faith and credit of the
United States, the owner of the security must look principally to the agency
issuing the obligation for repayment. The owner might be able to assert a claim
against the United States if the issuing agency or instrumentality does not meet
its commitment. The Fund will invest in securities of U.S. government agencies
and instrumentalities only if the Sub-Advisor is satisfied that the credit risk
with respect to such instrumentality is minimal.
|_| U.S. Treasury Obligations. These include Treasury bills (which
have maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years when issued), and Treasury bonds (maturities
of more than ten years when issued). Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest and
repayments of principal. They also can include U. S. Treasury securities that
have been "stripped" by a Federal Reserve Bank, and zero-coupon U.S. Treasury
securities.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
|_| U.S. Government Mortgage-Related Securities. The Fund can
invest in a variety of mortgage-related securities that are issued by U.S.
government agencies or instrumentalities, some of which are described below.
|_| Zero-Coupon U.S. Government Securities. The Fund may buy
zero-coupon U.S. government securities. These will typically be U.S. Treasury
Notes and Bonds that have been stripped of their unmatured interest coupons,
the coupons themselves, or certificates representing interests in those
stripped debt obligations and coupons.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. The discount
typically decreases as the maturity date approaches.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities that pay interest. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon securities
tend to rise more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| Money Market Instruments. The following is a brief description of
the types of money market securities the Fund can invest in. Those money
market securities are high-quality, short-term debt instruments that are
issued by the U.S. government, corporations, banks or other entities. They
may have fixed, variable or floating interest rates.
|_| U.S. Government Securities. These include obligations issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities.
|_| Bank Obligations. The Fund can buy time deposits, certificates of
deposit and bankers' acceptances. Time deposits, other than overnight deposits,
may be subject to withdrawal penalties and, if so, they are deemed "illiquid"
investments.
The Fund can purchase bank obligations that are fully insured by the
Federal Deposit Insurance Corporation. The FDIC insures the deposits of member
banks up to $100,000 per account. Insured bank obligations may have a limited
market and a particular investment of this type may be deemed "illiquid" unless
the Board of Trustees of the Fund determines that a readily-available market
exists for that particular obligation, or unless the obligation is payable at
principal amount plus accrued interest on demand or within seven days after
demand.
|_| Commercial Paper. The Fund can invest in commercial paper if it
is rated within the top two rating categories of Standard & Poor's and Moody's.
If the paper is not rated, it may be purchased if issued by a company having a
credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may
otherwise be purchased by the Fund.
|_| Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by the
Fund at varying rates of interest under direct arrangements between the Fund, as
lender, and the borrower. They permit daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may prepay up to the full amount of the note without penalty. These
notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and
borrower, it is not expected that there will be a trading market for them. There
is no secondary market for these notes, although they are redeemable (and thus
are immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. Accordingly, the Fund's right to redeem such notes is
dependent upon the ability of the borrower to pay principal and interest on
demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an ongoing
basis, the Sub-Advisor will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation
on investments by the Fund in illiquid securities, described in the Prospectus.
The Fund does not intend that its investments in variable amount master demand
notes will exceed 5% of its total assets.
|X| 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 the year, its portfolio
turnover rate would have been 100% annually. The Fund's portfolio turnover rate
will fluctuate from year to year, and may be in excess of 100% annually.
Increased portfolio turnover creates higher brokerage and transaction costs for
the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
|X| Foreign Securities. The Fund may purchase equity and debt securities
issued by foreign companies or foreign governments or their agencies. "Foreign
securities" include equity and debt securities of companies organized under the
laws of countries other than the United States and debt securities of foreign
governments and their agencies and instrumentalities. Those securities may be
traded on foreign securities exchanges or in the foreign over-the-counter
markets.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are considered "foreign securities" for the purpose of
the Fund's investment allocations. That is because they are subject to many of
the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Because the Fund can purchase securities denominated in foreign
currencies, a change in the value of a foreign currency against the U.S. dollar
could result in a change in the amount of income the Fund has available for
distribution. Because a portion of the Fund's investment income may be received
in foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the
cost of currency fluctuations. After the Fund has distributed income, subsequent
foreign currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income, which
could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth potential,
or in foreign countries with economic policies or business cycles different from
those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S.
markets. The Fund will hold foreign currency only in connection with the
purchase or sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign
governments and their agencies and instrumentalitites may or may not be
supported by the full faith and credit of the foreign government. The Fund may
buy securities issued by certain "supra-national" entities, which include
entities designated or supported by governments to promote economic
reconstruction or development, international banking organizations and related
government agencies. Examples are the International Bank for Reconstruction and
Development (commonly called the "World Bank"), the Asian Development bank and
the Inter-American Development Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
|_| Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange; o lack of public information about
foreign issuers; o lack of uniform accounting, auditing and financial reporting
standards
in foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic
developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing
markets abroad may also offer special opportunities for growth investing but
have greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of
limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject
to the risk of greater political and economic instability, which can greatly
affect the volatility of prices of securities in those countries. The
Sub-Advisor will consider these factors when evaluating securities in these
markets, because the selection of those securities must be consistent with the
Fund's goals of growth of capital and investment income.
|_| Risks of Conversion to Euro. On January 1, 1999, eleven countries
in the European Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress securities
values. o vendors the Fund depends on to carry out its business, such as
its Custodian (which holds the foreign securities the Fund buys), the
Manager (which must price the Fund's investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in
settlements and additional costs to the Fund. o exchange contracts and
derivatives that are outstanding during the transition to the euro. The
lack of currency rate calculations between the affected currencies and the
need to update the Fund's contracts could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's custodian bank has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio manager will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
|X| Investing in Small, Unseasoned Companies. The Fund can invest in
securities of small, unseasoned companies. These are companies that have been in
operation for less than three years, including the operations of any
predecessors. Securities of these companies may be subject to volatility in
their prices. They may have a limited trading market, which may adversely affect
the Fund's ability to dispose of them and can reduce the price the Fund might be
able to obtain for them. Other investors that own a security issued by a small,
unseasoned issuer for which there is limited liquidity might trade the security
when the Fund is attempting to dispose of its holdings of that security. In that
case the Fund might receive a lower price for its holdings than might otherwise
be obtained.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can invest
in securities on a "when-issued" basis and can purchase or sell securities on a
"delayed-delivery" or "forward commitment" basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Sub-Advisor before
settlement will affect the value of such securities and may cause a loss to the
Fund. During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund from the investment.
No income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund can engage in when-issued transactions to secure what the
Sub-Advisor considers to be an advantageous price and yield at the time of
entering into the obligation. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause the Fund to lose the opportunity to
obtain the security at a price and yield the Sub-Advisor considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purpose of investment
leverage. Although the Fund will enter into delayed-delivery or when-issued
purchase transactions to acquire securities, it may dispose of a commitment
prior to settlement. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to
delivery or receive against a forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
The Fund will not enter into when-issued commitments if more than 15% of the
Fund's net assets would be committed under these transactions.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's net assets that may be subject to repurchase agreements having
maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Sub-Advisor will monitor the vendor's creditworthiness to confirm
that the vendor is financially sound and will continuously monitor the
collateral's value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities,
as stated in the Prospectus. Those percentage restrictions do not limit
purchases of restricted securities that are eligible for sale to qualified
institutional purchasers under Rule 144A of the Securities Act of 1933, if those
securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holdings of that security may be considered to be illiquid.
|X| Participation Interests. The Fund can invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made by
the issuing financial institution in the proportion that the buyers
participation interest bears to the total principal amount of the loan. No more
than 5% of the Fund's net assets can be invested in participation interests of
the same borrower. The issuing financial institution may have no obligation to
the Fund other than to pay the Fund the proportionate amount of the principal
and interest payments it receives.
Participation interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of principal
and interest on the loan. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
|X| Loans of Portfolio Securities. The Fund can lend its portfolio
securities to certain types of eligible borrowers approved by the Board of
Trustees. It may do so to try to provide income or to raise cash for liquidity
purposes. There are some risks in connection with securities lending. The Fund
might experience a delay in receiving additional collateral to secure a loan, or
a delay in recovery of the loaned securities. The Fund presently does not intend
to engage in loans of securities.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finder, custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
|X| Hedging. Although the Fund can use hedging instruments, it is not
obligated to use them in seeking its objectives. It does not currently
contemplate using them to any significant degree. To attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund to
retain unrealized gains in the value of portfolio securities that have
appreciated, or to facilitate selling securities for investment reasons, the
Fund could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures. Covered calls could also
be used to increase the Fund's income, but the Sub-Advisor does not expect
to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case the
Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so, the Fund could:
|_| buy futures, or
|_| buy calls on such futures or on securities.
The Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objectives
and are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate
to (1) broadly-based stock indices (these are referred to as "stock index
futures"), (2) foreign currencies (these are referred to as "forward
contracts"), and (3) commodities (these are referred to as "commodity futures").
A broadly-based stock index is used as the basis for trading stock index
futures. These indices may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index cannot
be purchased or sold directly. These contracts obligate the seller to deliver,
and the purchaser to take, cash to settle the futures transaction. There is no
delivery made of the underlying securities to settle the futures obligation.
Either party may also settle the transaction by entering into an offsetting
contract.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture,
which includes wheat, corn, soybeans, cotton, coffee, sugar and cocoa; (4)
industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may
purchase and sell commodity futures contracts, options on futures contracts and
options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as
other types of commodities.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily.
At any time prior to expiration of the future, the Fund may elect to close
out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be paid
by or released to the Fund. Any loss or gain on the future is then realized by
the Fund for tax purposes. All futures transactions (except forward contracts)
are effected through a clearinghouse associated with the exchange on which the
contracts are traded.
|_| Put and Call Options. The Fund can buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including options on
broadly-based indices, securities, foreign currencies and stock index futures.
|_| Writing Covered Call Options. The Fund can write (that is,
sell) covered calls. If the Fund sells a call option, it must be covered. For
options on securities, that means the Fund must own the security subject to the
call while the call is outstanding. For stock index options, that means the call
must be covered by segregating liquid assets to enable the Fund to satisfy its
obligations if the call is exercised. The Trustees have adopted an operating
policy that the Fund may not write covered call options (or write put options)
with respect to more than 5% of the value of the Fund's total assets.
When the Fund writes a call on a security, it receives cash (a premium).
For calls on securities, the Fund agrees to sell the underlying security to a
purchaser of a corresponding call on the same security during the call period at
a fixed exercise price regardless of market price changes during the call
period. The call period is usually not more than nine months. The exercise price
may differ from the market price of the underlying security. The Fund has the
risk of loss that the price of the underlying security may decline during the
call period. That risk may be offset to some extent by the premium the Fund
receives. If the value of the investment does not rise above the call price, it
is likely that the call will lapse without being exercised. In that case the
Fund would keep the cash premium and the investment.
When the Funds writes a call on an index, it receives cash (a premium). If
the buyer of a call on a stock index exercises it, the Fund will pay an amount
of cash equal to the difference between the closing price of the call and the
exercise price, multiplied by a specified multiple that determines the total
value of the call for each point of difference. If the value of the underlying
investment does not rise above the call price, it is likely that the call will
lapse without being exercised. In that case the Fund would keep the cash
premium.
Settlement of puts and calls on broadly-based stock indices is in cash.
Gain or loss on options on stock indices depends on changes in the index in
question (and thus on price movements in the stock market generally).
The Fund's custodian, or a securities depository acting for the custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the premium it received when it wrote the call. Any
such profits are considered short-term capital gains for Federal income tax
purposes, as are the premiums on lapsed calls. When distributed by the Fund they
are taxable as ordinary income. If the Fund cannot effect a closing purchase
transaction due to the lack of a market, it will have to hold the escrowed
assets in escrow until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
require the Fund to deliver a futures contract. It would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging policies.
|_| Writing Put Options. The Fund can sell put options on stock
indices, foreign currencies or stock index futures. A put option on securities
gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying investment of the exercise price during the option period. If the
Fund writes a put, the put must be covered by liquid assets identified on the
Fund's books in an amount at least equal to the exercise price of the underlying
securities. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets.
The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to settle the transaction in cash with the buyer of the put at
the exercise price, even if the value of the underlying investment falls below
the exercise price. If a put the Fund has written expires unexercised, the Fund
realizes a gain in the amount of the premium less the transaction costs
incurred. If the put is exercised, the Fund must fulfill its obligation to
settle in cash at the exercise price. That price will usually exceed the market
value of the investment at that time. In that case, the fund might incur a loss
if it sells the underlying investment. That loss will be equal to the sum of the
sale price of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs the Fund incurred.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to settle the transaction in cash at the
exercise price. The Fund has no control over when it may be required to settle
the transaction, since it may be assigned an exercise notice at any time prior
to the termination of its obligation as the writer of the put. That obligation
terminates upon expiration of the put. It may also terminate if, before it
receives an exercise notice, the Fund effects a closing purchase transaction by
purchasing a put of the same series as it sold. Once the Fund has been assigned
an exercise notice, it cannot effect a closing purchase transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. The Fund will realize a profit or loss from a closing
purchase transaction depending on whether the cost of the transaction is less or
more than the premium received from writing the put option. Any profits from
writing puts are considered short-term capital gains for Federal tax purposes,
and when distributed by the Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can buy calls to protect
against the possibility that the Fund's portfolio will not participate in an
anticipated rise in the securities market.
When the Fund buys a call (other than in a closing purchase transaction), it
pays a premium. Buying a call on a security or future gives the Fund the right
to buy the underlying investment from a seller of a corresponding call on the
same investment during the call period at a fixed exercise price. The Fund
benefits only if it sells the call at a profit or if, during the call period,
the market price of the underlying investment is above the sum of the call price
plus the transaction costs and the premium paid for the call and the Fund
exercises the call. If the Fund does not exercise the call or sell it (whether
or not at a profit), the call will become worthless at its expiration date. In
that case the Fund will have paid the premium but lost the right to purchase the
underlying investment.
In the case of a purchase of a call on a stock index, if the Fund
exercises the call during the call period, a seller of a corresponding call on
the same index will pay the Fund an amount of cash to settle the call if the
closing level of the stock index upon which the call is based is greater than
the exercise price of the call. That cash payment is equal to the difference
between the closing price of the call and the exercise price of the call times a
specified multiple (the "multiplier") which determines the total dollar value
for each point of difference.
When the Fund buys a put, it pays a premium. It has the right during the
put period to require a seller of a corresponding put, upon the Fund's exercise
of its put, to buy the underlying security (in the case of puts on securities or
futures) or in the case of puts on stock indices, to deliver cash to the Fund to
settle the put if the closing level of the stock index upon which the put is
based is less than the exercise price of the put. That cash payment is
determined by the multiplier, in the same manner as described above as to calls.
Buying a put on a security or future enables the Fund to sell the
underlying investment to a seller of a corresponding put on the same investment
during the put period at a fixed exercise price. Buying a put on securities or
Futures the Fund owns enables the Fund to attempt to protect itself during the
put period against a decline in the value of the underlying investment below the
exercise price by selling the underlying investment at the exercise price to a
seller of a corresponding put. If the market price of the underlying investment
is equal to or above the exercise price and, as a result, the put is not
exercised or resold, the put will become worthless at its expiration date. In
that case the Fund will have paid the premium but lost the right to sell the
underlying investment. However, the Fund may sell the put prior to its
expiration. That sale may or may not be at a profit.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
When the Fund purchases a put on a stock index, the put protects the Fund
to the extent that the index moves in a similar pattern to the securities the
Fund holds. The Fund can resell the put. The resale price of the put will vary
inversely with the price of the underlying investment. If the market price of
the underlying investment is above the exercise price, and as a result the put
is not exercised, the put will become worthless on the expiration date. In the
event of a decline in price of the underlying investment, the Fund could
exercise or sell the put at a profit to attempt to offset some or all of its
loss on its portfolio securities.
The Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
|_| Buying and Selling Options on Foreign Currencies. The Fund can
buy and sell calls and puts on foreign currencies. They include puts and calls
that trade on a securities or commodities exchange or in the over-the-counter
markets or are quoted by major recognized dealers in such options. The Fund
could use these calls and puts to try to protect against declines in the dollar
value of foreign securities and increases in the dollar cost of foreign
securities the Fund wants to acquire.
If the Sub-Advisor anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Sub-Advisor anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Sub-Advisor uses a hedging instrument at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce the Fund's return. The
Fund could also experience losses if the prices of its futures and options
positions were not correlated with its other investments. The Fund's option
activities may affect its costs.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market may
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
|_| Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might a substantial decline against the U.S.
dollar, it could into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge. However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess.
As one alternative, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price. As another
alternative, the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases, the Sub-Advisor might decide to
sell the security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same advisor as the Fund (or an advisor that is an affiliate of the Fund's
advisor or Sub-Advisor). The exchanges also impose position limits on futures
transactions. An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it. The account must be a segregated account or
accounts held by the Fund's custodian bank.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign currency
exchange contracts in which the Fund may invest are treated as "Section 1256
contracts" under the Internal Revenue Code. In general, gains or losses relating
to Section 1256 contracts are characterized as 60% long-term and 40% short-term
capital gains or losses under the Code. However, foreign currency gains or
losses arising from Section 1256 contracts that are forward contracts generally
are treated as ordinary income or loss. In addition, Section 1256 contracts held
by the Fund at the end of each taxable year are "marked-to-market," and
unrealized gains or losses are treated as though they were realized. These
contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under
rules prescribed pursuant to the Internal Revenue Code. An election can be made
by the Fund to exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are treated
as ordinary income or loss: (1) gains or losses attributable to fluctuations in
exchange rates that
occur between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency
and the time the Fund actually collects such receivables or pays such
liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the date
of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, a "majority" vote is defined as the vote of
the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or |_| more than 50% of the
outstanding shares.
The Fund's investment objectives are fundamental policies. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
G The Fund cannot invest in physical commodities or physical
commodity contracts. However, the Fund may buy and sell hedging instruments to
the extent specified in its Prospectus and this Statement of Additional
Information from time to time. The Fund can also buy and sell options, futures,
securities or other instruments backed by, or the investment return from which
is linked to changes in the price of, physical commodities.
G The Fund cannot invest in real estate or real estate limited
partnerships (direct participation programs). However, the Fund may purchase
securities of issuers that engage in real estate operations and securities that
are secured by real estate or interests in real estate.
G The Fund cannot underwrite securities of other companies. A
permitted exception is in case it might be deemed to be an underwriter under the
Securities Act of 1933 in disposing of a security held its own portfolio.
G The Fund cannot invest in securities of any issuer if, to the
knowledge of the Trust, any officer or trustee of the Trust or any officer or
director of the Manager or Sub-Advisor owns more than 1/2 of 1% of the
outstanding securities of that issuer, and who together own more 5% of the
outstanding securities of that issuer;
G The Fund cannot pledge its assets or assign or otherwise encumber
its assets in amounts in excess of 10% of its net assets (taken at market value
at the time of pledging). The Fund can pledge, assign or encumber its assets
only to secure borrowings made within the limitations set forth in the
Prospectus or this Statement of Additional Information.
G The Fund cannot invest for the purpose of exercising control or
management of another company.
G The Fund cannot issue senior securities as defined in the
Investment Company Act of 1940. However, the Fund may enter into any repurchase
agreement; borrow money in accordance with restrictions described above, and
lend portfolio securities.
G The Fund cannot make loans to any person or individual. However,
portfolio securities may be loaned by the Fund within the limitations set forth
in the Prospectus or this Statement of Additional Information.
G The Fund cannot invest more than 5% of the value of its total
assets in the securities of any one issuer. This restriction applies to 75% of
its total assets.
G The Fund cannot purchase more than 10% of the voting securities of
any one issuer (other than the U.S. government or any of its agencies or
instrumentalities). This restriction applies to 75% of the Fund's total assets.
? The Fund cannot concentrate its investments in any particular
industry. However, if it is deemed appropriate to help the Fund attain its
investment objective, the Fund may invest up to but less than 25% of its total
assets (valued at the time of investment) in any one industry classification
used by the Fund for investment purposes. For this purpose, a foreign government
is considered to be an industry.
G The Fund cannot borrow money in excess of 33-1/3% of the value of
the Fund's total assets. The Fund may borrow only from banks and only as a
temporary measure for extraordinary or emergency purposes. The Fund will make no
additional investments while borrowings exceed 5% of the Fund's total assets.
With respect to this fundamental policy, the Fund can borrow only if it
maintains a 300% ratio of assets to borrowings at all times in the manner set
forth in the Investment Company Act.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. 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.
For purposes of the Fund's policy not to concentrate its assets as
described in the Prospectus, the Fund has adopted, as a matter of
non-fundamental policy, the corporate industry classifications set forth in
Appendix B to this Statement of Additional Information. The percentage
restrictions described above and in the Prospectus apply only at the time of
investment and require no action by the Fund as a result of subsequent changes
in relative values.
|X| Does the Fund Have Any Restrictions That Are Not Fundamental? The Fund
has a number of other investment restrictions that are not fundamental policies,
which means that they can be changed by the Board of Trustees without
shareholder approval.
G The Fund cannot make short sales or purchase securities on margin.
However, the Fund can mark short-term borrowings when necessary for the
clearance of purchases of portfolio securities. Collateral arrangements in
connection with futures and options transactions are not deemed to be margin
transactions under this restriction.
G The Fund cannot invest in interests in oil, gas or other mineral
exploration or development programs or leases.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company. The Fund is one of three series of Oppenheimer Quest for
Value Funds, an open-end management investment company organized as a
Massachusetts business trust in April 1987 (and which is referred to as the
"Trust").
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. 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.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Trust into two or more
series and each series into two or more classes. The Board has done so, and the
Fund currently has three classes of shares: Class A, Class B, and Class C. All
classes invest in the same investment portfolio. Each class of shares: o has its
own dividends and distributions, o pays certain expenses which may be different
for the different classes, o may have a different net asset value, o may have
separate voting rights on matters in which interests of one
class are different from interests of another class, and o votes as a
class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series of the Trust and new
classes of shares of the Fund. The Trustees may reclassify unissued shares of
the Fund into additional series or classes of shares. The Trustees also may
divide or combine the shares of a class into a greater or lesser number of
shares without 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 at shareholder
meetings.
|X| Meetings of Shareholders. Although the Fund is not required by
Massachusetts law to hold annual meetings, it may hold shareholder meetings from
time to time on important matters. The Fund's shareholders have the right to
call a meeting to remove a Trustee or to take certain other action described in
the Declaration of Trust.
The Fund will hold meetings when required to do so by the Investment
Company Act or other applicable law. The Fund will hold a meeting when the
Trustees call a meeting or upon proper request of shareholders. If the Fund
receives a written request of the record holders of at least 25% of the
outstanding shares eligible to be voted at a meeting to call a meeting for a
specified purpose (which might include the removal of a Trustee), the Fund will
call a meeting of shareholders for that specified purpose.
Shareholders of the different classes of the Fund vote together in the
aggregate on certain matters at shareholders' meetings. Those matters include
the election of Trustees and ratification of appointment of the independent
auditors. Shareholders of a particular series or class vote separately on
proposals that affect that series or class. Shareholders of a series or class
that is not affected by a proposal are not entitled to vote on the proposal. For
example, only shareholders of a particular series vote on any material amendment
to the investment advisory agreement for that series. Only shareholders of a
particular class of a series vote on certain amendments to the Distribution
and/or Service Plans if the amendments affect only that class.
|X| Shareholder and Trustee Liability. The Trust's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Trustees and officers and their principal
occupations and business affiliations during the past five years are listed
below. Trustees denoted with an asterisk (*) below are deemed to be "interested
persons" of the Fund under the Investment Company Act. All of the Trustees are
also trustees, directors or managing general partners of the following
Oppenheimer funds:
Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest For Value Funds, a series fund having the following series:
Oppenheimer Quest Small Cap Value Fund,
Oppenheimer Quest Balanced Value Fund and
Oppenheimer Quest Opportunity Value Fund,
Oppenheimer Quest Global Value Fund, Inc.,
Oppenheimer Quest Capital Value Fund, Inc.,
Rochester Portfolio Series, a series fund having one series: Limited-Term New
York Municipal Fund,
Bond Fund Series, a series fund having one series: Oppenheimer Convertible
Securities Fund,
Rochester Fund Municipals and
Oppenheimer MidCap Fund
Ms. Macaskill and Messrs. Bishop, Bowen, Doll, Donohue, Farrar and Zack, who
are officers of the Fund, respectively hold the same offices of the other
Oppenheimer funds listed above. As of February 1, 1999, the Trustees and the
officers of the Fund as a group owned less than 1% of the outstanding shares of
the Fund. The foregoing statement does not reflect shares held of record by an
employee benefit plan for employees of the Manager other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue, are trustees of that plan.
Bridget A. Macaskill*, Chairman of the Board of Trustees and President, Age: 50
Two World Trade Center, New York, New York 10048-0203 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 Corp., an investment advisor subsidiary of the
Manager; Chairman and a director of Shareholder Services, Inc. (since August
1994) and Shareholder Financial Services, Inc. (since September 1995), transfer
agent subsidiaries of the Manager; President (since September 1995) and a
director (since October 1990) of Oppenheimer Acquisition Corp., the Manager's
parent holding company; President (since September 1995) and a director (since
November 1989) of Oppenheimer Partnership Holdings, Inc., 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 management subsidiary of
the Manager and of Oppenheimer Millennium Funds plc; President and a director of
other Oppenheimer funds; a director of Hillsdown Holdings plc (a U.K. food
company), formerly (until October 1998) a director of NASDAQ Stock Market, Inc.
Paul Y. Clinton, Trustee, Age: 68
39 Blossom Avenue, Osterville, Massachusetts 02655
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; Trustee or Director of Capital Cash Management Trust,
Narrangansett Tax-Free Fund, OCC Accumulation Trust, OCC Cash Reserves,
investment companies; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation.
Thomas W. Courtney, Trustee, Age 65
833 Wyndemere Way, Naples, Florida 34105
Principal of Courtney Associates, Inc., a venture capital firm; Director or
Trustee of OCC Cash Reserves, Inc., OCC Accumulation Trust, Cash Assets Trust,
Hawaiian Tax-Free Trust and Tax Free Trust of Arizona, investment companies;
Director of several privately owned corporations; former General Partner of
Trivest Venture Fund, a private venture capital fund; former President of
Investment Counseling Federated Investors, Inc., an investment advisory firm;
former Director of Financial Analysts Federation.
Robert G. Galli, Trustee, Age: 65
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman of the Manager, OppenheimerFunds, Inc. (October 1995 to
December 1997); Vice President (June 1990 to March 1994) and General Counsel of
Oppenheimer Acquisition Corp.; Executive Vice President (December 1977 to
October 1995), General Counsel and a director (December 1975 to October 1993) of
the Manager; Executive Vice President and a director (July 1978 to October 1993)
and General Counsel of the Distributor, OppenheimerFunds Distributor, Inc.;
Executive Vice President and a director (April 1986 to October 1995) of
HarbourView Asset Management Corp.; Vice President and a director (October 1988
to October 1993) of Centennial Asset Management Corporation, an investment
advisor subsidiary of the Manager; and an officer of other Oppenheimer funds.
Lacy B. Herrmann, Trustee, Age: 69
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-Advisor 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, and a former
officer and Trustee/Director of its predecessors; President and Director of STCM
Management Company, Inc., sponsor and advisor to Capital Cash Management Trust;
Chairman, President and a Director of InCap Management Corporation, a fund
Sub-Advisor and administrator; Director of OCC Cash Reserves, Inc., and Trustee
of OCC Accumulation Trust, open-end investment companies; Trustee Emeritus of
Brown University.
George Loft, Trustee, Age: 84
51 Herrick Road, Sharon, Connecticut 06069
Private Investor; Director of OCC Cash Reserves, Inc., and Trustee of OCC
Accumulation Trust, open-end investment companies.
Robert C. Doll, Jr., Vice President, Age: 44
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and Director (since January 1993) and Director of
Investments (since January 1999) of the Manager; Vice President and a Director
of Oppenheimer Acquisition Corp. (since September 1995); Executive Vice
President of HarbourView Asset Management Corp. (since January 1993); an officer
and portfolio manager of other Oppenheimer funds.
Andrew J. Donohue, Secretary, Age: 48
Two World Trade Center, New York, New York 10048-0203
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 Asset Management Corp., Shareholder Services, Inc.,
Shareholder Financial Services, Inc. and (since September 1995) Oppenheimer
Partnership Holdings, Inc.; President and a director of Centennial Asset
Management Corporation (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 Oppenheimer
Acquisition Corp.; Vice President and a director of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Oppenheimer funds.
George C. Bowen, Treasurer, Age: 62
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 Asset Management Corp.; Senior Vice President (since
February 1992), Treasurer (since July 1991) and a director (since December 1991)
of Centennial Asset Management Corporation; Vice President and Treasurer (since
August 1978) and Secretary (since April 1981) of Shareholder Services, Inc.;
Vice President, Treasurer and Secretary (since November 1989) of Shareholder
Financial Services, Inc.; Assistant Treasurer (since March 1998) of Oppenheimer
Acquisition Corp.; Treasurer (since November 1989) of Oppenheimer Partnership
Holdings, Inc.; Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc. (since July 1996); Treasurer of OppenheimerFunds International
Ltd. and Oppenheimer Millennium Fund plc (since October 1997); a director or
trustee and an officer of other Oppenheimer funds.
Robert Bishop, Assistant Treasurer, Age: 40
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: 33
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: 50
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager, Assistant Secretary of Shareholder Services, Inc.
(since May 1985), and Shareholder Financial Services, Inc. (since November
1989); Assistant Secretary of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds.
|X| Remuneration of Trustees. The officers of the Fund and one Trustee, Ms.
Macaskill, are affiliated with the Manager and receive no salary or fee from the
Fund. The remaining Trustees received the compensation shown below. The
compensation from the Fund was paid during its fiscal year ended October 31,
1998. The table below also shows the total compensation from all of the
Oppenheimer funds listed above, including the compensation from the Fund and two
other funds that are not Oppenheimer funds but for which the Sub-Advisor acts as
investment advisor. That amount represents compensation received as a director,
trustee, or member of a committee of the Board during the calendar year 1998.
<PAGE>
- --------------------------------------------------------------------
Total
Compensation
From all
Aggregate Retirement Oppenheimer
Compensation Benefits Quest/Rochester
Trustee's Name From the Fund 1 Accrued as Part Funds
of Fund Expenses (11 Funds)2 and
Two Other Funds3
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Paul Y. Clinton $5,446 $762 $135,100
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Thomas W. $5,240 $556 $135,100
Courtney
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Robert G. Galli $2,043 4 None $113,383.33
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Lacy B. $5,473 $856 $135,100
Herrmann
- --------------------------------------------------------------------
- --------------------------------------------------------------------
George Loft $5,582 $898 $135,100
- --------------------------------------------------------------------
1. Aggregate compensation includes fees and any retirement plan benefits accrued
for a Trustee.
2. For the 1998 calendar year. Includes compensation for a portion of the year
paid by Oppenheimer Quest Officers Value Fund, which was reorganized into
another fund in June 1998. Each series of an investment company is considered
a separate "fund" for this purpose. For Mr. Galli, compensation is for period
from 6/2/98 to 12/31/98.
3. Includes compensation paid by two funds for which the Sub-Advisor acts
as investment advisor. Those funds are not Oppenheimer funds and are not
affiliated with the Oppenheimer funds, the Manager or the Distributor. The
amount of aggregate compensation paid to certain Fund Trustees by those two
other funds was as follows: Mr. Clinton: $63,400; Mr. Courtney: $63,400;
Mr. Hermann: $63,400; and Mr. Loft: $63,400.
4. For Mr. Galli, the aggregate compensation from the fund is for the period
from 6/2/98 to 10/31/98. His total compensation for the 1998 calendar year
also includes compensation from 20 other Oppenheimer funds for which he
serves as a trustee or director.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five years of service in which the
highest compensation was received. A Trustee must serve as Trustee for any of
the Oppenheimer Quest/Rochester/MidCap funds listed above for at least 15 years
to be eligible for the maximum payment. Each Trustee's retirement benefits will
depend on the amount of the Trustee's future compensation and length of service.
Therefore the amount of those benefits cannot be determined at this time, nor
can we estimate the number of years of credited service that will be used to
determine those benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested Trustees that enables
them 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 and 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 without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of February 1, 1999, the only persons who owned
of record or were known by the Fund to own beneficially 5% or more of any class
of the Fund's outstanding shares were :
Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, California
94104-4122, which owned 1,895,131.827 Class A shares (representing 11.56% of
the Class A shares then outstanding), for the benefit of its customers.
Merrill Lynch Pierce Fenner & Smith, Inc., 4800 Deer Lake Dr. E, Floor 3,
Jacksonville, Florida, 32246, which owned 618,606.248 Class B shares
(representing 6.29% of the Class B shares then outstanding) and 301,715.663
Class C shares (representing 7.69% of the Class C shares then outstanding),
in each case for the benefit of its customers.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. 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 enforced by the
Manager.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund's parent Trust. The Manager handles
the Fund's day-to-day business, and the agreement permits the Manager to enter
into sub-advisory agreements with other registered investment advisors to obtain
specialized services for the Fund, as long as the Fund is not obligated to pay
any additional fees for those services. The Manager has retained the Sub-Advisor
pursuant to a separate Sub-Advisory Agreement, described below, under which the
Sub-Advisor buys and sells portfolio securities for the Fund. The portfolio
manager of the Fund is employed by the Sub-Advisor and is the person who is
principally responsible for the day-to-day management of the Fund's portfolio,
as described below.
The investment advisory agreement between the Fund and the Manager requires
the Manager, at its expense, to provide the Fund with adequate office space,
facilities and equipment. It also requires the Manager to provide and supervise
the activities of all administrative and clerical personnel required to provide
effective administration for the Fund. Those responsibilities include the
compilation and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of proxy materials
and registration statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. Expenses for the Trust's three series are allocated to the
series in proportion to their net assets, unless allocations of expenses can be
made directly to a series. The advisory agreement lists examples of expenses
paid by the Fund. The major categories relate to calculation of the Fund's net
asset values per share, interest, taxes, brokerage commissions, fees to certain
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs and non-recurring
expenses, including litigation costs. The management fees paid by the Fund to
the Manager are calculated at the rates described in the Prospectus, which are
applied to the assets of the Fund as a whole. The fees are allocated to each
class of shares based upon the relative proportion of the Fund's net assets
represented by that class.
- ---------------------------------------------------------------------
Fees Paid to Manager
Management Fees Paid to to Calculate Fund's
Fiscal Year ended OppenheimerFunds, Inc. Net Asset Values2
10/31:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
19961 $ 448,353 $51,630
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1997 $ 726,006 $54,547
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1998 $ $55,000
1,306,652
- ---------------------------------------------------------------------
1. For the 11 month fiscal period commencing November 22, 1995, when the Manager
became the Fund's investment advisor. For the period from November 1, 1995 to
November 22, 1995, the Fund paid an advisory fee of $24,482 and accounting
services fees of $2,291 to the Sub-Advisor, which was then the Fund's
investment advisor.
2. During the fiscal years noted, the Fund paid the Manager a fee for accounting
services, consisting of a base fee of $55,000 per year plus out-of-pocket
expenses. The Manager has voluntarily agreed to eliminate its fee for
providing those services for fiscal years commencing on or after November 1,
1998.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
The agreement permits the Manager to act as investment advisor for any other
person, firm or corporation and to use the names "Oppenheimer" and "Quest for
Value" in connection with other investment companies for which it may act as
investment advisor or general distributor. If the Manager shall no longer act as
investment advisor to the Fund, the Manager may withdraw the right of the Fund
to use the names "Oppenheimer" or "Quest for Value" as part of its name.
The Sub-Advisor. The Sub-Advisor is a majority-owned subsidiary of Oppenheimer
Capital, a registered investment advisor. From the Fund's inception on April 30,
1980, until November 22, 1995, the Sub-Advisor (which was then named Quest for
Value Advisors) or the Sub-Advisor's parent served as the Fund's investment
advisor. The Sub-Advisor acts as investment advisor to other investment
companies and for individual investors.
On November 4, 1997, PIMCO Advisors L.P., a registered investment advisor
with $125 billion in assets under management through various subsidiaries and
affiliates, acquired control of Oppenheimer Capital and the Sub-Advisor. On
November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors. As a result, Oppenheimer Capital and the Sub-Advisor became indirect
wholly-owned subsidiaries of PIMCO Advisors. PIMCO Advisors has two general
partners: PIMCO Partners, G.P., a California general partnership, and PIMCO
Advisors Holdings L.P. (formerly Oppenheimer Capital, L.P.), an New York Stock
Exchange-listed Delaware limited partnership of which PIMCO Partners, G.P. is
the sole general partner.
PIMCO Partners, G.P. beneficially owns or controls (through its general
partner interest in the former Oppenheimer Capital, L.P.) more than 80% of
the units of limited partnership of PIMCO Advisors. PIMCO Partners, G.P. has
two general partners. The first of these is Pacific Investment Management
Company, a wholly-owned subsidiary of Pacific Financial Asset Management
Company, a direct subsidiary of Pacific Life Insurance Company ("Pacific
Life").
The managing general partner of PIMCO Partners, G.P. is PIMCO Partners
L.L.C. ("PPLLC"), a California limited liability company. PPLLC's members
are the Managing Directors (the "PIMCO Managers") of Pacific Investment
Management Company, a subsidiary of PIMCO Advisors (the "PIMCO
Subpartnership"). The PIMCO Managers are: William H. Gross, Dean S. Meiling,
James F. Muzzy, William F. Podlich, III, Brent R. Harris, John L. Hague,
William S. Thompson Jr., William C. Powers, David H. Edington, Benjamin
Trosky, William R. Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by a Management Board, which consists of
sixteen members, pursuant to a delegation by its general partners. PIMCO
Partners G.P. has the power to designate up to nine members of the Management
Board and the PIMCO Subpartnership, of which the PIMCO Managers are the Managing
Directors, has the power to designate up to two members. In addition, PIMCO
Partners, G.P., as the controlling general partner of PIMCO Advisors, has the
power to revoke the delegation to the Management Board and exercise control of
PIMCO Advisors. As a result, Pacific Life and/or the PIMCO Managers may be
deemed to control PIMCO Advisors. Pacific Life and the PIMCO Managers disclaim
such control.
|X| The Sub-Advisory Agreement. Under the Sub-Advisory Agreement between
the Manager and the Sub-Advisor, the Sub-Advisor shall regularly provide
investment advice with respect to the Fund and invest and reinvest cash,
securities and the property comprising the assets of the Fund. Under the
Sub-Advisory Agreement, the Sub-Advisor agrees not to change the portfolio
manager of the Fund without the written approval of the Manager. The Sub-Advisor
also agrees to provide assistance in the distribution and marketing of the Fund.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Advisor an
annual fee in monthly installments, based on the average daily net assets of the
Fund. The fee paid to the Sub-Advisor under the Sub-Advisory agreement is paid
by the Manager, not by the Fund. The fee is equal to 40% of the investment
advisory fee collected by the Manager from the Fund based on the total net
assets of the Fund as of November 22, 1995 (the "Base Amount") plus 30% of the
investment advisory fee collected by the Manager based on the total net assets
of the Fund that exceed the Base Amount.
The Sub-Advisory Agreement states that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of its duties or
obligations, the Sub-Advisor shall not be liable to the Manager for any act or
omission in the course of or connected with rendering services under the
Sub-Advisory Agreement or for any losses that may be sustained in the purchase,
holding or sale of any security.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement and the Sub-Advisory
Agreement. One of the duties of the Sub-Advisor under the Sub-Advisory Agreement
is to arrange the portfolio transactions for the Fund. The Fund's investment
advisory agreement with the Manager and the Sub-Advisory Agreement contain
provisions relating to the employment of broker-dealers to effect the Fund's
portfolio transactions. The Manager and the Sub-Advisor are authorized to employ
broker-dealers, including "affiliated" brokers, as that term is defined in the
Investment Company Act. They may employ broker-dealers that the Manager or the
Sub-Advisor thinks, in its best judgment based on all relevant factors, will
implement the policy of the Fund to obtain, at reasonable expense, the "best
execution" of the Fund's portfolio transactions. "Best execution" means prompt
and reliable execution at the most favorable price obtainable.
The Manager and the Sub-Advisor need not seek competitive commission
bidding. However, they are expected to be aware of the current rates of eligible
brokers and to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund as established by its Board of Trustees.
The Manager and the Sub-Advisor may select brokers (other than affiliates)
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager, the Sub-Advisor or their respective affiliates
have investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would charge, if the Manager or Sub-Advisor, as
applicable, makes a good faith determination that the commission is fair and
reasonable in relation to the services provided. Subject to those
considerations, as a factor in selecting brokers for the Fund's portfolio
transactions, the Manager and the Sub-Advisor may also consider sales of shares
of the Fund and other investment companies for which the Manager or an affiliate
serves as investment advisor.
Brokerage Practices. Brokerage for the Fund is allocated subject to the
provisions of the investment advisory agreement and the Sub-Advisory agreement
and the procedures and rules described above. Generally, the Sub-Advisor's
portfolio traders allocate brokerage based upon recommendations from the Fund's
portfolio manager. In certain instances, portfolio managers may directly place
trades and allocate brokerage. In either case, the Sub-Advisor's executive
officers supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so.
The Sub-Advisor serves as investment manager to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Sub-Advisor to allocate
purchase or sale transactions among the Fund and other clients whose assets it
manages in a manner it deems equitable. In making those allocations, the
Sub-Advisor considers several main factors, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and each other client's accounts.
When orders to purchase or sell the same security on identical terms are
placed by more than one of the funds and/or other advisory accounts managed by
the Sub-Advisor or its affiliates, the transactions are generally executed as
received, although a fund or advisory account that does not direct trades to a
specific broker (these are called "free trades") usually will have its order
executed first. Orders placed by accounts that direct trades to a specific
broker will generally be executed after the free trades. All orders placed on
behalf of the Fund are considered free trades. However, having an order placed
first in the market does not necessarily guarantee the most favorable price.
Purchases are combined where possible for the purpose of negotiating brokerage
commissions. In some cases that practice might have a detrimental effect on the
price or volume of the security in a particular transaction for the Fund.
Most purchases of debt obligations are principal transactions at net prices.
Instead of using a broker for those transactions, the Fund normally deals
directly with the selling or purchasing principal or market maker unless the
Sub-Advisor determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement and the Sub-Advisory agreement permit the
Manager and the Sub-Advisor to allocate brokerage for research services. The
research services provided by a particular broker may be useful only to one or
more of the advisory accounts of the Sub-Advisor and its affiliates. The
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of the Sub-Advisor's other accounts.
Investment research may be supplied to the Sub-Advisor by a third party at the
instance of a broker through which trades are placed.
Investment research services include information and analysis on particular
companies and industries as well as market or economic trends and portfolio
strategy, market quotations for portfolio evaluations, information systems,
computer hardware and similar products and services. If a research service also
assists the Sub-Advisor in a non-research capacity (such as bookkeeping or other
administrative functions), then only the percentage or component that provides
assistance to the Sub-Advisor in the investment decision-making process may be
paid in commission dollars.
The research services provided by brokers broadens the scope and supplements
the research activities of the Sub-Advisor. That research provides additional
views and comparisons for consideration, and helps the Sub-Advisor to obtain
market information for the valuation of securities that are either held in the
Fund's portfolio or are being considered for purchase. The Sub-Advisor provides
information to the Manager and the Board about the commissions paid to brokers
furnishing such services, together with the Sub-Advisor's representation that
the amount of such commissions was reasonably related to the value or benefit of
such services.
Because the Sub-Advisor was an affiliate of Oppenheimer & Co., Inc., a
broker-dealer ("OpCo"), until November 3, 1997, the table below includes
information about brokerage commissions paid to OpCo for the Fund's portfolio
transactions.
- ----------------------------------------------------------------------
Total $ Amount of
Total Transactions for
Brokerage Brokerage Commissions Which Brokerage
Fiscal Year CommissionsPaid to OpCo: Commissions Were Paid
Ended 10/31 Paid1 to OpCo:
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Dollar % of Total Dollar % of Total
Amount Amount
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1996 $100,216 $46,979 46.8% $36,417,62727.4%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1997 $228,321 $60,348 26.4% $45,414,49325.1%
- ------------------------
- ----------------------------------------------------------------------
1998 $587,9382
- ----------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a
net trade basis.
2. In the fiscal year ended 10/31/98, the amount of transactions directed to
brokers for research services was $45,780,250 and the amount of the
commissions paid to broker-dealers for those services was $57,450.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Trust, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of shares of the Fund's classes of shares. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares during the Fund's three most recent fiscal
years is shown in the table below.
- --------------------------------------------------------------------
Aggregate Class A Commissions Commissions Commissions
Fiscal Front-End Front-End on Class A on Class B on Class
Year Sales Sales Shares Shares C Shares
Ended Charges on Charges Advanced Advanced Advanced
10/31: Class A Retained by by by
Shares by Distributor1Distributor1Distributor1
Distributor
- --------------------------------------------------------------------
- --------------------------------------------------------------------
19962 $121,912 $ 53,994 $11,218 $184,452 $ 9,314
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1997 $201,700 $ 53,948 $ 5,195 $356,283 $ 37,161
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1998 $573,438 $ 164,302 $53,578 $912,720 $103,768
- --------------------------------------------------------------------
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
2. For the period from 11/22/95 to 10/31/96.
Distribution and Service Plans. The Fund has adopted Distribution and Service
Plans for Class A, Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund compensates the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class. Each plan has been approved by
a vote of the Board of Trustees, including a majority of the Independent
Trustees1, cast in person at a meeting called for the purpose of voting on that
plan, and by shareholders of a majority of each class of shares of the Fund.
Under the plans, the Manager and the Distributor, in their sole discretion,
from time to time, may use their own resources (at no cost to the Fund) to make
payments to brokers, dealers or other financial institutions for distribution
and administrative services they perform. The Manager may use its profits from
the advisory fee it receives from the Fund. In their sole discretion, the
Distributor and the Manager may increase or decrease the amount of payments they
make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in effect
from year to year but only if the Fund's Board of Trustees and its Independent
Trustees specifically vote annually to approve its continuance. Approval must be
by a vote cast in person at a meeting called for the purpose of voting on
continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under a plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares of the Fund automatically convert into
Class A shares after six years, the Fund must obtain the approval of both Class
A and Class B shareholders for a proposed material amendment to the Class A plan
that would materially increase payments under the plan. That approval must be by
a "majority" (as defined in the Investment Company Act) of the shares of each
Class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan, and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees.
Each plan states 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 the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in any
quarter in which the aggregate net asset value of all Fund shares of that class
held by the recipient for itself and its customers does not exceed a minimum
amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
|X| Service Plans. Under the service plans, the Distributor currently uses
the fees it receives from the Fund to pay brokers, dealers and other financial
institutions (they are referred to as "recipients") for personal services and
account maintenance services they provide for their customers who hold shares of
a particular Class, A, B or C. The services 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. The service plans
permit compensation to the Distributor at a rate of up to 0.25% of average
annual net assets of the applicable class. The Board has set the rate at that
level. While the plans permit the Board to authorize payments to the Distributor
to reimburse itself for services under the plan, the Board has not yet done so.
The Distributor makes payments to plan recipients quarterly at an annual rate
not to exceed 0.25% of the average annual net assets consisting of shares of the
applicable class held in the accounts of the recipients or their customers.
|X| Service and Distribution Plan Fees. Under each plan, service fees and
distribution 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 plans compensate the Distributor at a flat rate for its
services and costs in distributing shares and servicing accounts, whether the
Distributor's expenses are more or less than the amounts paid by the Fund under
the plans during the period for which the fee is paid. The types of services
that recipients provide are similar to the services provided under the Class A
service plan, described above.
The plans permit the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a quarterly
basis, without payment in advance. However, the Distributor currently intends to
pay the service fee to recipients in advance for the first year after the shares
are purchased. After the first year shares are outstanding, the Distributor
makes service fee payments quarterly on those shares. The advance payment is
based on the net asset value of shares sold. Shares purchased by exchange do not
qualify for the advance service fee payment. If shares are redeemed during the
first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment of the service fee made on those shares.
Under the Class A plan, the Distributor pays a portion of the asset-based
sales charge to brokers, dealers and financial institutions and retains the
balance. The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
it receives on Class C shares as an ongoing commission to the recipient on Class
C shares outstanding for a year or more. If a dealer has a special agreement
with the Distributor, the Distributor will pay the Class B and/or Class C
service fee and the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commissions and service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow investors
to buy shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class A,
Class B and Class C shares. The payments are made to the Distributor in
recognition that the Distributor: o pays sales commissions to authorized brokers
and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the service
fee payment to recipients under the plans, or may provide such financing
from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of shares, and
o bears the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
For the fiscal year ended October 31, 1998 payments under the Class A Plan
totaled $412,380 (including $10,711 paid to an affiliate of the Distributor's
parent company). The Distributor retained $101,914 of the total amount paid.
For the fiscal year ended October 31, 1998, payments under the Class B plan
totaled $390,691 (including $2,205 paid to an affiliate of the Distributor's
parent). The Distributor retained $330,096 of the total amount.
For the fiscal year ended October 31, 1998, payments under the Class C plan
totaled $115,593 (including $1,120 paid to an affiliate of the Distributor's
parent). The Distributor retained $79,184 of the total amount.
The Distributor's actual expenses in selling shares may be more than the
payments it receives from the contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. As of October 31, 1998, the
Distributor had incurred unreimbursed expenses under the Class B plan in the
amount of $824,842 (equal to 1.36% of the Fund's net assets represented by Class
B shares on that date) and unreimbursed expenses under the Class C plan of
$172,161 (equal to 0.82% of the Fund's net assets represented by Class C shares
on that date). If a 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.
All payments under the plans 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.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total
returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown 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 (or its submission for
publication).
Use of standardized performance calculations 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 the
Fund's performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each shareholder's
account. Your account's performance will vary from the model performance data if
your dividends are received in cash, or you buy or sell shares during the
period, or you bought your shares at a different time and price than the shares
used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares and total returns are not
guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Total returns for any given past period represent historical
performance information and are not, and should not be considered, a prediction
of future returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The total returns of each
class of shares of the Fund are affected by market conditions, the quality of
the Fund's investments, the maturity of debt investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the
particular class.
|X| Total Return Information. There are different types of "total returns"
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
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. 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 actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 5.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the 1-year period.
|_| Average Annual Total Return. 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" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
ERV 1/n
--- -1 = Average Annual Total Return
P
|_| Cumulative Total Return. 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
|_| Total Returns at Net Asset Value. From time to time the Fund may
also quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
<PAGE>
- ----------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 10/31/98
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Cumulative Average Annual Total Returns
Class Total Returns
of (10 years or
Shares Life of Class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
5-Year 10-Year
1-Year (or (or
life-of-class) life-of-class)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
After WithoutAfter WithoutAfter Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class A 183.20 200.47 20.55 27.91 18.37 19.78 17.021
16.031
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Class B 140.21 141.21 20.08 27.08 18.86 19.06 18.492 18.582
- ----------------------------------------------------------------------
Class C 140.31 140.31 26.12 27.12 18.97 18.97 18.493 18.493
- ----------------------------------------------------------------------
1. Inception of Class A: 11/1/91
2. Inception of Class B: 9/1/93
3. Inception of Class C: 9/1/93
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its classes of shares by Lipper Analytical Services, Inc.
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other balanced funds. 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. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
|X| Morningstar Rankings. From time to time the Fund may publish the star
ranking of the performance of its classes of 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. The Fund is ranked among domestic
stock funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) 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's)
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 a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), 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's)
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 date 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 rankings, 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.
|X| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, The Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's classes of shares may be compared in publications to the performance of
various market indices or other investments, and averages, performance rankings
or other benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include 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 or insured 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. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of 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 and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
- -------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
- -------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
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 ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors,
|_|current purchases of Class A and Class B shares of the Fund and other
Oppenheimer funds to reduce the sales charge rate that applies to
current purchases of Class A shares, and
|_|Class A and Class B 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
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
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. 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 reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
<PAGE>
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Bond Fund Oppenheimer Limited-Term
Government Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street California Fund
Municipal Fund Oppenheimer California Municipal Oppenheimer Main Street Growth &
Fund Income Fund Oppenheimer Champion Income Fund Oppenheimer MidCap Fund
Oppenheimer Convertible Oppenheimer Multiple Strategies Securities Fund Fund
Oppenheimer Developing Markets Oppenheimer Municipal Bond Fund Fund Oppenheimer
Disciplined Oppenheimer New York Municipal Fund Allocation Fund Oppenheimer
Disciplined Value Oppenheimer New Jersey Municipal Fund Fund Oppenheimer
Discovery Fund Oppenheimer Pennsylvania Municipal
Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Balanced Value
Fund
Oppenheimer Equity Income Fund Oppenheimer Quest Capital Value
Fund, Inc.
Oppenheimer Florida Municipal Oppenheimer Quest Global Value
Fund Fund, Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity
Value Fund
Oppenheimer Global Growth & Oppenheimer Quest Small Cap Value
Income Fund Fund
Oppenheimer Gold & Special Oppenheimer Quest Value Fund, Inc.
Minerals Fund
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Oppenheimer Total Return Fund,
Fund Inc.
Oppenheimer Intermediate Oppenheimer U.S. Government Trust
Municipal Fund
Oppenheimer International Bond Oppenheimer World Bond Fund
Fund
Oppenheimer International Growth Limited-Term New York Municipal
Fund Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
Oppenheimer Large Cap Growth Fund
and the following money market
funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt
Trust
Centennial California Tax Exempt Centennial Tax Exempt Trust
Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund,
Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A and Class B shares of the Fund and other Oppenheimer funds
during a 13-month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate for
the Class A shares purchased during that period. You can include purchases made
up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may 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 of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the 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. However, 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. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor 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 a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total 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 Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
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.
The Transfer Agent will not hold shares in escrow for purchases of shares
of the Fund and other Oppenheimer funds by OppenheimerFunds prototype 401(k)
plans under a Letter of Intent. If the intended purchase amount under a Letter
of Intent 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.
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.
|X| 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 offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen-month Letter of Intent period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total
purchases pursuant to the Letter are less than the intended 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. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) 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
(2) 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 to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
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 Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. 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. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the plan's applicable investments
reach $5 million.
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.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to a class of
shares and the dividends payable on a class of shares will be reduced by
incremental expenses borne solely by that class. Those expenses include the
asset-based sales charges to which Class A, Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares normally are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. 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
advisor, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder 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 shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done 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
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days, and the values of some of the
Fund's portfolio securities may change significantly on those days when
shareholders may not purchase or redeem shares. Additionally, trading on
European and Asian stock exchanges and over-the-counter markets normally is
completed before the close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Board of Trustees determines that the event is likely to effect a material
change in the value of the security. The Manager may make that determination,
under procedures established by the Board.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| Equity securities traded on a U.S. securities exchange or on NASDAQ
are valued as follows:
(1) if last sale information is regularly reported, they are valued at the
last reported sale price on the principal exchange on which they
are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they
are valued 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, at the closing "bid" price
on the valuation date.
|_| Equity securities traded on a foreign securities exchange generally
are valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of
the principal exchange on which the security is traded at its last
trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the basis
of reasonable inquiry, from two market makers in the security.
|_| Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than 397 days when issued, (2) debt instruments that had a
maturity of 397 days or less when issued and
have a remaining maturity of more than 60 days, and (3) non-money market
debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
|_| 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 market makers
willing to give quotes, a 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).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing service may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield, and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale 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, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the 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 by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the Prospectus.
The information below provides additional information about the procedures and
conditions for redeeming shares.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. 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.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, 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 Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $500 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, 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. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be 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.
Selling Shares by Wire. The wire of redemption proceeds may be delayed if the
Fund's custodian bank is not open for business on a day when the Fund would
normally authorize the wire to be made, which is usually the Fund's next regular
business day following the redemption. In those circumstances, the wire will not
be transmitted until the next bank business day on which the Fund is open for
business. No dividends will be paid on the proceeds of redeemed shares awaiting
transfer by wire.
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: (1) state the reason for the
distribution; (2) state the owner's awareness of tax penalties if the
distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign the
request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, 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 customers. Shareholders should contact their
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
an order placed by the dealer or broker. However, 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, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $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. Payments must also be sent to the address of record for
the account and the address must not have 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 Account
Application or by signature-guaranteed instructions sent to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three
business days before the payment transmittal 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. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent 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.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. 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.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. 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
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share 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.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
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 after 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 to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another 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. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and 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.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only 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.
|_| Class Y shares of Oppenheimer Real Asset Fund may not be exchanged for
shares of any other Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. 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. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
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. 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. If requested, they must
supply proof of entitlement to this privilege.
For accounts established on or before March 8, 1996 holding Class M shares
of Oppenheimer Convertible Securities Fund, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds. Exchanges to Class M shares of
Oppenheimer Convertible Securities Fund are permitted from Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that were
acquired by exchange of Class M shares. No other exchanges may be made to Class
M shares.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|X| How Exchanges Affect Contingent Deferred Sales Charges. 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 18
months of the end of the calendar month of the initial purchase of the exchanged
Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. 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. Before exchanging
shares, shareholders should take into account how the exchange may affect 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 which class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. For full or partial exchanges of
an account made by telephone, any special account features such as Asset Builder
Plans and Automatic Withdrawal Plans 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.
|X| Processing 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 Fund may refuse the
request.
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.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. 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. The Fund has no fixed dividend rate and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a class of shares will
vary from time to time depending on market conditions, the composition of the
Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same
day for each class of shares. However, dividends on Class B and Class C shares
are expected to be lower than dividends on Class A shares. That is because of
the effect of the higher asset-based sales charge on Class B and Class C shares.
Those dividends will also differ in amount as a consequence of any difference in
the net asset values of each class of shares.
Dividends, distributions and 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.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent,
is a division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. The Fund pays the Transfer Agent a fixed
annual maintenance fee for each shareholder account and reimburses the Transfer
Agent for its out-of-pocket expenses. It also acts as shareholder servicing
agent for the other Oppenheimer funds. Shareholders should direct inquiries
about their accounts to the Transfer Agent at the address and toll-free numbers
shown on the back cover.
|X| Shareholder Servicing Agent for Certain Shareholders. Unified
Management Corporation (1-800-346-4601) is the shareholder servicing agent for
shareholders of the Fund who were former shareholders of the AMA Family of Funds
and clients of AMA Investment Advisors, Inc. (which had been the investment
advisor of AMA Family of Funds). It is also the servicing agent for Fund
shareholders who are: (i) former shareholders of the Unified Funds and Liquid
Green Trusts, (ii) accounts that participated or participate in a retirement
plan for which Unified Investment Advisors, Inc. or an affiliate acts as
custodian or trustee, (iii) accounts that have a Money Manager brokerage
account, and (iv) other accounts for which Unified Management Corporation is the
dealer of record.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Accountants. PricewaterhouseCoopers, LLP are the independent
accountants of the Fund. They audit the Fund's financial statements and perform
other related audit services. They also act as accountants for certain other
funds advised by the Manager and its affiliates.
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
================================================================================
To the Board of Trustees and Shareholders of
Oppenheimer Quest for Value Funds
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 Quest Balanced Value
Fund (formerly Oppenheimer Quest Growth & Income Value Fund, and one of the
portfolios constituting Oppenheimer Quest for Value Funds, hereafter referred to
as the Fund) at October 31, 1998, 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 five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
financial statements) are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial 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 significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
November 20, 1998
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments October 31, 1998
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
================================================================================
Common Stocks--60.3%
- --------------------------------------------------------------------------------
Basic Materials--10.0%
- --------------------------------------------------------------------------------
Chemicals--10.0%
Dow Chemical Co. 70,000 $ 6,553,750
- --------------------------------------------------------------------------------
Monsanto Co. 250,000 10,156,250
- --------------------------------------------------------------------------------
Morton International, Inc. 200,000 4,975,000
-----------
21,685,000
- --------------------------------------------------------------------------------
Consumer Cyclicals--5.2%
- --------------------------------------------------------------------------------
Leisure & Entertainment--5.2%
AMR Corp./(1)/ 110,000 7,370,000
- --------------------------------------------------------------------------------
McDonald's Corp. 60,000 4,012,500
-----------
11,382,500
- --------------------------------------------------------------------------------
Consumer Non-Cyclicals--6.0%
- --------------------------------------------------------------------------------
Healthcare/Drugs--1.8%
American Home Products Corp. 80,000 3,900,000
- --------------------------------------------------------------------------------
Tobacco--4.2%
Philip Morris Cos., Inc. 180,000 9,202,500
- --------------------------------------------------------------------------------
Financial--8.7%
- --------------------------------------------------------------------------------
Banks--6.9%
Chase Manhattan Corp. (New) 100,000 5,681,250
- --------------------------------------------------------------------------------
Citigroup, Inc. 200,000 9,412,500
-----------
15,093,750
- --------------------------------------------------------------------------------
Insurance--1.8%
AFLAC, Inc. 100,000 3,812,500
- --------------------------------------------------------------------------------
Industrial--2.3%
- --------------------------------------------------------------------------------
Electrical Equipment--0.8%
Rockwell International Corp. 40,000 1,642,500
- --------------------------------------------------------------------------------
Transportation--1.5%
Canadian Pacific Ltd. (New) 140,000 3,167,500
13 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Investments (Continued)
- --------------------------------------------------------------------------------
Market Value
Shares See Note 1
================================================================================
Technology--24.3%
- --------------------------------------------------------------------------------
Aerospace/Defense--3.0%
Boeing Co. 175,000 $ 6,562,500
- --------------------------------------------------------------------------------
Computer Hardware--5.6%
Adaptec, Inc./(1)/ 755,000 12,221,563
- --------------------------------------------------------------------------------
Computer Software/Services--5.4%
Computer Associates International, Inc. 300,000 11,812,500
- --------------------------------------------------------------------------------
Electronics--4.6%
Motorola, Inc. 190,000 9,880,000
- --------------------------------------------------------------------------------
Telecommunications/Technology--5.7%
General Instrument Corp./(1)/ 300,000 7,706,250
- --------------------------------------------------------------------------------
General Semiconductor, Inc./(1)/ 592,300 4,701,381
-----------
12,407,631
- --------------------------------------------------------------------------------
Utilities--3.8%
- --------------------------------------------------------------------------------
Telephone Utilities--3.8%
US West, Inc. 145,000 8,319,375
-----------
Total Common Stocks (Cost $115,460,577) 131,089,819
================================================================================
Preferred Stocks--2.8%
- --------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., Depositary Shares
each representing 0.05 Shares of Step-Up Cv. Preferred
Stock (Cost $6,467,399) 406,400 6,045,200
Face
Amount
================================================================================
Non-Convertible Corporate Bonds and Notes--17.5%
- --------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375% Sr. Nts., 2/1/08 $2,000,000 1,975,000
- --------------------------------------------------------------------------------
AmeriServe Food Distribution, Inc., 10.125% Sr. Sub.
Nts., 7/15/07 4,000,000 3,260,000
- --------------------------------------------------------------------------------
Apcoa, Inc., 9.25% Sr. Unsec. Sub. Nts., 3/15/08 6,000,000 5,280,000
- --------------------------------------------------------------------------------
Conseco, Inc., 6.80% Unsec. Nts., 6/15/05 8,000,000 7,657,872
- --------------------------------------------------------------------------------
HMH Properties, Inc., 7.875% Sr. Nts., Series A,
8/1/05 2,750,000 2,701,875
- --------------------------------------------------------------------------------
PharMerica, Inc., 8.375% Sr. Sub. Nts., 4/1/08 6,000,000 5,190,000
- --------------------------------------------------------------------------------
Playtex Family Products Corp., 9% Sr. Sub. Nts.,
12/15/03 5,500,000 5,651,250
- --------------------------------------------------------------------------------
Tenet Healthcare Corp., 8% Sr. Nts., 1/15/05 2,750,000 2,816,833
- --------------------------------------------------------------------------------
Tenet Healthcare Corp., 8.625% Sr. Unsec. Nts.,
12/1/03 2,500,000 2,631,260
- --------------------------------------------------------------------------------
Triton Energy Ltd., 8.75% Sr. Nts., 4/15/02 1,000,000 890,000
-----------
Total Non-Convertible Corporate Bonds and Notes
(Cost $40,013,193) 38,054,090
14 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
===============================================================================
Convertible Corporate Bonds and Notes--5.0%
- -------------------------------------------------------------------------------
Adaptec, Inc., 4.75% Cv. Sub. Nts., 2/1/04 $10,000,000 $ 7,737,500
- -------------------------------------------------------------------------------
Hyperion Solutions Corp., 4.50% Cv. Unsec.
Debs., 3/15/05 4,000,000 3,225,000
-----------
Total Convertible Corporate Bonds and Notes
(Cost $11,619,446) 10,962,500
===============================================================================
Short-Term Notes--22.3%/(2)/
- -------------------------------------------------------------------------------
Associates Corp. of North America, 5%, 12/8/98 8,319,000 8,276,250
- -------------------------------------------------------------------------------
Federal Home Loan Bank, 5.40%, 11/2/98 5,075,000 5,074,239
- -------------------------------------------------------------------------------
Federal National Mortgage Assn., 5.135%, 11/10/98 2,055,000 2,052,362
- -------------------------------------------------------------------------------
Ford Motor Credit Corp., 5.05%, 12/1/98 1,440,000 1,433,940
- -------------------------------------------------------------------------------
Ford Motor Credit Corp., 5.09%, 11/19/98 3,300,000 3,291,601
- -------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.09%, 11/23/98 5,000,000 4,984,447
- -------------------------------------------------------------------------------
Household Finance Corp., 5.09%, 11/19/98 7,000,000 6,982,185
- -------------------------------------------------------------------------------
IBM Credit Corp., 5.20%, 11/2/98 7,357,000 7,355,937
- -------------------------------------------------------------------------------
Norwest Financial, Inc., 5.11%, 12/1/98 9,163,000 9,123,981
-----------
Total Short-Term Notes (Cost $48,574,942) 48,574,942
- -------------------------------------------------------------------------------
Total Investments, at Value (Cost $222,135,557) 107.9% 234,726,551
- -------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (7.9) (17,188,404)
--------- ------------
Net Assets 100.0% $217,538,147
========= ============
1. Non-income producing security.
2. Short-term notes are generally traded on a discount basis; the interest rate
is the discount rate received by the Fund at the time of purchase.
See accompanying Notes to Financial Statements.
15 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 1998
- --------------------------------------------------------------------------------
================================================================================
Assets
Investments, at value (cost $222,135,557)--see
accompanying statement $234,726,551
- --------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold 3,448,426
Interest and dividends 1,244,790
Investments sold 243,699
Other 1,095
------------
Total assets 239,664,561
================================================================================
Liabilities
Bank overdraft 162,524
- --------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 21,712,791
Shares of beneficial interest redeemed 140,744
Distribution and service plan fees 40,294
Transfer and shareholder servicing agent fees 19,012
Trustees' fees 3,100
Other 47,949
------------
Total liabilities 22,126,414
================================================================================
Net Assets $217,538,147
============
================================================================================
Composition of Net Assets
Par value of shares of beneficial interest $ 140,713
- --------------------------------------------------------------------------------
Additional paid-in capital 172,639,740
- --------------------------------------------------------------------------------
Undistributed net investment income 1,351,480
- --------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 30,815,220
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 12,590,994
------------
Net assets $217,538,147
============
16 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$135,821,125 and 8,765,091 shares of beneficial interest outstanding) $15.50
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $16.45
- --------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $60,807,273 and
3,948,199 shares of beneficial interest outstanding) $15.40
- --------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $20,909,749 and
1,357,998 shares of beneficial interest outstanding) $15.40
See accompanying Notes to Financial Statements.
17 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
================================================================================
Investment Income
Interest $ 3,899,951
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $16,081) 1,710,967
-----------
Total income 5,610,918
================================================================================
Expenses
Management fees--Note 4 1,306,652
- --------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 412,380
Class B 390,691
Class C 115,593
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 174,006
- --------------------------------------------------------------------------------
Shareholder reports 97,421
- --------------------------------------------------------------------------------
Registration and filing fees 64,821
- --------------------------------------------------------------------------------
Accounting service fees--Note 4 55,000
- --------------------------------------------------------------------------------
Trustees' fees and expenses 23,784
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees 13,272
- --------------------------------------------------------------------------------
Custodian fees and expenses 12,738
- --------------------------------------------------------------------------------
Other 21,144
-----------
Total expenses 2,687,502
================================================================================
Net Investment Income 2,923,416
================================================================================
Realized and Unrealized Gain
Net realized gain on investments 30,835,570
- --------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments 3,887,092
-----------
Net realized and unrealized gain 34,722,662
================================================================================
Net Increase in Net Assets Resulting from Operations $37,646,078
===========
See accompanying Notes to Financial Statements.
18 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
1998 1997
==================================================================================
<S> <C> <C>
Operations
Net investment income $ 2,923,416 $ 1,293,749
- ----------------------------------------------------------------------------------
Net realized gain 30,835,570 14,740,001
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 3,887,092 2,797,779
------------ ------------
Net increase in net assets resulting from operations 37,646,078 18,831,529
==================================================================================
Dividends and Distributions to Shareholders Dividends from net investment
income:
Class A (1,415,504) (922,387)
Class B (321,556) (181,875)
Class C (96,706) (47,948)
- ----------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (10,300,115) (4,518,417)
Class B (3,423,832) (1,310,410)
Class C (921,807) (319,471)
==================================================================================
Beneficial Interest Transactions Net increase in net assets resulting from
beneficial interest transactions--Note 2:
Class A 42,617,372 22,268,436
Class B 29,355,474 9,713,355
Class C 12,351,024 3,228,726
==================================================================================
Net Assets
Total increase 105,490,428 46,741,538
- ----------------------------------------------------------------------------------
Beginning of period 112,047,719 65,306,181
------------ ------------
End of period (including undistributed net investment
income of $1,351,480 and $261,830, respectively) $217,538,147 $112,047,719
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
19 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------
Year Ended October 31,
1998 1997 1996/(1)/ 1995 1994
================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 13.99 $ 12.48 $ 10.92 $ 10.09 $ 11.24
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .26 .20 .23 .27/(2)/ .32/(2)/
Net realized and unrealized gain 3.24 2.65 2.05 1.27 .55
-------- -------- ------- ------- -------
Total income from investment operations 3.50 2.85 2.28 1.54 .87
================================================================================================
Dividends and distributions to shareholders:
Dividends from net investment income (.20) (.19) (.22) (.29) (.32)
Distributions from net realized gain (1.79) (1.15) (.50) (.42) (1.70)
-------- -------- ------- ------- -------
Total dividends and distributions
to shareholders (1.99) (1.34) (.72) (.71) (2.02)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.50 $ 13.99 $ 12.48 $ 10.92 $ 10.09
======== ======== ======= ======= =======
================================================================================================
Total Return, at Net Asset Value/(3)/ 27.91% 25.18% 21.84% 16.35% 8.64%
================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $135,821 $ 79,751 $49,322 $37,082 $30,576
- ------------------------------------------------------------------------------------------------
Average net assets (in thousands) $103,244 $ 61,618 $43,428 $33,397 $29,112
- ------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.07% 1.68% 2.03% 2.60%/(4)/ 3.16%/(4)/
Expenses 1.55% 1.58% 1.90%/(5)/ 1.99%/(4)/ 1.86%/(4)/
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate/(6)/ 165.3% 89.2% 124.2% 130.0% 113.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor
to the Fund.
2. Based on average shares outstanding for the period.
3. 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.
20 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- ----------- -----------------------------------------------------
Year Ended October 31,
1994 1998 1997 1996/(1)/ 1995 1994
=============================================================
<S> <C> <C> <C> <C> <C>
$ 11.24 $ 13.92 $ 12.42 $ 10.88 $ 10.07 $ 11.23
- -------------------------------------------------------------
.32/(2)/ .19 .15 .17 .19/(2)/ .25/(2)/
.55 3.20 2.62 2.03 1.28 .56
- ------- ------- ------- ------- ------- -------
.87 3.39 2.77 2.20 1.47 .81
=============================================================
(.32) (.12) (.12) (.16) (.24) (.27)
(1.70) (1.79) (1.15) (.50) (.42) (1.70)
- ------- ------- ------- ------- ------- -------
(2.02) (1.91) (1.27) (.66) (.66) (1.97)
- -------------------------------------------------------------
$ 10.09 $ 15.40 $ 13.92 $ 12.42 $ 10.88 $ 10.07
======= ======= ======= ======= ======= =======
=============================================================
8.64% 27.08% 24.55% 21.07% 15.65% 7.96%
=============================================================
$30,576 $60,807 $25,609 $13,175 $7,623 $2,928
- -------------------------------------------------------------
$29,112 $39,165 $19,230 $10,097 $4,856 $1,586
- -------------------------------------------------------------
3.16%/(4)/ 1.53% 1.09% 1.40% 1.71%/(4)/ 2.53%/(4)/
1.86%/(4)/ 2.15% 2.17% 2.53% 2.59%/(4)/ 2.47%/(4)/
- -------------------------------------------------------------
113.0% 165.3% 89.2% 124.2% 130.0% 113.0%
</TABLE>
4. During the periods presented above, the former Advisor voluntarily waived a
portion of its fees. If such waivers had not been in effect, the ratios of net
investment income to average net assets and the ratios of expenses to average
net assets would have been 2.57% and 2.02%, respectively, for Class A, 1.73% and
2.57%, respectively, for Class B and 1.43% and 2.84%, respectively, for Class C,
for the year ended October 31, 1995, and 2.70% and 2.32%, respectively, for
Class A, 2.07% and 2.93%, respectively, for Class B and 1.91% and 3.10%,
respectively, for Class C, for the year ended October 31, 1994.
5. The expense ratio reflects the effect of gross expenses paid indirectly by
the Fund.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended October 31, 1998, were $257,150,107 and $215,397,474, respectively.
See accompanying Notes to Financial Statements.
21 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------
Year Ended October 31,
1998 1997 1996/(1)/ 1995 1994
================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $13.92 $12.43 $10.89 $10.07 $11.23
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .18 .15 .17 .15/(2)/ .24/(2)/
Net realized and unrealized gain 3.21 2.62 2.02 1.30 .56
------ ------ ------ ------ ------
Total income from investment operations 3.39 2.77 2.19 1.45 .80
================================================================================================
Dividends and distributions to shareholders:
Dividends from net investment income (.12) (.13) (.15) (.21) (.26)
Distributions from net realized gain (1.79) (1.15) (.50) (.42) (1.70)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.91) (1.28) (.65) (.63) (1.96)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $15.40 $13.92 $12.43 $10.89 $10.07
====== ====== ====== ====== ======
================================================================================================
Total Return, at Net Asset Value/(3)/ 27.12% 24.51% 20.97% 15.38% 7.91%
================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $20,910 $6,687 $2,809 $1,828 $455
- ------------------------------------------------------------------------------------------------
Average net assets (in thousands) $11,598 $4,724 $2,200 $ 968 $298
- ------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.60% 1.09% 1.40% 1.39%/(4)/ 2.39%/(4)/
Expenses 2.15% 2.17% 2.53% 2.88%/(4)/ 2.62%/(4)/
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate/(6)/ 165.3% 89.2% 124.2% 130.0% 113.0%
</TABLE>
1. On November 22, 1995, OppenheimerFunds, Inc. became the investment advisor
to the Fund.
2. Based on average shares outstanding for the period.
3. 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. During the periods presented above, the former Advisor voluntarily waived a
portion of its fees. If such waivers had not been in effect, the ratios of net
investment income to average net assets and the ratios of expenses to average
net assets would have been 2.57% and 2.02%, respectively, for Class A, 1.73% and
2.57%, respectively, for Class B and 1.43% and 2.84%, respectively, for Class C,
for the year ended October 31, 1995, and 2.70% and 2.32%, respectively, for
Class A, 2.07% and 2.93%, respectively, for Class B and 1.91% and 3.10%,
respectively, for Class C, for the year ended October 31, 1994.
5. The expense ratio reflects the effect of gross expenses paid indirectly by
the Fund.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended October 31, 1998, were $257,150,107 and $215,397,474, respectively.
See accompanying Notes to Financial Statements.
22 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Oppenheimer Quest Balanced Value Fund (the Fund) (formerly Oppenheimer Quest
Growth & Income Value Fund), a series of Oppenheimer Quest for Value Funds, is a
diversified open-end management investment company registered under the
Investment Company Act of 1940, as amended. The Fund operated under the name
Oppenheimer Quest Growth & Income Value Fund through May 17, 1998. The Fund's
investment objective is to seek to achieve a combination of growth of capital
and investment income with growth of capital as the primary objective. The Fund
seeks its investment objective through investments in securities that are
believed to be undervalued in the marketplace and to offer the possibility of
increased value. Ordinarily, the Fund invests its assets in common stocks (with
an emphasis on dividend paying stocks), preferred stocks, securities convertible
into common stock, and debt securities. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager). The Manager has entered into a
sub-advisory agreement with OpCap Advisors. The Fund offers Class A, Class B and
Class C shares. Class A 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 that class and exclusive voting rights with
respect to matters affecting that 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 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 and short-term
"non-money market" debt securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities which cannot be valued by 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.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), 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.
23 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies (continued)
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
Trustees' Fees and Expenses. The Fund has adopted a nonfunded retirement plan
for the Fund's independent Trustees. Benefits are based on years of service and
fees paid to each Trustee during the years of service. During the year ended
October 31, 1998, a provision of $3,072 was made for the Fund's projected
benefit obligations, resulting in an accumulated liability of $3,072 as of
October 31, 1998.
- --------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are
recorded on the ex-dividend date.
- --------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax
purposes. 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.
- --------------------------------------------------------------------------------
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. Interest income is accrued on a daily basis. Realized gains
and losses on investments and unrealized appreciation and depreciation are
determined on an identified cost basis, which is the same basis used for federal
income tax purposes.
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.
24 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
Year Ended October 31, 1998 Year Ended October 31, 1997
--------------------------- ---------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 4,356,057 $ 61,783,195 2,557,883 $ 33,165,870
Dividends and distributions
reinvested 862,256 11,210,143 445,487 5,194,062
Redeemed (2,153,035) (30,375,966) (1,256,481) (16,091,496)
---------- ------------ ---------- ------------
Net increase 3,065,278 $ 42,617,372 1,746,889 $ 22,268,436
========== ============ ========== ============
- ---------------------------------------------------------------------------------------
Class B:
Sold 2,418,672 $ 34,018,626 904,241 $ 11,537,097
Dividends and distributions
reinvested 276,040 3,565,995 122,631 1,412,244
Redeemed (585,932) (8,229,147) (248,340) (3,235,986)
---------- ------------ ---------- ------------
Net increase 2,108,780 $ 29,355,474 778,532 $ 9,713,355
========== ============ ========== ============
- ---------------------------------------------------------------------------------------
Class C:
Sold 990,115 $ 14,015,246 320,442 $ 4,096,151
Dividends and distributions
reinvested 74,668 964,286 30,289 350,561
Redeemed (187,201) (2,628,508) (96,289) (1,217,986)
---------- ------------ ---------- ------------
Net increase 877,582 $ 12,351,024 254,442 $ 3,228,726
========== ============ ========== ============
</TABLE>
================================================================================
3. Unrealized Gains and Losses on Investments
As of October 31, 1998, net unrealized appreciation on investments of
$12,590,994 was composed of gross appreciation of $17,681,590, and gross
depreciation of $5,090,596.
25 Oppenheimer Quest Balanced Value Fund
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
================================================================================
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund, which provides for a fee of 0.85% of average
annual net assets. The Manager acts as the accounting agent for the Fund at an
annual fee of $55,000, plus out-of-pocket costs and expenses reasonably
incurred. The Fund's management fee for the year ended October 31, 1998 was
0.85% of average annual net assets for Class A, Class B and Class C shares.
The Manager pays OpCap Advisors (the Sub-Advisor) a monthly fee
based on the fee schedule set forth in the Prospectus. For the year ended
October 31, 1998, the Manager paid $432,096 to the Sub-Advisor.
For the year ended October 31, 1998, commissions (sales charges paid
by investors) on sales of Class A shares totaled $573,438, of which $164,302 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 A, Class
B and Class C shares totaled $53,578, $912,720 and $103,768, respectively.
Amounts paid to an affiliated broker/dealer for Class B and Class C shares were
$67,628 and $2,821, respectively. During the year ended October 31, 1998, OFDI
received contingent deferred sales charges of $66,320 and $3,405, 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.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund and other Oppenheimer
funds. The Fund pays OFS an annual maintenance fee of $20.00 for each Fund
shareholder account and reimburses OFS for its out-of-pocket expenses. During
the year ended October 31, 1998, the Fund paid OFS $157,889. Effective May 1,
1998, the Board of Trustees approved an increase in the annual maintenance fee
from $16.75 to $20.00 for each shareholder account.
The Fund has adopted a Distribution and Service Plan for Class A
shares to compensate OFDI for a portion of its costs incurred in connection with
the personal service and maintenance of shareholder accounts that hold Class A
shares. Under the Plan, the Fund pays an annual asset-based sales charge to OFDI
of 0.15% per year on Class A shares. The Fund also pays a service fee to OFDI of
0.25% per year. Each fee is computed on the average annual net assets of Class A
shares of the Fund, determined as of the close of each regular business day.
OFDI uses all of the service fee and a portion of the asset-based sales charge
to compensate brokers, dealers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their customers
that hold Class A shares. OFDI retains the balance of the asset-based sales
charge to reimburse itself for its other expenditures under the Plan. During the
year ended October 31, 1998, OFDI paid $10,711 to an affiliated broker/dealer as
compensation for Class A personal service and maintenance expenses and retained
$101,914 as compensation for Class A sales commissions and service fee advances,
as well as financing costs.
26 Oppenheimer Quest Balanced Value Fund
<PAGE>
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 or Class C shares, determined as of
the close of each regular business day. During the year ended October 31, 1998,
OFDI paid $2,205 and $1,120, respectively, to an affiliated broker/dealer as
compensation for Class B and Class C personal service and maintenance expenses
and retained $330,096 and $79,184, 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. As of October 31, 1998, OFDI
had incurred excess distribution and servicing costs of $824,842 for Class B and
$172,161 for Class C.
5. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.35%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of
0.0575% per annum.
The Fund had no borrowings outstanding during the year ended October
31, 1998.
6. Other Matters
As of September 24, 1998, the Fund changed its custodian bank from State Street
Bank and Trust Company to Citibank, N.A.
7. Subsequent Event
Effective November 1, 1998, the Manager discontinued the accounting services fee
to the Fund. The Manager will continue to act as accounting agent for the Fund.
Appendix A
- -------------------------------------------------------------------------------
RATINGS DEFINITIONS
- -------------------------------------------------------------------------------
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- -------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- -------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may used where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are being continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
Fitch IBCA, Inc.
- -------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility, Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
- -------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. 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 in periods of greater 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 likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. 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.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
Appendix B
- -------------------------------------------------------------------------------
Corporate Industry Classifications
- -------------------------------------------------------------------------------
Aerospace/Defense Food
Air Transportation Gas Utilities
Auto Parts Distribution Gold
Automotive Health Care/Drugs
Bank Holding Companies Health Care/Supplies & Services
Banks Homebuilders/Real Estate
Beverages Hotel/Gaming
Broadcasting Industrial Services
Broker-Dealers Information Technology
Building Materials Insurance
Cable Television Leasing & Factoring
Chemicals Leisure
Commercial Finance Manufacturing
Computer Hardware Metals/Mining
Computer Software Nondurable Household Goods
Conglomerates Oil - Integrated
Consumer Finance Paper
Containers Publishing/Printing
Convenience Stores Railroads
Department Stores Restaurants
Diversified Financial Savings & Loans
Diversified Media Shipping
Drug Stores Special Purpose Financial
Drug Wholesalers Specialty Retailing
Durable Household Goods Steel
Education Supermarkets
Electric Utilities Telecommunications - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Toys
Environmental Trucking
Wireless Services
<PAGE>
C-12
Appendix C
- -------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- -------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by the Distributor or the
dealers or other financial institutions offering those shares to certain classes
of investors or in certain transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans1 (4)
Group Retirement Plans2 (5) 403(b)(7) custodial plan accounts (6) SEP-IRAs,
SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a waiver
in a particular case is determined solely by the Distributor or the Transfer
Agent of the fund. These waivers and special arrangements may be amended or
terminated at any time by the applicable Fund and/or the Distributor. Waivers
that apply at the time shares are redeemed must be requested by the shareholder
and/or dealer in the redemption request.
- --------------
1. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
2. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or 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 has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
<PAGE>
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on these purchases the Distributor will pay the
applicable commission described in the Prospectus under "Class A Contingent
Deferred Sales Charge": |_| Purchases of Class A shares aggregating $1 million
or more. |_| Purchases by a Retirement Plan that: (1) buys shares costing
$500,000 or more, or (2) has, at the time of purchase, 100 or more eligible
participants or total
plan assets of $500,000 or more, or
(3) certifies to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
(1) through a broker, dealer, bank or registered investment advisor that
has made special arrangements with the Distributor for those
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.
|_| Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
(1) The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,
Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan must
have $3 million or more of its assets invested in (a) mutual funds,
other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service
Agreement between Merrill Lynch and the mutual fund's principal
underwriter or distributor, and (b) funds advised or managed by
MLAM (the funds described in (a) and (b) are referred to as
"Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily
valuation basis by a 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 record
keeping service agreement with Merrill Lynch, the Plan must have $3
million or more of its assets (excluding assets invested in money
market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service
agreement with Merrill Lynch and on the date the plan sponsor signs
that agreement, the Plan has 500 or more eligible employees (as
determined by the Merrill Lynch plan conversion manager).
- -------------------------------------------------------------------------------
Waivers of Class A Sales Charges of Oppenheimer Funds
- -------------------------------------------------------------------------------
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 (and no commissions are paid by the Distributor on such
purchases):
|_| The Manager or its affiliates.
|_| Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term "immediate
family" refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews; relatives by
virtue of a remarriage (step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees.
|_| Employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are identified
as such to the Distributor) or with the Distributor. The purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or minor
children).
|_| Dealers, brokers, banks 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, bank or advisor for the purchase or sale of Fund shares.
|_| 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.
|_| "Rabbi trusts" that buy shares for their own accounts, if the
purchases are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
|_| Clients of 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.
|_| 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.
|_| Accounts for which Oppenheimer Capital (or its successor) 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.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
? Dealers, brokers, banks, or registered investment advisors 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 advisor provides administration services.
? Retirement plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under sections
401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each case if
those purchases are made through a broker, agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
? A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995.
? A qualified Retirement Plan 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, if that arrangement was 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 sales charges (and no commissions are paid by the Distributor on such
purchases):
|_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| 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.
|_| Shares purchased and paid for with the proceeds of shares redeemed in
the prior 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
deferred sales charge was paid. This waiver also applies to shares purchased by
exchange of shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner. This waiver must be requested when the purchase
order is placed for shares of the Fund, and the Distributor may require evidence
of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
? Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as sponsor.
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:
|_| To make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies," in
the Prospectus).
? 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 a mutual fund
other than a fund managed by the Manager or a subsidiary. The fund must
be one that is 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. (11) Plan termination or
"in-service distributions," if the redemption proceeds are rolled over
directly to an OppenheimerFunds-sponsored IRA.
? For distributions from Retirement Plans having 500 or more eligible
participants, except distributions due to termination of all of the Oppenheimer
funds as an investment option under the Plan.
? For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
- -------------------------------------------------------------------------------
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
- -------------------------------------------------------------------------------
The Class B and Class C contingent deferred sales charges will not be
applied to shares purchased in certain types of transactions or redeemed in
certain circumstances described below.
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:
? Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies,"
in the applicable Prospectus.
? Distributions to participants or beneficiaries from Retirement Plans,
if the distributions are made:
(a) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the account
value annually (measured from the date the Transfer Agent receives
the request), or
(b) following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability must
have occurred after the account was established).
? Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, 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.
? Returns of excess contributions to Retirement Plans.
? 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.
? Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1) for hardship withdrawals;
(2) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code;
(3) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(4) to make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code;
(5) for separation from service; or (6) for loans to participants or
beneficiaries.
? Distributions from 401(k) plans sponsored by broker-dealers that have
entered into a special agreement with the Distributor allowing this waiver.
? Redemptions of Class B shares 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.
? Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a special
arrangement with the Distributor for this purpose.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is
a party.
<PAGE>
- -------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds 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 described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap
Value Fund and Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds when
they merged into various Oppenheimer funds on November 24, 1995:
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
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or
|_| purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.
Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if 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.
<PAGE>
- ----------------------------------------------------------------------
Number of Initial Sales
Eligible Initial Sales Charge as a % Commission as %
Employees or Charge as a % of of Net Amount of Offering
Members Offering 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 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 in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders 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.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| 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 purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
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.
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
|X| 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, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the 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. Those shares must have been
purchased prior to March 6, 1995 in connection with:
? withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
? 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.
|X| 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, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the 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
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
? redemptions following the death or disability of the shareholder(s)
(as evidenced by a determination of total disability by the U.S. Social
Security Administration);
? withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
? 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, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
<PAGE>
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Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
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The initial and contingent deferred sale charge rates and waivers for
Class A and Class B shares described in the Prospectus or this Appendix for
Oppenheimer U. S. Government Trust, Oppenheimer Bond Fund, Oppenheimer
Disciplined Value Fund and Oppenheimer Disciplined Allocation Fund (each is
included in the reference to "Fund" below) are modified as described below for
those shareholders who were shareholders of Connecticut Mutual Liquid Account,
Connecticut Mutual Government Securities Account, Connecticut Mutual Income
Account, Connecticut Mutual Growth Account, Connecticut Mutual Total Return
Account, CMIA LifeSpan Capital Appreciation Account, CMIA LifeSpan Balanced
Account and CMIA Diversified Income Account (the "Former Connecticut Mutual
Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment
advisor to the Former Connecticut Mutual Funds.
Prior Class A CDSC and Class A Sales Charge Waivers
? Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales
charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement
they will be subject to the prior Class A CDSC.
? Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund or
any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
Code, or from IRAs, deferred compensation plans created under Section
457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate
the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
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Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
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Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a result of
the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
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<PAGE>
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Oppenheimer Quest Balanced Value Fund
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Internet Web Site:
www.oppenheimerfunds.com
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Sub-Advisor
OpCap Advisors
One World Financial Center
New York, New York 10281
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 Bank
Citibank, N.A.
111 Wall Street
New York, New York 10005
Independent Accountants
PricewaterhouseCoopers LLP
950 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
PX257.0299
