Registration No. 33-17850
File No. 811-5360
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 13 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 12 / X /
OPPENHEIMER MAIN STREET FUNDS, INC.
(Formerly named: MAIN STREET FUNDS, INC.)
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(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street, Denver, Colorado 80231
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(Address of Principal Executive Offices)
1-303-671-3200
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(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Oppenheimer Management Corporation
Two World Trade Center, New York, New York 10048-0203
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / On October 25, 1993 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ X / On October 1, 1994 pursuant to paragraph (a) of Rule 485
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The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's
fiscal year ended June 30, 1994 was filed on __________________.
<PAGE>
OPPENHEIMER MAIN STREET FUNDS, INC.
(Formerly named: MAIN STREET FUNDS, INC.)
FORM N-1A
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
1 Front Cover Page
2 Expenses
3 Financial Highlights; Performance of the Fund
4 Front Cover Page; Investment Objective and Policies
5 How the Fund is Managed; Expenses; Back Cover
5A Performance of the Fund
6 Dividends, Capital Gains and Taxes
7 How to Buy Shares; How to Exchange Shares; Special Investor Services;
Service Plan for Class A Shares; Distribution and Service Plan for
Class C Shares; How to Sell Shares
8 How to Sell Shares
9 *
Part B of
Form N-1A
Item No. Statement of Additional Information Heading
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Other Investment
Techniques and Strategies; Additional Investment Restrictions
14 How the Fund is Managed - Trustees and Officers of the Corporation
15 How the Fund is Managed - Major Shareholders;
16 How the Fund is Managed; Distribution and Service Plans
17 Brokerage Policies of the Fund
18 Additional Information About the Fund
19 Your Investment Account - How to Buy Shares; How to Sell Shares; How
to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Brokerage Policies of the Fund
22 Performance of the Fund
23 *
__________________
*Not applicable or negative answer.
<PAGE>
Oppenheimer
Main Street Income & Growth Fund
Prospectus dated October 1, 1994
Oppenheimer Main Street Income & Growth Fund (the "Fund"), formerly named
"Main Street Funds, Inc. - Income & Growth Fund," is a series of
Oppenheimer Main Street Funds, Inc. (the "Corporation"). The Fund has the
investment objective of seeking high total return (which includes current
income and capital appreciation in the value of its shares) from equity
and debt securities. Please refer to "Investment Policies and Strategies"
for more information about the types of securities the Fund invests in and
the risks of investing in the Fund.
The Fund offers three classes of shares: (1) Class A shares, which are
sold at a public offering price that includes a front-end sales charge,
and (2) Class B and Class C shares, which are sold without a front-end
sales charge, although you may pay a sales charge when you redeem your
shares, depending on how long you hold them. A contingent deferred sales
charge is imposed on most Class C shares redeemed within 12 months of
purchase. Class B and Class C shares are also subject to an annual
"asset-based sales charge." Each class of shares bears different expenses.
In deciding which class of shares to buy, you should consider how much you
plan to purchase, how long you plan to keep your shares, and other factors
discussed in "How to Buy Shares" starting on page ___.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the October 1, 1994, Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
Page
ABOUT THE FUND
Expenses
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are reflected in the Fund's net asset value per share. As
a shareholder, you pay those expenses indirectly. Shareholders pay other
expenses directly, such as sales charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's operating expenses that you might expect
to bear indirectly. The calculations are based on the Fund's expenses
during its fiscal year ended December 31, 1993.
-- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to pages _____ through _____ for
an explanation of how and when these charges apply.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class A Class B Class C
Shares Shares Shares
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Maximum Sales
Charge on Purchases
(as a % of offering price) 4.75% None None
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Sales Charge on
Reinvested Dividends None None None
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Deferred Sales Charge
(as a % of the lower of the
original purchase price or
redemption proceeds None 5% in the first 1.0%
year, declining
to 1% in the
sixth year and
eliminated
None(1) thereafter 1.0%(2)
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Exchange Fee $5.00(3) $5.00(3) $5.00(3)
</TABLE>
(1)If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares," below.
(2)If you redeem Class C shares within 12 months of buying them, you may
have to pay a 1.0% contingent deferred sales charge. See "How to Buy
Shares," below.
(3)Fee is waived for automated exchanges on PhoneLink, described in "How
to Buy Shares."
-- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (the "Manager"), and other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal and other
expenses. The following numbers are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The "12b-1 Distribution Plan Fees" for
Class A shares are the Service Plan Fees (which are a maximum of 0.25% of
average annual net assets of that class), and for Class B and Class C
shares are the Distribution and Service Plan Fees (maximum of 0.25%) and
the asset-based sales charges of 0.75%. The actual expenses for each class
of shares in future years may be more or less, depending on a number of
factors, including the actual amount of the assets represented by each
class of shares. Class B shares were not publicly offered during the
fiscal year ended June 30, 1994. The "Annual Fund Operating Expenses" as
to Class B shares are estimates based on amounts that would have been
payable in that period assuming that Class B shares were outstanding
during such fiscal year. Class C shares were not publicly sold before
_______________. Therefore the Annual Fund Operating Expenses shown for
Class C shares are based on expenses for the period from _______________
through June 30, 1994.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class A Class B Class C
Shares Shares Shares
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Management Fees % % %
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12b-1 Distribution Plans Fees % % %
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Other Expenses % % %
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Total Fund Operating Expenses % % %
</TABLE>
-- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the chart above.
If you were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each
period shown:
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years(1)
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Class A Shares $ $ $ $
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Class B Shares $ $ $ $
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Class C Shares $ $ $ $
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $ $ $ $
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Class B Shares $ $ $ $
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Class C Shares $ $ $ $
</TABLE>
(1) Because of the asset-based sales charge imposed on Class C shares of
the Fund, long-term shareholders of Class C shares could bear expenses
that would be the economic equivalent of an amount greater than the
maximum front-end sales charges permitted under applicable regulatory
requirements.
The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class B shares after 6 years. Because of the asset-based
sales charge and contingent deferred sales charge, long-term Class B
shareholders could pay the economic equivalent of an amount greater than
the maximum front-end sales charge permitted under applicable regulatory
requirements. The automatic conversion is designed to minimize the
likelihood that this will occur. Please refer to "How to Buy Shares -
Class B Shares" for more information.
This example should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
expenses may be less or greater than those illustrated above.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
KPMG Peat Marwick, the Fund's independent auditors, whose report on the
Fund's financial statements for the fiscal year ended June 30, 1994, is
included in the Statement of Additional Information. Class C shares were
publicly offered only during a portion of that period, commencing
______________. Class B shares were not publicly offered during the
fiscal year ended June 30, 1994. Accordingly, no information on Class B
shares is reflected in the table below or in the Fund's other financial
statements.
<PAGE>
Investment Objective and Policies
Objective. The Fund has the investment objective of seeking high total
return (which includes current income and capital appreciation in the
value of its shares).
Investment Policies and Strategies. The Fund seeks its investment
objective by emphasizing investment in equity and debt securities - common
stocks, preferred stocks, convertible securities, bonds, debentures and
notes. The Fund may also assume a temporary defensive position when
appropriate to do so by investing in cash equivalents, e.g., short-term
(maturing in one year or less from the date of purchase) certificates of
deposit, bankers' acceptances, commercial paper or obligations issued or
guaranteed by the U.S. Government and its agencies or instrumentalities
("U.S. Government Securities"). The composition of the Fund's portfolio
among the different types of permitted investments and maturities of debt
instruments will vary from time to time based upon the evaluation of
economic and market trends by the Fund's investment adviser, Oppenheimer
Management Corporation (the "Manager"), and perceived relative total
anticipated return from such types of securities. The Fund's investment
policies are not "fundamental" policies (as defined below) unless a
particular policy is identified as fundamental. The Board of Directors
may change non-fundamental investment policies without shareholder
approval.
The Fund will purchase securities of issuers believed by the Manager
to be in sound financial condition, including investment-grade senior
securities (bonds rated at least "Baa" by Moody's Investors Service, Inc.
("Moody's") or at least "BBB" by either Standard & Poor's Corporation
("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch")) or if
unrated, judged by the Manager to be of comparable quality to bonds rated
within such grades. The Fund will not invest in debt securities rated
less than "Baa" by Moody's or "BBB" by Standard & Poor's or Fitch, or, if
unrated, judged by the Manager to be of comparable quality to debt
securities rated within such grades. However, the Fund may invest up to
10% of its total assets in convertible securities rated less than "Baa"
or "BBB" or unrated convertible securities judged by the Manager to be of
comparable quality to such lower-rated convertible securities. The Fund
is not obligated to dispose of debt securities the rating for which is
reduced below investment-grade and may hold such lower-rated securities
until maturity or until investment considerations indicate that their sale
is appropriate. Risks of lower-rated securities include (i) limited
liquidity and secondary market support, (ii) the possibility that earnings
of the issuer may be insufficient to meet its debt service, and (iii) the
issuer's low creditworthiness and potential for insolvency during periods
of rising interest rates and economic downturn. See Appendix A of the
Additional Statement for a description of investment ratings. When
investing in convertible securities, the Manager looks to the conversion
feature and treats convertible securities as equity securities. For
further explanation, see "Special Investment Methods--Convertible
Securities" in the Additional Statement. Since market risks are inherent
in all securities to varying degrees, assurance cannot be given that the
investment objective of the Fund will be met.
-- Foreign Securities. The Fund may purchase without restriction
"foreign securities", which are debt and equity securities issued by
companies organized under the laws of countries other than the United
States and debt securities of foreign governments that are listed on
foreign securities exchanges or are traded in the foreign over-the-counter
markets. Securities of foreign issuers (i) represented by American
Depositary Receipts ("ADRs"), (ii) listed on a U.S. securities exchange
or (iii) traded in the U.S. over-the-counter markets are not considered
"foreign securities" for this purpose because they are not subject to most
of the special considerations and risks (discussed below and in the
Additional Statement) that apply to foreign securities traded and held
abroad. The Fund may purchase securities in any country, developed or
underdeveloped. Foreign currency will be held by the Fund only in
connection with the purchase or sale of foreign securities. If the Fund's
securities are held abroad, the countries in which such securities may be
held and the sub-custodians holding them must be approved by the Board of
Directors of the Corporation under applicable SEC rules.
Foreign securities have special risks. For example, 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 changes in foreign currency rates, 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. More information about the risks and
potential rewards of investing in foreign securities is contained in the
Statement of Additional Information.
-- Special Risk Considerations - Borrowing. From time to time, the
Fund may increase its ownership of securities by borrowing from banks on
an unsecured basis and investing the borrowed funds (on which it will pay
interest), provided that immediately after any such borrowing, its total
assets, less its liabilities other than borrowings, is equal to at least
300% of all borrowings and then only as a temporary measure for
extraordinary or emergency purposes. Interest on borrowed money is an
expense the Fund would not otherwise incur, so that it may have
substantially reduced net investment income during periods of substantial
borrowings.
-- Portfolio Turnover. A portfolio turnover rate is, in general, the
percentage computed by taking the lesser of purchases or sales of
portfolio securities (excluding certain short-term securities) for a year
and dividing it by the monthly average of the market value of such
securities during the year. See "Financial Highlights" for the turnover
rates of the Fund. High turnover and short-term trading involve
correspondingly greater brokerage commission expenses and transaction
costs for the Fund. If the Fund derives 30% or more of its gross income
from the sale of securities held less than three months, the Fund may fail
to qualify under the tax laws as a regulated investment company in
particular years. See "Dividends, Distributions and Taxes" below.
-- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, which is described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those policies. The Fund's investment policies and
practices are not "fundamental" unless the Prospectus or Statement of
Additional Information says that a particular policy is "fundamental."
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's
investment objective is a fundamental policy. The Fund's Board of Trustees
may change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below, which involve
certain risks. The Statement of Additional Information contains more
information about these practices, including limitations designed to
reduce some of the risks.
-- Temporary Defensive Investments. In times of unstable market or
economic conditions, when the Manager determines it appropriate to do so,
the Fund may assume a temporary defensive position and invest an unlimited
amount of assets in: (i) U.S. Government Securities; (ii) cash
equivalents; (iii) commercial paper rated in the highest category by an
established rating agency; (iv) short-term debt obligations; (v)
certificates of deposit of domestic banks with assets of $1 billion or
more; or (vi) repurchase agreements (explained below).
-- When-Issued Securities. The Fund may invest in securities offered
on a "when-issued" or "delayed delivery" basis. In those transactions,
the Fund obligates itself to purchase or sell securities with delivery and
payment to occur at a later date to secure what is considered to be an
advantageous price and yield at the time the obligation is entered into.
The price, which on debt securities is generally expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
payment for when-issued securities take place at a later date (normally
within 45 days of purchase). During the period between purchase and
settlement, no payment is made by the Fund for the security, and no
interest accrues to the Fund from the investment. Although the Fund is
subject to the risk of adverse market fluctuation between purchase and
settlement, the Manager does not believe that the Fund's net asset value
or income will be materially adversely affected by its purchase of
securities on a "when-issued" or "delayed delivery" basis. See "When-
Issued and Delayed Delivery Transactions" in the Additional Statement for
more details.
-- Repurchase Agreements. The Fund may acquire securities subject
to repurchase agreements to generate income and for liquidity purposes to
meet anticipated redemptions, or pending the investment of proceeds from
sales of Fund shares or settlement of purchases of portfolio investments.
The Fund's repurchase agreements will be fully collateralized. However,
if the seller of the securities fails to pay the agreed-upon repurchase
price on the delivery date, the Fund's risks may include any costs of
disposing of the collateral for the agreement, and losses that might
result from any delays in foreclosing on the collateral.
-- Short Sales Against-the-Box. The Fund may not sell securities
short, except in collateralized transactions referred to as "short sales
against-the-box." No more than 15% of the net assets of the Fund will be
held as collateral for such short sales at any one time.
-- Rights and Warrants. The Fund may invest up to 10% of its total
assets in warrants attached to debentures; otherwise, it may not purchase
warrants or rights. In connection with the qualification for sale of its
shares in certain states, the Fund has undertaken that it will limit its
investments in warrants to no more than 5% of its total assets, of which
no more than 2% of the value of the Fund's net assets will be invested in
warrants that are not listed on The New York Stock Exchange or The
American Stock Exchange; should its shares no longer be offered in such
states, the Fund would not be subject to that undertaking. For further
details, see "Rights and Warrants" in the Additional Statement.
-- Investing in Small, Unseasoned Companies. The Fund may invest in
securities of small, unseasoned companies. These are companies that have
bee in operation for less than three years, even after including the
operations of any predecessors. The Fund currently intends to invest no
more than 5% of its net assets in securities of small, unseasoned issuers.
-- Illiquid and Restricted Securities. The Fund will not purchase
or otherwise acquire any security if, as a result, more than 15% of its
net assets (taken at current value) would be invested in securities that
are illiquid by virtue of the absence of a readily available market or
because their disposition would be subject to legal or contractual
restrictions on resale. Such securities include repurchase agreements
maturing in more than seven days, over-the-counter options held by the
Fund and a portion of assets used to cover such options. This policy is
not a fundamental policy and does not include restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), that are determined to be liquid
by the Board of Directors, or by the Manager under Board-approved
guidelines. Such guidelines take into account trading activity for such
securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in particular Rule
144A securities, the Fund's holdings of such securities may be illiquid.
The Fund currently intends to invest no more than 10% of its net assets
in illiquid or restricted securities, excluding restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act that
are determined to be liquid by the Board of Directors or by the Manager
under Board-approved guidelines. If due to changes in relative market
values of the Fund's portfolio securities, more than 15% of the value of
the Fund's net assets consisted of illiquid securities, the Manager would
consider appropriate steps to protect the Fund's maximum flexibility.
There may be undesirable delays in selling such securities at prices
representing their fair values.
-- Loans of Portfolio Securities. To raise cash for liquidity
purposes, the Fund may lend its portfolio securities to certain types of
eligible borrowers approved by the Board of Directors. Each loan must be
collateralized in accordance with applicable regulatory requirements.
After any loan, the value of the securities loaned must not exceed 25% of
the value of the Fund's net assets. There are some risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the
loaned securities. The Fund presently does not intend to engage in loans
of securities that will exceed 5% of the value of the Fund's total assets
in the coming year.
-- Derivative Investments. The Fund can invest in a number of
different kinds of "derivative investments." In general, a "derivative
investment" is a specially designed investment whose performance is linked
to the performance of another investment or security, such as an option,
future, index or currency. The risks of investing in derivative
investments include not only the ability of the company issuing the
instrument to pay the amount due on the maturity of the instrument, but
also the risk that the underlying investment or security might not perform
the way the Manager expected it to perform. The performance of derivative
investments may also be influenced by interest rate changes in the U.S.
and abroad. All of this can mean that the Fund will realize less income
than expected.
Examples of derivative investments the Fund may invest in include,
among others, "index-linked" notes. These are debt securities of
companies that call for payment on the maturity of the note in different
terms than the typical note where the borrower agrees to pay a fixed sum
on the maturity of the note. The payment on maturity of an index-linked
note depends on the performance of one or more market indices, such as the
S & P 500 Index. Other examples of derivative investments the Fund may
invest in are currency-indexed securities. These are typically short-term
or intermediate-term debt securities whose maturity values or interest
rates are determined by reference to one or more specified foreign
currencies. Further examples of derivative investments the Fund may
invest in include "debt exchangeable for common stock" of an issuer or
"equity-linked debt securities" of an issuer. At maturity, the principal
amount of the debt security is exchanged for common stock of the issuer
or is payable in an amount based on the issuer's common stock price at the
time of maturity. In either case there is a risk that the amount payable
at maturity will be less than the principal amount of the debt.
-- Writing Covered Calls and Puts. The Fund may write call options
("calls") if: (i) after any sale, not more than 25% of the Fund's total
assets are subject to calls; (ii) the calls are listed on a domestic
securities or commodities exchange or quoted on the automated quotation
system of the National Association of Securities Dealers, Inc. ("NASDAQ");
in addition, calls on debt securities may be written in the over-the-
counter market; and (iii) the calls are "covered" (i.e., the Fund owns the
securities subject to the call or other such securities acceptable for
escrow arrangements) while the call is outstanding. The Fund may also
purchase "relative performance call options." These are call options that
have a cash settlement based on the difference between the returns on two
market indices. These options are subject to the risk that the value of
the option may decline because of adverse movements in the market indices.
The Fund may write put options ("puts") if: (i) the put relates to a debt
security; (ii) the puts are covered by segregated liquid assets; and (iii)
not more than 50% of the Fund's net assets are segregated to cover puts.
-- Hedging with Options and Futures Contracts. The Fund may purchase
certain put and call options, certain futures and options on such futures
and broadly-based indices, and engage in interest rate swap transactions,
all of which are referred to as "Hedging Instruments." In general, the
Fund may use Hedging Instruments to attempt to (i) protect against
declines in the market values of the Fund's portfolio securities, and thus
protect the Fund's net asset value per share against downward market
trends, (ii) protect unrealized gains in the value of the Fund's
securities which have appreciated, (iii) facilitate selling securities for
investment reasons, or (iv) establish a position in the securities markets
as a temporary substitute for the purchase of individual securities. The
Fund will not use Hedging Instruments for speculation. The Hedging
Instruments the Fund may use are described below and in greater detail
under "Covered Call Options and Hedging" in the Additional Statement.
The Fund may purchase put options which relate to: (1) securities
held by it; (2) Stock Index Futures or Interest Rate Futures (each as
hereinafter defined) (whether or not it holds such Futures in its
portfolio); or (3) broadly-based stock indices, to attempt to protect
against a decline in value of specific portfolio securities or Futures
held by the Fund, or its entire portfolio. The Fund may purchase calls
only: (a) as to equity or debt securities, broadly-based stock indices or
Stock Index Futures or Interest Rate Futures, or (b) to effect a "closing
purchase transaction" to terminate its obligation as to calls it has
written. If the Fund could not effect a closing purchase transaction due
to lack of a market, it would have to hold the callable securities until
the call lapsed or was exercised. A put or call may be purchased only if,
after any such purchase, the value of all puts and calls held by the Fund
would not exceed 5% of its total assets.
The Fund may buy and sell futures contracts only if they relate to
debt securities ("Interest Rate Futures") or to broadly-based stock
indices ("Stock Index Futures"). A stock index is "broadly-based" if it
includes stocks that are not limited to issuers in any particular industry
or group of industries. The Fund will not enter into Futures and options
thereon for which the sum of margin deposits and premiums paid exceed 5%
of the fair market value of its total assets, with certain exclusions.
The Fund may enter into foreign currency exchange contracts ("Forward
Contracts"), which obligate the seller to deliver and the purchaser to
take a specific amount of foreign currency at a specific future date for
a fixed price. The Fund may enter into a Forward Contract in order to
"lock in" the U.S. dollar price of a security denominated in a foreign
currency which it has purchased or sold but which has not yet settled, or
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency. There is a
risk that use of Forward Contracts may reduce the gain that would
otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. Forward Contracts include standardized foreign
currency futures contracts which are traded on exchanges and are subject
to procedures and regulations applicable to other futures. The Fund may
also enter into a Forward Contract to sell a foreign currency denominated
in a currency other than that in which the underlying security is
denominated ("cross hedging"). The expectation is that there is a greater
correlation between the foreign currency of the Forward Contract and the
foreign currency of the underlying investment than between the U.S. dollar
and the foreign currency of the underlying investment. The success of
cross hedging is dependent on many factors, including the ability of the
Manager to correctly identify and monitor the correlation between foreign
currencies and the U.S. dollar. To the extent that the correlation is not
identical, the Fund may experience losses or gains on both the underlying
security and the cross currency hedge. The Fund will not speculate in
foreign currency exchange. There is no limitation as to the percentage
of the Fund's assets that may be committed to foreign currency exchange
contracts. The Fund does not enter into such Forward Contracts or
maintain a net exposure in such contracts where the Fund would be
obligated 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, in the case of a "cross hedge," denominated in a currency or
currencies that the Manager believes will have price movements that tend
to correlate closely with that currency.
Risks of Options and Futures Trading. "Covered Call Options and
Hedging" in the Additional Statement contains further information about
the characteristics, risks, tax effects and possible benefits of options,
Futures and options on Futures, Forward Contracts, segregation
arrangements for Forward Contracts, and the Fund's other limitations
(which are not fundamental policies) relating to investment in Futures and
options. There are certain risks in writing calls. If a covered call
written by the Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying security over the
exercise price plus the premium received. In addition, the Fund could
experience capital losses which might cause previously distributed short-
term capital gains to be re-characterized as a non-taxable return of
capital to shareholders. In writing puts, the Fund risks being required
to take delivery of the underlying security at a disadvantageous price.
The principal risks of Futures trading are: (a) possible imperfect
correlation between the prices of the Futures and the market value of the
Fund's portfolio securities; (b) possible lack of a liquid secondary
market for closing out a Futures position; (c) the need for additional
skills and techniques beyond those required for normal portfolio
management; and (d) losses resulting from market interest rate movements
not anticipated by the Manager.
Other Investment Restrictions. The Fund has certain investment
restrictions which are fundamental policies. Under these fundamental
policies the Fund cannot do any of the following: (1) buy securities
issued or guaranteed by any one issuer (except the U.S. Government or any
of its agencies or instrumentalities) if with respect to 75% of its total
assets, more than 5% of its total assets would be invested in securities
of that issuer, or it would then own more than 10% of that issuer's voting
securities; (2) lend money except in connection with the acquisition of
debt securities which the Fund's investment policies and restrictions
permit it to purchase; the Fund may also make loans of portfolio
securities, subject to the restrictions stated under "Loans of Portfolio
Securities"; or (3) concentrate investments to the extent of 25% of its
assets in any industry; however, there is no limitation as to investment
in U.S. Government Securities. All of the percentage restrictions
described above and elsewhere in this Prospectus apply only at the time
the Fund purchases a security, and the Fund need not dispose of a security
merely because the Fund's assets have changed or the security has
increased in value relative to the size of the Fund. There are other
fundamental policies discussed in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund is one of two investment portfolios,
or "series" of Oppenheimer Main Street Funds, Inc. (the "Corporation"),
an open-end, management investment company organized as a Maryland
corporation in 1987. The Fund commenced operations on February 3, 1988.
The Fund is governed by a Board of Directors, which is responsible for
protecting the interests of shareholders under Maryland corporate law. The
Directors meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Directors and Officers of the Corporation" in the Statement of Additional
Information names the Directors and provides more information about them
and the officers of the Fund. Although the Fund is not required by law
to hold annual meetings, it may hold shareholder meetings from time to
time on important matters, and shareholders have the right to call a
meeting to remove a Directors or to take other action described in the
Corporation's Articles of Incorporation.
The Board of Directors has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has three classes of shares, Class A,
Class B and Class C. Each class has its own dividends and distributions
and pays certain expenses which may be different for the different
classes. Each class may have a different net asset value. Each share has
one vote at shareholder meetings, with fractional shares voting
proportionally. Only shares of a particular class vote together on
matters that affect that class alone. Shares are freely transferrable.
"Investment Management Services" in the Additional Statement contains more
complete information about the Agreement, including a description of
expense arrangements, exculpation provisions and brokerage practices of
the Fund.
The Manager and Its Affiliates. The Fund is managed by the Manager, which
chooses the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established by the
Board of Directors, under an Investment Advisory Agreement which states
the Manager's responsibilities and its fees, and describes the expenses
that the Fund pays to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $___ billion
as of ___________________, and with more than ____ million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company, a mutual
life insurance company.
-- Portfolio Manager. John Wallace, a Vice President of the Manager,
serves as the Portfolio Manager and a Vice President of the Fund and has
been primarily responsible for the day to day management of the Fund's
portfolio since January 1991. During the past five years, Mr. Wallace has
also served as an officer and portfolio manager for other
OppenheimerFunds, prior to which he was a securities analyst and assistant
portfolio manager for the Manager.
-- Fees and Expenses. Under the Investment Advisory Agreement, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.65% of the first $200 million of
net assets of the Fund, 0.60% of the next $150 million, 0.55% of the next
$150 million and 0.45% of net assets in excess of $500 million. The
Fund's management fee for its last fiscal year was ____% of average annual
net assets for Class A shares and _____% for Class C shares, which may be
higher than the rate paid by some other mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Directors' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
-- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Distributor. The
Distributor also distributes the shares of other mutual funds managed by
the Manager (the "OppenheimerFunds") and is sub-distributor for funds
managed by a subsidiary of the Manager.
-- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries about their
account to the Transfer Agent at the address and toll-free numbers shown
below in this Prospectus or on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses certain terms to
illustrate its performance: "total return" and "average annual total
return." These terms are used to show the performance of each class of
shares separately, because the performance of each class of shares will
usually be different, as a result of the different kinds of expenses each
class bears. This performance information may be useful to help you see
how well your investment has done and to compare it to other funds or
market indices, as we have done below.
It is important to understand that the fund's total returns represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but
more detailed information about how total returns are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary, depending on
market conditions, the composition of the portfolio, expenses and which
class of shares you purchase.
-- Total Returns. There are different types of total returns used
to measure the Fund's performance. Total return is the change in value
of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they reflect the
payment of the maximum initial sales charge. Total returns may also be
quoted "at net asset value," without considering the effect of the sales
charge, and those returns would be reduced if sales charges were deducted.
When total returns are shown for Class B shares, they reflect the effect
of the contingent deferred sales charge that applies to the period for
which total return is shown. When total returns are shown for a one-year
period for Class C shares, they reflect the effect of the contingent
deferred sales charge. They may also be shown based on the change in net
asset value, without considering the effect of the contingent deferred
sales charge.
How Has the Fund Performed? Below is a discussion of the Fund's
performance during its last fiscal year ended June 30, 1994, followed by
a graphical comparison of the Fund's performance to appropriate broad-
based market indices.
-- Management's Discussion of Performance.
-- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in each Class
of shares of the Fund held until June 30, 1994; in the case of Class A
shares, _________________, and in the case of Class C shares, from the
inception of the Class on ________________, with all dividends and capital
gains distributions reinvested in additional shares. The graph reflects
the deduction of the 5.75% maximum initial sales charge on Class A shares
and the 1.0% contingent deferred sales charge on Class C shares.
The Fund's performance is compared to the performance of the S&P 500
Index and the Lipper Growth and Income Funds Index. The S&P Index is a
broad-based index of equity securities widely regarded as a general
measurement of the performance of the U.S. equity securities market. The
Lipper Growth & Income Funds Index is an unmanaged index representing the
average performance of mutual funds having an objective of growth and
income as traced by Lipper Analytical Services, Inc., and is widely
recognized as a measure of the performance of that category of mutual
funds. Index performance reflects the reinvestment of dividends but does
not consider the effect of capital gains or transaction costs, and none
of the data below shows the effect of taxes. Also, the Fund's performance
reflects the effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not limited
to the securities in the S&P 500 index, which tend to be securities of
larger, well-capitalized companies, as contrasted to the smaller growth-
type companies in which the Fund principally invests. Moreover, the index
data does not reflect any assessment of the risk of the investments
included in the index.
Comparison of Change
in Value of $10,000
Hypothetical Investments in:
Oppenheimer Main Street
Income & Growth Fund and
S&P 500 Index and the Lipper
Growth & Income Fund Index
[Graph]
Avg. Annual Total Return of the Fund at
A Shares 1 Year 5 Year Life (2/3/88)
% % %
Cumulative Total Return of the Fund at
C Shares Life (______)
% % %
Past performance is not predictive of future performance.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
-- Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, and you sell any of those shares within 18
months after your purchase, you will pay a contingent deferred sales
charge, which will vary depending on the amount you invested.
-- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares.
-- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred sales
charge of 1%.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisors:
-- How Much Do You Plan to Invest? If you plan to invest a
substantial amount over the long term, the reduced sales charges available
for larger purchases of Class A shares may be more beneficial to you than
purchasing Class C shares, because of the higher annual expenses Class C
shares will likely bear. For purchases over $1 million, the contingent
deferred sales charge on Class A shares may be more beneficial. The
Distributor will not accept any order for $1 million or more for Class B
or Class C shares on behalf of a single investor for that reason.
-- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, investors who prefer
not to pay an initial sales charge and who plan to hold their shares for
more than one year might consider Class C shares or who plan to hold their
shares for more than 6 years might consider Class B shares. Investors who
plan to redeem shares within a year might consider whether the front-end
sales charge on Class A shares would result in higher net expenses after
redemption.
-- Are There Differences in Account Features That Matter to You?
Because some account features may not be available for Class B and Class
C shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares is better for
you. Additionally, the dividends payable to Class B and Class C
shareholders will be reduced by the additional expenses borne solely by
the respective class, such as the asset-based sales charges to which Class
B and Class C shares are subject, as described below and in the Statement
of Additional Information.
-- How Does It Affect Payments to My Broker? A salesperson or any
other person who is entitled to receive compensation for selling Fund
shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the contingent deferred sales charges and asset-based sales
charges for Class B and Class C shares is the same as the purpose of the
front-end sales charge on sales of Class A shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other OppenheimerFunds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
-- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure
to specify Class A, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
-- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
-- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the application,
the Distributor will act as your agent in buying the shares.
-- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions. Shares
are purchased for your account on the regular business day the Distributor
is instructed by you to initiate the ACH transfer to buy shares. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You must request AccountLink privileges
on the application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink" below for more details.
-- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
-- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value that is next determined after
the Distributor receives the purchase order in Denver. In most cases, to
enable you to receive that day's offering price, the Distributor must
receive your order by 4:00 P.M., New York time (all references to time in
this Prospectus mean "New York time"). The net asset value of each class
of shares is determined as of that time on each day The New York Stock
Exchange is open (which is a "regular business day"). If you buy shares
through a dealer, the dealer must receive your order by 4:00 P.M., on a
regular business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which is
normally 5:00 P.M. The Distributor may reject any purchase order for the
Fund's shares, in its sole discretion.
Class A Shares. Class A shares are sold at their offering price, which
is normally net asset value plus an initial sales charge. However, in
some cases, described below, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer. The current sales charge rates
and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Front-End
Front-End Sales
Sales Charge as
Charge as Approximate
Percentage Percentage Commission as
of Offering of Amount Percentage of
Amount of Purchase Price Invested Offering Price
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.75%
- -------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.50% 4.71% 4.50%
- -------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.50% 3.63% 3.50%
- -------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.50%
- -------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 2.00%
- -------------------------------------------------------------------------
$1 million or more but
less than $2.5 million 1.00% 1.01% 1.00%
- -------------------------------------------------------------------------
$2.5 million or more but
less than $4 million .50% .50% .50%
- -------------------------------------------------------------------------
$4 million and over .25% .25% .25%
- -------------------------------------------------------------------------
</TABLE>
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
-- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. However, that
commission will be paid only on the amount of those purchases in excess
of $1 million that were not previously subject to a front-end sales charge
and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge. In determining whether a contingent
deferred sales charge is payable, the Fund will first redeem shares that
are not subject to the sales charge, including shares purchased by
reinvestment of dividends and capital gains, and then will redeem other
shares in the order that you purchased them. The Class A contingent
deferred sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
-- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of OppenheimerFunds (other
than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
The Distributor sponsors an annual sales conference to which a dealer firm
is eligible to send, with a guest, a registered representative who sells
more than $2.5 million of Class A shares of OppenheimerFunds (other than
money market funds) in a calendar year, or the dealer may, at its option,
receive the equivalent cash value of that award as additional commission.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
-- Right of Accumulation. You and your spouse can cumulate Class A
shares you purchase for your own accounts, or jointly, or on behalf of
your children who are minors, under trust or custodial accounts. A
fiduciary can cumulate shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can cumulate current purchases of Class A shares
of the Fund and other OppenheimerFunds with Class A shares of
OppenheimerFunds you previously purchased subject to a sales charge,
provided that you still hold your investment in one of the
OppenheimerFunds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the aggregate
amount of the intended purchases, including purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
-- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following investors: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party, or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than the Cash Reserves Funds) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge is also waived if shares
are redeemed in the following cases: (1) retirement distributions or loans
to participants or beneficiaries from qualified retirement plans, deferred
compensation plans or other employee benefit plans ("Retirement Plans"),
(2) returns of excess contributions made to Retirement Plans, (3)
Automatic Withdrawal Plan payments that are limited to no more than 12%
of the original account value annually, and (4) involuntary redemptions
of shares by operation of law or under the procedures set forth in the
Fund's Declaration of Trust or adopted by the Board of Trustees.
-- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. That sales charge will not
apply to shares purchased by the reinvestment of dividends or capital
gains distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed on the
amount of your account value represented by the increase in net asset
value over the initial purchase price (including increases due to the
reinvestment of dividends and capital gains distributions). The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Beginning of Month Contingent Deferred Sales Charge
in which Purchase On Redemptions in That Year
Order Was Accepted (As % of Amount Subject to Charge)
- --------------------------------------------------------------
0-1 5.0%
- --------------------------------------------------------------
1-2 4.0%
- --------------------------------------------------------------
2-3 3.0%
- --------------------------------------------------------------
3-4 3.0%
- --------------------------------------------------------------
4-5 2.0%
- --------------------------------------------------------------
5-6 1.0%
- --------------------------------------------------------------
6 and following None
- --------------------------------------------------------------
In the table, a "year" is a 12-month period. All purchases are considered
to have been made on the first regular business day of the month in which
the purchase was made.
-- Waivers of Class B Sales Charge. The Class B contingent deferred
sales charge will be waived if the shareholder requests it for redemptions
following the death or disability of the shareholder (as evidenced by a
determination of disability by the Social Security Administration).
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described above. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
-- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A and Class
B Shares" in the Statement of Additional Information.
-- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal service for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
Because the Distributor's actual expenses in selling Class B shares
may be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class B shares, those expenses may be
carried over and paid in future years. If the Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for certain expenses it
incurred before the Plan was terminated.
Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of
1.0% will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser of
the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
-- Waivers of Class C Sales Charge. The Class C contingent deferred
sales charge will be waived if the shareholder requests it for any of the
following redemptions: (1) distributions to participants or beneficiaries
from Retirement Plans, if the distributions are made (a) under an
Automatic Withdrawal Plan after the participant reaches age 59-1/2, as
long as the payments are no more than 10% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary; (2) redemptions from accounts
other than Retirement Plans following the death or disability of the
shareholder (you must provide evidence of a determination of disability
by the Social Security Administration), and (3) returns of excess
contributions to Retirement Plans.
The contingent deferred sales charge is also waived on Class C shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described above. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
-- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to compensate
the Distributor for its services and costs in distributing Class C shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class C shares.
The Distributor also receives a service fee of 0.25% per year. Both fees
are computed on the average annual net assets of Class C shares,
determined as of the close of each regular business day. The asset-based
sales charge allows investors to buy Class C shares without a front-end
sales charge while allowing the Distributor to compensate dealers that
sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class C expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class C shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 0.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge during the first year
shares are outstanding to recoup the sales commissions it pays, the
advances of service fee payments it makes, and its financing costs. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
Because the Distributor's actual expenses in selling Class C shares
may be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class C shares, those expenses may be
carried over and paid in future years. If the Plan is terminated by the
Fund, the Board of Directors may allow the Fund to continue payments of
the asset-based sales charge to the Distributor for certain expenses it
incurred before the plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions, including purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
-- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
-- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
-- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
-- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
-- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
-- Automatic Withdrawal Plans. If your Fund account is $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
-- Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or
annual basis under an Automatic Exchange Plan. The minimum purchase for
each other OppenheimerFunds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying
sales charge. This privilege applies to Class A shares that you sell, and
Class C shares on which you paid a contingent deferred sales charge when
you redeemed them. You must be sure to ask the Distributor for this
privilege when you send your payment. Please consult the Statement of
Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
-- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
-- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
-- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment
-- Pension and Profit-Sharing Plans for self-employed persons and
small business owners
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
-- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional Information.
-- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations (there
may be other situations also requiring a signature guarantee):
-- You wish to redeem more than $50,000 worth of shares and receive
a check
-- The check is not payable to all shareholders listed on the account
statement
-- The check is not sent to the address of record on your statement
-- Shares are being transferred to a Fund account with a different
owner or name
-- Shares are redeemed by someone other than the owners (such as an
Executor)
-- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing as a fiduciary or on behalf of a corporation, partnership
or other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
-- Your name
-- The Fund's name
-- Your Fund account number (from your statement)
-- The dollar amount or number of shares to be redeemed
-- Any special payment instructions
-- Any share certificates for the shares you are selling, and
-- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholders Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by 4:00 P.M. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
-- To redeem shares through a service representative, call 1-800-852-
8457
-- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds wired to that account.
-- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, once in each 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account. This service is not available within 30 days of changing the
address on an account.
-- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be wired.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges between already established
accounts on PhoneLink described below. To exchange shares, you must meet
several conditions:
-- Shares of the fund selected for exchange must be available for
sale in your state of residence
-- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
-- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
-- You must meet the minimum purchase requirements for the fund you
purchase by exchange
-- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. In some
cases, sales charges may be imposed on exchange transactions. Certain
OppenheimerFunds offer Class A shares and either Class B or Class C
shares, and a list can be obtained by calling the Distributor at 1-800-
525-7048. Please refer to "How to Exchange Shares" in the Statement of
Additional Information for more details.
Exchanges may be requested in writing or by telephone:
-- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
-- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling the
Transfer Agent at 1-800-525-7048. Exchanges of shares involve a redemption
of the shares of the fund you own and a purchase of shares of the other
fund.
There are certain exchange policies you should be aware of:
-- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request by 4:00 P.M. that
is in proper form, but either fund may delay the purchase of shares of the
fund you are exchanging into if it determines it would be disadvantaged
by a same-day transfer of the proceeds to buy shares. For example, the
receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might require the disposition of securities at a time or price
disadvantageous to the Fund.
-- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
-- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
-- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
The Distributor has entered into agreements with certain dealers and
investment advisers permitting them to exchange their clients' shares by
telephone. These privileges are limited under those agreements and the
Distributor has the right to reject or suspend those privileges. As a
result, those exchanges may be subject to notice requirements, delays and
other limitations that do not apply to shareholders who exchange their
shares directly by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
-- Net Asset Value Per Share is determined for each class of shares
as of 4:00 P.M. each day The New York Stock Exchange is open by dividing
the value of the Fund's net assets attributable to a class by the number
of shares of that class that are outstanding. The Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities, obligations for which market values cannot be
readily obtained, and call options and hedging instruments. These
procedures are described more completely in the Statement of Additional
Information.
-- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Directors at any time the Board believes it
is in the Fund's best interest to do so.
-- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
-- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise it will not be liable for losses or expenses
arising out of telephone instructions reasonably believed to be genuine.
If you are unable to reach the Transfer Agent during periods of unusual
market activity, you may not be able to complete a telephone transaction
and should consider placing your order by mail.
-- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
-- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously.
-- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C shares. Therefore, the
redemption value of your shares may be more or less than their original
cost.
-- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. 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 15 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
-- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $500 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
-- Under unusual circumstances, shares of the fund may be redeemed
"in kind", which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to the Statement of
Additional Information for more details.
-- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or taxpayer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
-- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A, Class B and Class C shares.
-- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report and
updated prospectus to shareholders having the same address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-800-
525-7048 to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
C shares from net investment income on a quarterly basis and normally pays
those dividends to shareholders in March, June, September and December,
but the Board of Directors can change that date. Dividends paid on Class
A shares generally are expected to be higher than for Class B and Class
C shares because expenses allocable to Class B and Class C shares will
generally be higher.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of the
year. Short-term capital gains are treated as dividends for tax purposes.
There can be no assurances that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
-- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
-- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
-- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
-- Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. Dividends paid from short-term capital gains
and net investment income are taxable as ordinary income. Distributions
are subject to federal income tax and may be subject to state or local
taxes. Your distributions are taxable when paid, whether you reinvest
them in additional shares or take them in cash. Every year the Fund will
send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.
-- "Buying a Dividend": When a fund goes ex-dividend, its share price
is reduced by the amount of the distribution. If you buy shares on or
just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
-- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. A capital gain or loss
is the difference between the price you paid for the shares and the price
you received when you sold them.
-- Returns of Capital: In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER MAIN STREET INCOME & GROWTH FUND
Graphic material included in Prospectus of Oppenheimer Main Street
Income & Growth Fund: "Comparison of Total Return of Oppenheimer Main
Street Income & Growth Fund with the S&P 500 Index and the Lipper Growth
& Income Funds Index - Change in Value of a $10,000 Hypothetical
Investment"
<PAGE>
Oppenheimer Main Street Income & Growth Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Oppenheimer
Transfer and Shareholder Servicing Agent Main Street Income
Oppenheimer Shareholder Services & Growth Fund
P.O. Box 5270 Prospectus
Denver, Colorado 80217 Effective October 25, 1993
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202 OppenheimerFunds
No dealer, salesperson or any other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus or the Additional Statement, and
if given or made, such information and
representation must not be relied upon as having
been authorized by the Corporation, Oppenheimer
Management Corporation, Oppenheimer Funds
Distributor, Inc., or any affiliate thereof. This
Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the
securities offered hereby in any state to any
person to whom it is unlawful to make such offer
in such state.
PR701 (10/93) Printed on recycled paper
<PAGE>
Oppenheimer Main Street Income & Growth Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated October 1, 1994
Oppenheimer Main Street Income & Growth Fund (the "Fund"), formerly
named "Main Street Funds, Inc. - Income & Growth Fund," is a series of
Oppenheimer Main Street Funds, Inc. (the "Corporation"). This Statement
of Additional Information of the Fund is not a Prospectus. This document
contains additional information about the Fund and supplements information
in the Prospectus dated October 1, 1994. It should be read together with
the Prospectus which may be obtained upon written request to the Fund's
Transfer Agent, Oppenheimer Shareholder Services at P.O. Box 5270, Denver,
Colorado 80217, or by calling the Transfer Agent at the toll-free number
shown above.
Contents
Page
About the Fund
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . .
Investment Policies and Strategies. . . . . . . . . . . . . . . . .
Other Investment Techniques and Strategies. . . . . . . . . . . . .
Other Investment Restrictions . . . . . . . . . . . . . . . . . . .
How the Fund is Managed . . . . . . . . . . . . . . . . . . . . . . . .
Organization and History. . . . . . . . . . . . . . . . . . . . . .
Directors and Officers of the Corporation . . . . . . . . . . . . .
The Manager and Its Affiliates. . . . . . . . . . . . . . . . . . .
Brokerage Policies of the Fund . . . . . . . . . . . . . . . . . . . . .
Performance of the Fund. . . . . . . . . . . . . . . . . . . . . . . . .
Distribution and Service Plans . . . . . . . . . . . . . . . . . . . . .
About Your Account . . . . . . . . . . . . . . . . . . . . . . . . . . .
How To Buy Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . .
How To Sell Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
How To Exchange Shares . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends, Capital Gains and Taxes . . . . . . . . . . . . . . . . . . .
Additional Information About the Fund. . . . . . . . . . . . . . . . . .
Financial Information About the Fund . . . . . . . . . . . . . . . . . .
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Capitalized terms used in this Statement
of Additional Information have the same meaning as those terms have in the
Prospectus.
-- Foreign Securities. Investing in foreign securities involves
considerations and possible risks not typically associated with investing
in securities in the U.S. The values of foreign securities will be
affected by changes in currency rates or exchange control regulations or
currency blockage, application of foreign tax laws, including withholding
taxes, changes in governmental administration or economic or monetary
policy (in the U.S. or abroad) or changed circumstances in dealings
between nations. Costs will be incurred in connection with conversions
between various currencies. Foreign brokerage commissions are generally
higher than commissions in the U.S., and foreign securities markets may
be less liquid, more volatile and less subject to governmental regulation
than in the U.S. Investments in foreign countries could be affected by
other factors not generally thought to be present in the U.S., including
expropriation or nationalization, confiscatory taxation and potential
difficulties in enforcing contractual obligations, and could be subject
to extended settlement periods. Investments in foreign securities offer
potential benefits not available from investments solely in securities of
domestic issuers by offering 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. From
time to time, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be
reimposed.
-- U.S. Government Securities. Obligations of U.S. Government
agencies or instrumentalities (including mortgage-backed securities) may
or may not be guaranteed or supported by the "full faith and credit" of
the United States. Some are backed by the right of the issuer to borrow
from the U.S. Treasury; others, by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. All U.S. Treasury
obligations are backed by the full faith and credit of the United States.
If the securities are not backed by the full faith and credit of the
United States, the owner of the securities must look principally to the
agency issuing the obligation for repayment and may not be able to assert
a claim against the United States in the event that the agency or
instrumentality does not meet its commitment. The Fund will invest in
U.S. Government Securities of such agencies and instrumentalities only
when the Manager is satisfied that the credit risk with respect to such
instrumentality is minimal.
Other Investment Techniques and Strategies
-- When-Issued and Delayed Delivery Transactions. As stated in the
Prospectus, the Fund may invest in securities on a "when-issued" or
"delayed delivery" basis. Payment for and delivery of the securities
generally settles within 45 days of the date the offer is accepted. The
purchase price and yield are fixed at the time the buyer enters into the
commitment. 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. However, the Fund intends to be as fully invested as
possible and will not invest in when-issued securities if its income or
net asset value will be materially adversely affected. While when-issued
securities may be sold prior to settlement date, the Fund intends to
acquire the securities upon settlement unless a prior sale appears
desirable for investment reasons. There is a risk that the yield
available in the market when delivery occurs may be higher than the yield
on the security acquired.
-- Rights and Warrants. 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.
-- Repurchase Transactions. In a repurchase transaction, the Fund
acquires a security from, and simultaneously resells it to, an approved
vendor that meets certain credit requirements established from time to
time by the Board. The resale price exceeds the purchase price in that
it reflects an agreed upon interest rate effective for the period of time
during which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to the resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act of 1940
(the "Investment Company Act"), collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the value of the collateral must equal
or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will continuously monitor the
collateral's value and impose creditworthiness requirements to confirm
that the vendor is financially sound.
-- Short Sales Against-the-Box. In such short sales by the Fund,
while the short position is open, the Fund must own an equal amount of
such securities or by virtue of ownership have the right, without payment
of further consideration, to obtain an equal amount of the securities sold
short. For Federal income tax purposes, short sales against-the-box may
be made to defer recognition of gain or loss on the sale of securities "in
the box" and no income can result and no gain or loss can be realized from
securities sold short against-the-box until the short position is closed
out.
-- Investing in Small, Unseasoned Companies. The securities of
small, unseasoned companies may have a limited trading market, which may
adversely affect their disposition and can result in their being priced
lower than might otherwise be the case. If other investors in such issues
sell the same such securities when the Fund attempts to dispose of its
holdings, the Fund may receive lower prices than might otherwise be
obtained.
-- Illiquid and Restricted Securities. Restricted securities that
are illiquid (excluding securities that may be resold by the Fund pursuant
to Rule 144A, as explained in the Prospectus) are purchased in direct
placements and are subject to statutory or contractual restrictions and
delays on resale. Such securities may generally be resold only in
privately-negotiated transactions with a limited number of purchasers or
in a public offering registered under the Securities Act and are,
therefore, unlike publicly-traded securities which can be expected to be
sold immediately if the market demand is adequate. The right to have such
securities registered and the expenses of registration usually are
negotiated upon the purchase of such securities. There may be undesirable
delays in selling such securities at prices representing fair value.
-- Convertible Securities. While convertible securities are a form
of debt security in many cases, their conversion feature (allowing
conversion into equity securities) causes them to be regarded more as
"equity equivalents" so that the rating assigned to the security has less
impact on the investment decision than in the case of non-convertible
fixed income securities. To determine whether convertible securities
should be regarded as "equity equivalents," the Manager examines the
following factors: (1) whether, at the option of the investor, the
convertible security can be exchanged for a fixed number of shares of
common stock of the issuer, (2) whether the issuer of the convertible
securities has restated its earnings per share of common stock on a fully
diluted basis (considering the effect of 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 common stock.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions meeting
specified credit conditions if the loan is collateralized in accordance
with applicable regulatory requirements and if, after any such loan, the
value of the securities loaned does not exceed 25% of the total value of
the Fund's assets. In connection with securities lending, the Fund might
experience risks of delay in receiving additional collateral, or risks of
delay in recovery of the securities, or loss of rights in the collateral
should the borrower fail financially. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on
each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government Securities, or other cash equivalents in which the Funds are
permitted to invest. To be accepted as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets
the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees that the Fund pays in arranging the loan.
The Fund may share the interest it receives on the collateral securities
with the borrower as long as it realizes at least a minimum amount of
interest required by the lending guidelines established by the
Corporation's Board of Directors. The Fund will not lend its portfolio
securities to any officer, director, trustee, employee or affiliate of the
Fund or the Manager. The terms of the Fund's loans must meet applicable
tests under the Internal Revenue Code and permit the Fund to reacquire
loaned securities on five business days' notice or in time to vote on any
important matter.
-- Portfolio Turnover. The Fund may purchase or sell debt securities
without regard to the length of time the security has been held, to take
advantage of short-term differentials in yields consistent with the Fund's
investment objective. While short-term trading increases portfolio
turnover, the execution cost for such securities is substantially less
than for equivalent dollar values of equity securities. However, short-
term trading may affect the Fund's status as an investment company under
the Internal Revenue Code (see "Dividends, Distributions and Tax
Information" in the Prospectus).
-- Writing Covered Calls. As described When the Fund writes a call,
it receives a premium and agrees to sell the underlying security to a
purchaser of a corresponding call on the same security during the call
period (usually not more than nine months) at a fixed exercise price
(which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium previously received
on the call written is more or less than the price of the call
subsequently purchased. A profit may also be realized if the call expires
unexercised, because the Fund retains the underlying security and the
premium received. Any such profits are considered short-term capital
gains for Federal income tax purposes, and when distributed by the Fund
are taxable as ordinary income. If the Fund could not effect a closing
purchase transaction due to lack of a market, it would have to hold the
callable securities until the call expired or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
-- Writing Put Options. A put option on 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.
Writing a put covered by segregated liquid assets equal to the exercise
price of the put has the same economic effect to the Fund as writing a
covered call. The premium the Fund receives from writing a put option
represents a profit, as long as the price of the underlying investment
remains equal to or above the exercise price. However, the Fund has also
assumed the obligation during the option period to buy the underlying
investment from the buyer of the put at the exercise price, even though
the value of the investment may fall below the exercise price less
transaction costs incurred. If the put expires unexercised, the Fund (as
the writer of the put) 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 purchase the underlying investment at the
exercise price, which will usually exceed the market value of the
investment at that time. In that case, the Fund may incur a loss, equal
to the sum of the sale price of the underlying investment and the premium
received minus the sum of the exercise price and any transaction costs
incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the
underlying securities. The Fund therefore foregoes the opportunity of
investing the segregated assets or writing calls against those assets.
As long as the obligation of the Fund as the put writer continues, it may
be assigned an exercise notice by the broker-dealer through whom such
option was sold, requiring the Fund to take delivery of the underlying
security against payment of the exercise price. The Fund has no control
over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the termination
of its obligation as the writer of the put. This obligation terminates
upon expiration of the put, or such earlier time at which the Fund effects
a closing purchase transaction by purchasing a put of the same series as
that previously sold. Once the Fund has been assigned an exercise notice,
it is thereafter not allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As described
above for writing covered calls, any and all such profits described herein
from writing puts are considered short-term gains for Federal tax
purposes, and when distributed by the Fund, are taxable as ordinary
income.
-- Hedging With Options and Futures Contracts. The Fund may use
hedging instruments for the purposes described in the Prospectus. When
hedging to attempt to protect against declines in the market value of the
Fund's portfolio, to permit the Fund to retain unrealized gains in the
value of portfolio securities which have appreciated, or to facilitate
selling securities for investment reasons, the Fund may: (i) sell
Futures, (ii) buy puts on such Futures or securities, or (iii) write
covered calls on securities or Futures. When hedging to permit the Fund
to establish a position in the securities market as a temporary substitute
for purchasing equity securities (which the Fund will normally purchase,
and then terminate the hedging position), the Fund may: (i) buy Futures,
or (ii) 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 on the underlying cash market. Additional information
about the Hedging Instruments the Fund may use is provided below.
-- Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and has the
right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise
price. The Fund benefits only if the call is sold at a profit or if,
during the call period, the market price of the underlying investment is
above the sum of the call price plus the transaction costs and the premium
paid for the call and the call is exercised. If the call is not exercised
or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right
to purchase the underlying investment. When the Fund purchases a call or
put (discussed below) on an index or Future, it pays a premium, but
settlement is in cash rather than by delivery of the underlying investment
to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather
than on price movements in individual securities or futures contracts.
When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a
seller of a put on a corresponding 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 and the Fund will lose its premium payment and the right
to sell the underlying investment; the put may, however, be sold prior to
expiration (whether or not a profit).
-- Interest Rate Futures and Stock Index Futures. Stock Index
Futures require settlement in cash equal in amount to a specified dollar
amount multiplied by the difference between the index value on the last
trading day of the future and the price at which the future was originally
struck. No physical delivery of the stocks in the index is made.
Interest Rate Futures obligate the seller to deliver (and the purchaser
to take) a specific type of debt security or cash at a specified future
date for a fixed price. That obligation may be satisfied by actual
delivery of that security or cash. However, all Futures are generally
terminated by entering into an offsetting contract. No price is paid or
received upon the purchase or sale of an Interest Rate Future or Stock
Index 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"). The initial margin will be deposited
with the Fund's Custodian in an account registered in the futures broker's
name; however, the futures broker can gain access to that account only
under specified conditions. As the Future is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker on a daily basis. Prior
to expiration of the Future, if the Fund elects to close out its position
by taking an opposite position, a final determination of variation margin
is made, additional cash is required to be paid by or released to the
Fund, and any loss or gain is realized for tax purposes. Although
Interest Rate Futures by their terms call for settlement by delivery or
acquisition of debt securities, in most cases the obligation is fulfilled
by closing out the position. Stock Index Futures are similar except that
settlement is made in cash, and net gain or loss on options on such
Futures depends on price movements of the securities included in the
index. All futures transactions are effected through a clearinghouse
associated with the exchange on which the contracts are traded.
-- Forward Contracts. A Forward Contract involves bilateral
obligations of one party to purchase, and another party to sell, a
specific currency at a future date (which may be any fixed number of days
from the date of the contract agreed upon by the parties), at a price set
at the time the contract is entered into. These contracts are traded in
the interbank market conducted directly between currency traders (usually
large commercial banks) and their customers.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase. The Fund will not speculate with Forward Contracts or foreign
currency exchange rates.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction. The Fund will thereby be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between the currency exchange rates during the period between
the date on which the security is purchased or sold, or on which the
payment is declared, and the date on which such payments are made or
received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross-hedge").
The Fund's Custodian will place cash not available for investment or
U.S. Government securities or other liquid high-quality debt securities
in a separate account of the Fund having a value equal to the aggregate
amount of the Fund's commitments under forward contracts entered into with
respect to position hedges and cross-hedges. If the value of the
securities placed in a separate account declines, additional cash or
securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments with
respect to such contracts. As an alternative to maintaining all or part
of the separate account, the Fund may purchase a call option permitting
the Fund to purchase the amount of foreign currency being hedged by a
forward sale contract at a price no higher than the forward contract price
or the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a
price as high or higher than the forward contract price. Unanticipated
changes in currency prices may result in poorer overall performance for
the Fund than if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value
of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of
such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transactions
costs.
At or before the maturity of a Forward Contract requiring the Fund
to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security
and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund may close out a Forward
Contract
requiring it to purchase a specified currency by entering into a second
contract entitling it to sell the same amount of the same currency on the
maturity date of the first contract. The Fund would realize a gain or
loss as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates between
the currencies involved moved between the execution dates of the first
contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
-- Additional Information About Hedging Instruments and Their Use.
The Corporation'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 securities on which
the Fund has written options or as to other acceptable escrow securities,
so that no margin will be required for such transactions. OCC will
release the securities on the expiration of the option or upon the Fund's
entering into a closing transaction. An option position may be closed out
only on a market which provides secondary trading for options of the same
series, and there is no assurance that a liquid secondary market will
exist for any particular option.
When the Fund writes an over-the-counter ("OTC") option, it will
enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would have
the absolute right to repurchase that OTC option. This formula price
would generally be based on a multiple of the premium received for the
option, plus the amount by which the option is exercisable below the
market price of the underlying security ("in-the-money"). For any OTC
option the Fund writes, it will treat as illiquid (for purposes of the
restriction on illiquid securities, stated in the Prospectus) a portion
of the assets used to cover written OTC options, equal to the formula
price for the repurchase of the OTC option less the amount by which the
OTC option is "in-the-money." The Fund will also treat as illiquid any
OTC option held by it. The SEC is evaluating the general issue of whether
or not OTC options should be considered as liquid securities, and the
procedure described above could be affected by the outcome of that
evaluation.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular
option. The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate in a manner beyond the Fund's control. The exercise by the
Fund of puts on securities or Futures may cause the sale of related
investments, also increasing portfolio turnover. Although such exercise
is within the Fund's control, holding a put might cause the Fund to sell
the underlying investment for reasons which would not exist in the absence
of the put. The Fund will pay a brokerage commission each time it buys
or sells a call, a put or an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher, on a relative
basis, than those which would apply to direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation
to the market value of such investments and consequently, put and call
options offer large amounts of leverage. The leverage offered by trading
in options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investment.
-- Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
-- Regulatory Aspects of Hedging Instruments. The use of Futures and
options thereon to attempt to protect against the market risk of a decline
in the value of portfolio securities is referred to as having a "short
futures position," and the use of such instruments to attempt to protect
against the market risk that portfolio securities are not fully included
in an increase in value of the market as a whole is referred to as having
a "long futures position." The Fund must operate within certain
restrictions as to its long and short hedging positions in Futures and
options thereon under a rule ("CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange Act (the
"CEA"), which excludes the Fund and the Corporation from registration with
the CFTC as a "commodity pool operator" (as defined under the CEA) if they
comply with the CFTC Rule. Under these restrictions, the Fund will not,
as to any positions, whether long, short or a combination thereof, enter
into Futures and options thereon for which the aggregate initial margins
and premiums exceed 5% of the fair market value of its assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA. Certain options on
foreign currencies are considered related options for this purpose.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert regardless of whether the options were written
or purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of these limits and may impose certain
other sanctions. Due to requirements under the Investment Company Act of
1940 (the "Investment Company Act"), when the Fund purchases a Future, the
Fund will maintain in a segregated account or accounts with the Fund's
Custodian, cash or readily marketable short-term (maturing in one year or
less) debt instruments in an amount equal to the market value of the
securities underlying such Future, less the margin deposit applicable to
it.
-- Tax Aspects of Covered Calls and Hedging Instruments. The Fund
qualified during its last fiscal year as a "regulated investment company"
under the Internal Revenue Code of 1986 (the "Internal Revenue Code") and
intends to qualify in current and future fiscal years, but reserves the
right not to do so. One of the tests for such qualification is that less
than 30% of its gross income must be derived from gains realized on the
sale of securities held for less than three months. Due to that
limitation, the Corporation will limit the extent to which the Fund
engages in the following activities, but will not be precluded from them:
(i) selling investments, including Futures, held for less than three
months, whether or not they were purchased on the exercise of a call held
by the Fund; (ii) writing calls on investments held for less than three
months; (iii) purchasing calls or puts which expire in less than three
months; (iv) effecting closing transactions with respect to calls or puts
purchased less than three months previously; and (v) exercising puts held
by the Fund for less than three months.
-- Risks of Hedging With Options and Futures. An option position may
be closed out only on a market that provides secondary trading for options
on the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
discussed in the Prospectus and above, there is a risk in using short
hedging by: (i) selling Futures or (ii) purchasing puts on Futures to
attempt to protect against declines in the value of the Fund's portfolio
securities, that the prices of such Futures or the applicable index will
correlate imperfectly with the behavior of the cash (i.e., market value)
prices of the Fund's securities. The ordinary spreads between prices in
the cash and futures markets are subject to distortions, due to
differences in the natures of those markets. First, all participants in
the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities markets. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the index
applicable to its Hedging Instruments. To compensate for the imperfect
correlation of movements in the price of the portfolio securities being
hedged and movements in the price of the Hedging Instruments, the Fund may
use Hedging Instruments in a greater dollar amount than the dollar amount
of portfolio securities being hedged if the historical volatility of the
prices of such portfolio securities being hedged is more than the
historical volatility of the applicable index. It is also possible that
where the Fund has used Hedging Instruments in a short hedge, the market
may advance and the value of portfolio securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose money on the
Hedging Instruments and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio of securities will tend to move in the same direction as the
indices upon which the Hedging Instruments are based.
If the Fund uses Hedging Instruments to establish a position in the
securities markets as a temporary substitute for the purchase of
individual securities (long hedging) by buying Futures and/or calls on
such Futures or securities, it is possible that the market may decline.
If the Fund then concludes not to invest in securities at that time
because of concerns as to possible further market decline or for other
reasons, it will realize a loss on the Hedging Instruments that is not
offset by a reduction in the price of the securities purchased. In the
future, the Fund may employ hedging instruments and strategies that are
not presently contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment objective,
are legally permissible and adequately disclosed.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the
Fund must follow that are also fundamental policies. Fundamental policies
and the Fund's investment objective cannot be changed without the vote of
a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a majority vote is defined as the vote of the
holders of the lesser of: (i) 67% or more of the shares present or
represented by proxy at such meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy, or (ii) more
than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot: (1) invest in
interests in oil or gas exploration or development programs or in
commodities; however, the Fund may buy and sell any of the Hedging
Instruments that it may use as permitted by any of its other policies,
whether or not such Hedging Instrument is considered to be a commodity or
commodity contract; (2) invest in real estate or in interests in real
estate; however, the Fund may purchase securities of issuers holding real
estate or interests therein (including securities of real estate
investment trusts); (3) purchase securities on margin; however, the Fund
may make margin deposits in connection with the use of Hedging Instruments
as permitted by any of its other policies; (4) invest in companies for the
purpose of acquiring control or management thereof; (5) underwrite
securities of other companies, except insofar as it might be deemed to be
an underwriter for purposes of the Securities Act in the resale of any
securities held in its own portfolio; (6) invest or hold securities of any
issuer if those officers and directors of the Corporation or its adviser
owning individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities or such issuer; (7) invest in
other open-end investment companies, or invest more than 5% of its net
assets through open market purchases in closed-end investment companies,
including small business investment companies, nor make any such
investments at commission rates in excess of normal brokerage commissions;
or (8) pledge, mortgage or otherwise encumber, transfer or assign any of
its assets to secure a debt; collateral arrangements for premium and
margin payments in connection with Hedging Instruments are not deemed to
be a pledge of assets.
The Fund has undertaken, in connection with the qualification for
sale of its shares in certain states, (i) with respect to investment
restriction (1) above, not to invest in oil, gas or other mineral leases,
(ii) with respect to investment restriction (2) above, not to invest in
real estate limited partnerships unless such securities are determined by
the Board to be readily marketable and not to invest more than 10% of its
total assets in the securities of one or more real estate investment
trusts, and (iii) not to purchase or otherwise acquire any security if,
as a result, more than 15% of its net assets (taken at current value)
would be invested in restricted securities, including restricted
securities eligible for resale pursuant to Rule 144A under the Securities
Act. Should its shares no longer be offered in such states, the Fund
would not be subject to the foregoing undertakings.
How the Fund is Managed
Organization and History. It is not contemplated that regular annual
shareholder meetings will be held. The Fund will hold meetings when
required to do so by the Investment Company Act or other applicable law,
or when a shareholder meeting is called by the Directors or upon proper
request of the shareholders. A meeting of shareholders will be called for
a specified purpose (which may include removal of a Director) upon the
written request of the record holders of at least 25% of the outstanding
shares eligible to be voted at that meeting. The Fund has undertaken that
it will then either give the applicants access to the Fund's shareholder
list or mail the applicants' communication to all other shareholders at
the applicants' expense.
Directors and Officers of the Corporation. The Corporation's Directors
and officers and their principal occupations and business affiliations
during the past five years are listed below. All of the Directors are
also trustees, directors or managing general partners of Centennial
America Fund, L.P., Oppenheimer Limited-Term Government Fund, Oppenheimer
Insured Tax-Exempt Bond Fund, Oppenheimer Intermediate Tax-Exempt Bond
Fund, Oppenheimer Equity Income Fund, Oppenheimer Variable Account Funds,
Oppenheimer Cash Reserves, Oppenheimer High Yield Fund, Oppenheimer
Strategic Income Fund, Oppenheimer Strategic Short-Term Income Fund,
Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer Strategic
Income & Growth Fund, Oppenheimer Tax-Exempt Cash Reserves, Oppenheimer
Total Return Fund, Inc., Oppenheimer Champion High Yield Fund, Oppenheimer
Investment Grade Bond Fund, Oppenheimer Value Stock Fund and The New York
Tax-Exempt Income Fund, Inc. Each Director other than Mr. Fossel is also
a trustee or director of Centennial Government Trust, Centennial Money
Market Trust, Centennial California Tax Exempt Trust, Centennial Tax
Exempt Trust, Centennial New York Tax Exempt Trust and Daily Cash
Accumulation Fund, Inc. Ms. Coluccy and Messrs. Bowen and Zack hold
similar positions as officers of all such funds. Mr. Fossel is President
and Mr. Swain is Chairman of the Denver-based OppenheimerFunds. As of
_________________, the Directors and officers in the aggregate owned less
than 1% of the Fund's and the Corporation's respective outstanding shares.
Robert G. Avis, Director*
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
William A. Baker, Director
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, JR., Director
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Aero Space Systems Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Director*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a Director of the Manager;
President and director of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company; President and a Director of
HarbourView Asset Management Corp. ("HarbourView"), a subsidiary of
the Manager; a Director of Shareholder Financial Services, Inc.
("SFSI") and Shareholder Services, Inc. ("SSI"), transfer agent
subsidiaries of the Manager; formerly President of the Manager.
Raymond J. Kalinowski, Director
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of
which he was a Senior Vice President.
C. Howard Kast, Director
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Director
7500 East Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Director
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a Director of the Van Gilder Insurance Corp. (insurance
brokers).
James C. Swain, Chairman and Director*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and a Director of Centennial
Asset Management Corporation, an investment adviser subsidiary of the
Manager ("Centennial"); formerly President and a Director of
Oppenheimer Asset Management Corporation ("OAMC"), an investment
adviser which was a subsidiary of the Manager, and Chairman of the
Board of SSI.
John L. Wallace, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds;
formerly a Securities Analyst and Assistant Portfolio Manager for the
Manager.
Andrew J. Donohue, Vice President
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer
of other OppenheimerFunds; formerly Senior Vice President and
Associate General Counsel of the Manager and the Distributor; Partner
in, Kraft & McManimon (a law firm); an officer of First Investors
Corporation (a broker-dealer) and First Investors Management Company,
Inc. (broker-dealer and investment adviser); director and an officer
of First Investors Family of Funds and First Investors Life Insurance
Company.
George C. Bowen, Vice President, Secretary and Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a Director of
Centennial; Vice President, Treasurer and Secretary of SSI and SFSI;
an officer of other OppenheimerFunds; formerly Senior Vice
President/Comptroller and Secretary of OAMC.
Robert Bishop, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an Accountant for Yale & Seffinger,
P.C., an accounting firm, and previously an Accountant and
Commissions Supervisor for Stuart James Company Inc., a broker-
dealer.
Scott Farrar, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers, Harriman Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company,
before which he was a sales representative for Central Colorado
Planning
Robert G. Zack, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
[FN]
*A Director who is an "interested person" as defined in the Investment
Company Act.
-- Remuneration of Directors. The officers of the Corporation
(including Messrs. Fossel and Swain) are affiliated with the Manager and
receive no salary or fee from the Corporation. During the fiscal year
ended June 30, 1994, the remuneration (including expense reimbursements)
attributable to the Fund paid to all Directors of the Corporation
(excluding Messrs. Fossel and Swain) for services as Directors and as
members of one or more committees totaled $_______. The Corporation has
an Audit Committee, comprised of William A. Baker (Chairman), Charles
Conrad, Jr. and Robert M. Kirchner. This Committee meets regularly to
review audits, audit procedures, financial statements and other financial
and operational matters of the Fund.
-- Major Shareholders. To the knowledge of the Corporation, as of
_____________, no person owned beneficially 5% or more of the respective
outstanding shares of the Fund or the Corporation.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Management Corporation ("OMC"), a holding company controlled
by Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom may also
serve as officers of the Corporation and two of whom (Messrs. Fossel and
Swain) serve as directors of the Corporation.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Corporation on behalf of the Fund
requires the Manager, at its expense, to provide the Fund with adequate
office space, facilities and equipment and to provide and supervise the
activities of all administrative and clerical personnel required to
provide effective administration of the Fund, including the compilation
and maintenance of records with respect to its operations, the preparation
and filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or the Distributor under the General Distributors Agreement are
paid by the Corporation. Expenses with respect to the Corporation's two
series, including the Fund, are allocated in proportion to the net assets
of the respective funds except where allocations of direct expenses could
be made. Certain expenses are further allocated to certain classes of
shares of a series as explained in the Prospectus and under "How to Buy
Shares" below. The advisory agreement lists examples of expenses paid by
the Corporation, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Directors, legal and audit
expenses, transfer agent and custodian expenses, certain registration
expenses and non-recurring expenses, including litigation. During the
Fund's fiscal years ended June 30, 1992, 1993 and 1994, the management
fees paid by the Corporation on behalf of the Fund to the Manager were
$149,622, $253,182 and $_______, respectively.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has voluntarily undertaken that the total expenses of the Fund in any
fiscal year, excluding taxes, interest, brokerage fees and extraordinary
expenses such as litigation, shall not exceed the most stringent
applicable state regulatory limitation. At present, that limitation is
imposed by California, and limits expenses (with specified exclusions) to
2.5% of the first $30 million of average annual net assets, 2.0% of the
next $70 million, and 1.5% of the average annual net assets in excess of
$100 million. Any assumption of the Fund's expenses under this limitation
lowers the Fund's overall expense ratio and increases its total return
during the time such expenses are assumed. The Manager reserves the right
to vary the amount of expenses assumed or eliminate the assumption of
expenses altogether. The payment of the management fee at the end of any
month will be reduced so that at no time will there be any accrued but
unpaid liability under this undertaking.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties under the Agreement, the Manager is not liable for
any loss resulting from a good faith error or omission on its part with
respect to any of its duties thereunder. The advisory agreement permits
the Manager to act as investment adviser for any other person, firm or
corporation, and to use the name "Oppenheimer" and "Main Street" in
connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer
act as investment adviser to the Fund, the right of the Corporation to use
the name "Oppenheimer" as part of its name and the name of the Fund may
be withdrawn.
-- The Distributor. Under its General Distributor's Agreement with
the Corporation, the Distributor acts as the Corporation's principal
underwriter in the continuous public offering of shares of the Fund's
Class A, Class B and Class C shares, but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales
including advertising and the cost of printing and mailing prospectuses,
other than those furnished to existing shareholders, are borne by the
Distributor. During the Fund's fiscal years ended June 30, 1992, 1993 and
1994, the aggregate amount of sales charges on sales of the Fund's Class
A shares was $310,560, $784,013 and $_________, respectively, of which the
Distributor retained in the aggregate $6,147, $87,916 and $________ in
those respective years.
-- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions of the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers (as that term is defined in the Investment Company
Act), as may, in the Manager's best judgment based on all relevant
factors, implement the policy of the Fund to obtain, at reasonable
expense, the "best execution" (prompt and reliable execution at the most
favorable price obtainable) of such transactions. The Manager need not
seek competitive commission bidding or base its selection on "posted"
rates, but is 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 the Corporation's
Board of Directors. Purchases of securities from underwriters include a
commission or concession paid by the issuer to the underwriter, and
purchases from dealers include a spread between the bid and asked price.
Under the advisory agreement, the Manager is authorized to select
brokers other than affiliates that provide brokerage and/or research
services for the Fund and/or the other accounts over which the Manager or
its affiliates have investment discretion. The commissions paid to such
brokers may be higher than another qualified broker would have charged,
if a good faith determination is made by the Manager that the commission
is reasonable in relation to the services provided. Subject to the
foregoing considerations, the Manager may also consider sales of shares
of the Fund and the other funds managed by the Manager and its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the Agreement, when brokers are used for the Fund's
portfolio transactions, allocations of brokerage are made by portfolio
managers under the supervision of the Manager's executive officers.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
connection with transactions on foreign exchanges, the Fund may be
required to pay fixed brokerage commissions and thereby forego the benefit
of negotiated commissions available in U.S. markets. Brokerage
commissions are paid primarily for effecting transactions in listed
securities and otherwise only if it appears likely that a better price or
execution can be obtained. When the Fund engages in an option
transaction, ordinarily the same broker will be used for the purchase or
sale of the option and any transactions in the securities to which the
option relates. When possible, concurrent orders to purchase or sell the
same security by more than one of the accounts managed by the Manager or
it affiliates are combined. Transactions effected pursuant to such
combined orders are averaged as to price and allocated in accordance with
the purchase or sale orders actually placed for each account. Option
commissions may be relatively higher than those which would apply to
direct purchases and sales of portfolio securities.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid for in
commission dollars.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolios or being considered for purchase. The Board,
including the independent Directors, annually reviews information
furnished by the Manager relative to the commissions paid to brokers
furnishing such services in an effort to ascertain that the amount of such
commissions was reasonably related to the value or the benefit of such
services. The Board of Directors has permitted the manager to use
concessions on fixed price offerings to obtain research, in the same
manner as is permitted for agency transactions.
During the Fund's fiscal years ended June 30, 1992, 1993 and 1994,
total brokerage commissions paid by the Fund (not including spreads or
concessions on principal transactions on a net trade basis) were $141,035,
$292,787 and $____________, respectively. During the fiscal year ended
June 30, 1994, $________ was paid by the Fund to brokers for research
services (including special research, statistical information and
execution); the aggregate dollar amounts of these transactions was
$____________. The transactions giving rise to those commissions were
allocated in accordance with the internal allocation procedures described
above.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to
time the "average annual total return", "total return" and "total return
at net asset value" of an investment in each class of the Fund may be
advertised. An explanation of how average annual total return and total
return are calculated for each class and the components of those
calculations is set forth below. No total return calculations are
presented below for Class B shares because no shares of that class were
publicly issued prior to the fiscal year ended June 30, 1994.
-- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return. It is the
rate of return based on factors which include a hypothetical initial
investment of $1,000 ("P" in the formula below) held for a number of years
("n") with an Ending Redeemable Value ("ERV") of that investment,
according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
-- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses the same
factors as average annual total return, but it does not average the rate
of return on an annual basis. Cumulative total return is determined as
follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class C shares, the 1.0% contingent
deferred sales charge is applied to the investment result for the one-year
period (or less). The formulas also assume that all dividends and capital
gains distributions during the period are reinvested at net asset value
per share, and that the investment is redeemed at the end of the period.
The "average annual total returns" on an investment in Class A shares
of the Fund (using the method described above) for the one and five year
periods ended June 30, 1994 and for the period from February 3, 1988
(commencement of operations) to June 30, 1994 were _____%, _____% and
_____%, respectively. The "total return" on Class A shares for the latter
period was ______%. The cumulative total return on Class C shares for the
period from _____________ (the commencement of the offering of the shares)
through June 30, 1994 was _______.
-- Total Returns of Net Asset Value. From time to time the Fund may
also quote an "average annual total return at net asset value" or a
cumulative total return at net asset value for Class A or Class C shares.
Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent deferred
sales charges) and takes into consideration the reinvestment of dividends
and capital gains distributions. The "total return at net asset value"
on the Fund's Class A shares for the fiscal year ended June 30, 1994 was
46.38%.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However,
certain factors should be considered before using such information as a
basis for comparison with other investments. No adjustment is made for
taxes payable on distributions. Investors should be aware that an
investment in the Fund is not insured; its total return is not guaranteed
and will fluctuate over time. Total return for any given past period is
not an indication or representation by the Fund of future rates of return
on its shares. An investment in the Fund is not insured by any
governmental agency. Investors should understand that certain other
investment alternatives such as money market instruments, certificates of
deposit, U.S. Government securities or bank accounts may provide yields
that are fixed or that may vary above a stated minimum, and also that bank
accounts may be insured. The total return of the Class A, Class B and
Class C shares of the Fund is effected by investment policy, portfolio
maturity, type of securities held and operating expenses.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of the performance of its Class Am Class B or Class C shares by
Morningstar, Inc. ("Morningstar"), an independent mutual fund monitoring
service, that ranks various mutual funds, including the Fund, based upon
the Fund's three, five and ten-year average annual returns (when
available) and a risk factor that reflects fund performance relative to
three-month U.S. Treasury bill monthly returns. Such returns are adjusted
for fees and sales loads. There are five ranking categories, with a
corresponding number of stars: highest (5), above average (4), neutral
(3), below average (2) and lowest (1). Morningstar ranks the Fund in
relation to other equity funds.
From time to time the Fund may publish the ranking of its performance
of its Class A or Class C shares by Lipper Analytical Services, Inc.
("Lipper"), a widely-recognized independent service that monitors the
performance of regulated investment companies, including the Fund, and
ranks their performance for various periods based on categories relating
to investment objective. The performance of the Fund is ranked against
(i) all other open-end mutual funds and (ii) the other open-end mutual
funds in the same category as that Fund. The Lipper performance analysis
includes the reinvestment of capital gains distributions and income
dividends but does not take sales charges or taxes into consideration.
Distribution and Service Plans
The Corporation has adopted a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C shares of the Fund
under Rule 12b-1 of the Investment Company Act pursuant to which the
Corporation will reimburse the Distributor for all or a portion of its
costs incurred in connection with the distribution and/or servicing of the
shares of that class as described in the Prospectus. Each Plan has been
approved by a vote of (i) the Board of Directors of the Corporation,
including a majority of the Independent Directors, cast in person at a
meeting called for the purpose of voting on that Plan, and (ii) the
holders of a "majority" (as defined in the Investment Company Act) of the
shares of each class [for the Distribution and Service Plan for the Class
C shares (the "Class C Plan") and the Distribution and Service Plan for
the Class B shares (the "Class B Plan"), such vote having been cast by the
Manager as the sole initial holder of Class B and Class C shares of the
Fund, respectively].
Unless terminated as described below, each plan continues in effect
from year to year but only as long as such continuance is specifically
approved at least annually by the Corporation's Board of Directors and its
"Independent Directors" by a vote cast in person at a meeting called for
the purpose of voting on such continuance. Either Plan may be terminated
at any time by the vote of a majority of the Independent Directors or by
the vote of the holders of a "majority" (as defined in the Investment
Company Act) of the outstanding shares of that class. Neither Plan may
be amended to increase materially the amount of payments to be made unless
such amendment is approved by shareholders of the respective class, who
vote exclusively on approval or amendment of the Plan for that class. All
material amendments must be approved by the Board of Directors and the
Independent Directors.
While the Plans are in effect, the Treasurer of the Corporation shall
provide separate written reports to the Corporation's Board of Directors
at least quarterly on the amount of all payments made pursuant to each
Plan, the purpose for which the payment was made and the identity of each
Recipient that received any such payment. The report for the Class C Plan
shall also include the distribution costs for that quarter, and such costs
for previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the
Independent Directors in the exercise of their fiduciary duty. Each Plan
further provides that while it is in effect, the selection and nomination
of those Directors of the Corporation who are not "interested persons" of
the Corporation is committed to the discretion of the Independent
Directors. This does not prevent the involvement of others in such
selection and nomination if the final decision on any such selection or
nomination is approved by a majority of the Independent Directors.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Corporation's Independent Directors. Initially, the Board of Directors
has set the fee at the maximum rate and set no minimum amount.
For the fiscal year ended June 30, 1994, payments under the Class A
Plan totaled $________, of which $______ was retained by the Distributor
and the balance paid by the Distributor to Recipients. For the period
______________ through June 30, 1994, payments under the Class C Plan
totalled $______________.
Any unreimbursed expenses incurred with respect to Class A shares for
any fiscal quarter by the Distributor may not be recovered under the Class
A Plan in subsequent fiscal quarters. Payments received by the
Distributor under the Class A Plan will not be used to pay any interest
expense, carrying charges, or other financial costs, or allocation of
overhead by the Distributor.
The Class B and Class C Plans allow the service fee payments to be
paid by the Distributor to Recipients in advance for the first year Class
B and Class C shares are outstanding, and thereafter on a quarterly basis,
as described in the Prospectus. The advance payment is based on the net
assets of the Class B and Class C shares sold. An exchange of shares does
not entitle the Recipient to an advance service fee payment. In the event
Class B and Class C shares are redeemed during the first year such shares
are outstanding, the Recipient will be obligated to repay a pro rata
portion of such advance payment to the Distributor.
Although the Class B and the Class C Plan permit the Distributor to
retain both the asset-based sales charges and the service fee, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor intends to pay the service fee to Recipients in
the manner described above. A minimum holding period may be established
from time to time under the Class B and the Class C Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B and the Class C Plan are subject to the limitations
imposed by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. The Class B and the Class C Plan allow for the
carry-forward of distribution expenses, to be recovered from asset-based
sales charges in subsequent fiscal periods, as described in the
Prospectus. The asset-based sales charges paid to the Distributor by the
Fund under the Class B and the Class C Plan are intended to allow the
Distributor to recoup the cost of sales commissions paid to authorized
brokers and dealers at the time of sale, plus financing costs, as
described in the Prospectus. Such payments may also be used to pay for
the following expenses in connection with the distribution of Class B and
Class C shares: (i) financing the advance of the service fee payment to
Recipients under the Class B and the Class C Plan, (ii) compensation and
expenses of personnel employed by the Distributor to support distribution
of Class B and Class C shares, and (iii) costs of sales literature,
advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" registration fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B and Class C shares are
the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation
for selling Fund shares may receive different compensation with respect
to one class of shares than the other. The Distributor will not accept
any order for $1 million or more of Class B and Class C shares on behalf
of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor
to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by incremental expenses borne solely by that class,
respectively, including the asset-based sales charges to which Class B and
Class C shares are subject.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares
recognizes two types of expenses. General expenses that do not pertain
specifically to either class are allocated pro rata to the shares of each
class, based on the percentage of the net assets of such class to the
Fund's total assets, and then equally to each outstanding share within a
given class. Such general expenses include (i) management fees, (ii)
legal, bookkeeping and audit fees, (iii) printing and mailing costs of
shareholder reports, Prospectuses, Statements of Additional Information
and other materials for current shareholders, (iv) fees to Independent
Trustees, (v) custodian expenses, (vi) share issuance costs, (vii)
organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a class are allocated
equally to each outstanding share within that class. Such expenses
include (i) Distribution Plan fees, (ii) incremental transfer and
shareholder servicing agent fees and expenses, (iii) registration fees and
(iv) shareholder meeting expenses, to the extent that such expenses
pertain to a specific class rather than to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of 4:00 P.M. (all references to time mean New York time) on each day
The New York Stock Exchange (the "NYSE") is open (a "regular business
day") by dividing the value of the Fund's net assets attributable to that
class by the number of shares of that class outstanding. The NYSE's most
recent annual holiday schedule (which is subject to change) states that
it will close New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day; it may
also close on other days. Trading may occur in debt securities and in
foreign securities at times when the NYSE is closed. Because the net
asset values of the Fund will not be calculated at such times, if
securities held in the Fund's portfolio are traded at such times, the net
asset values per share of Class A and Class C shares of the Fund may be
significantly affected at times when shareholders do not have the ability
to purchase or redeem shares.
The Corporation's Board of Directors has established procedures for
the valuation of the Fund's securities generally as follows: (i) equity
securities traded on a securities exchange or on the NASDAQ for which last
sale information is regularly reported are valued at the last sales prices
on their primary exchange or the NASDAQ that day (or, in the absence of
sales that day, at values based on the last sale prices of the preceding
trading day or closing bid and asked prices); (ii) NASDAQ and other
unlisted equity securities for which last sale prices are not regularly
reported but for which over-the-counter market quotations are readily
available are valued at the highest closing bid price at the time of
valuation, or, if no closing bid price is reported, on the basis of a
closing bid price obtained from a dealer who maintains an active market
in that security; (iii) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under
the Board's procedures; (iv) long-term debt securities, and short-term
debt securities having a remaining maturity in excess of 60 days, are
valued at the mean between the asked and bid prices determined by a
portfolio pricing service appointed by the Corporation's Board of
Directors or obtained from active market makers in the security; (v)
short-term debt securities having a remaining maturity of 60 days or less
are valued at cost, adjusted for amortization of premiums and accretion
of discounts; and (vi) securities traded on foreign exchanges or in
foreign over-the-counter markets are valued as determined by a portfolio
pricing service, approved by the Board, based upon last sales prices
reported on a principal exchange or the mean between closing bid and asked
prices and reflect prevailing rates of exchange to convert their values
to U.S. dollars.
Trading in securities on European and Far Eastern exchanges and over-
the-counter markets is normally completed before the close of the NYSE.
Events affecting the values of foreign securities that occur between the
time their prices are determined and the close of the NYSE will not be
reflected in the Fund's calculation of net asset value unless the Manager,
under procedures established by the Board, determines that the particular
event would materially affect net asset value, in which case an adjustment
would be made. Foreign currency will be valued as close to the time fixed
for the valuation date as is reasonably practicable. The value of
securities denominated in foreign currency will be converted to U.S.
dollars at the prevailing rates of exchange at the time of valuation. In
the case of U.S. Government Securities, mortgage-backed securities, and
corporate bonds, where last sale information is not generally available,
such pricing procedures may include "matrix" comparisons to the prices for
comparable debt instruments on the basis of quality, yield, maturity and
other special factors involved. The Directors will monitor the accuracy
of pricing services by comparing prices used for portfolio evaluation to
actual sales prices of selected securities.
Puts, calls and Futures are valued at the last sale prices on the
principal exchanges or the NASDAQ National Market System on which they are
traded or, if there are no sales that day, in accordance with (i) above.
When the Fund writes an option, an amount equal to the premium received
by the Fund is included in its Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability
section. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Rights 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
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, parents, grandparents, parents-in-
law, sons- and daughters-in-law, siblings, a sibling's spouse and a
spouse's siblings.
-- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Bio-Tech Fund
Oppenheimer Global Environment Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Tax-Exempt Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
-- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestments of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter. This enables the investor to obtain the reduced sales charge rate
(as set forth in the Prospectus) applicable to purchases of shares in that
amount (the "intended purchase amount"). Each purchase under the Letter
will be made at the public offering price applicable to a single lump-sum
purchase of shares in the intended purchase amount, as described in the
Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of the Letter) do not
include any shares sold without a front-end sales charge or without being
subject to a Class A contingent deferred sales charge unless (for the
purpose of determining completion of the obligation to purchase shares
under the Letter) the shares were acquired in exchange for shares of one
of the OppenheimerFunds whose shares were acquired by payment of a sales
charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Tax-Exempt Cash Reserves or
Oppenheimer Cash Reserves to use those accounts for monthly automatic
purchases of shares of up to four other OppenheimerFunds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
-- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value it portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
-- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $500
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A
shares,(ii) Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed or (iii) Class C shares that were
subject to the Class C contingent deferred sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other OppenheimerFunds into which shares of the
Fund are exchangeable as described below, at the net asset value next
computed after the Transfer Agent receives the reinvestment order. The
shareholder must ask the Distributor for that privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the OppenheimerFunds within
90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B and Class C
contingent deferred sales charge will be followed in determining the order
in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, or pension or
profit-sharing plans should be addressed to "Trustee, OppenheimerFunds
Retirement Plans," c/o the Transfer Agent at its address listed in "How
To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's other redemption requirements. Participants (other
than self-employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed before the
distribution may be made. Distributions from retirement plans are subject
to withholding requirements under the Internal Revenue Code, and IRS Form
W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed.
Unless the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M., and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required redemption documents, with signature(s) guaranteed
as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred
sales charges on such withdrawals (except where the Class C contingent
deferred sales charge are waived as described in the Prospectus under
"Class B Contingent Deferred Sales Charge" and "Class C Contingent
Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
-- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. All of the
OppenheimerFunds offer Class A shares (except for Oppenheimer Strategic
Diversified Income Fund), but only the following other OppenheimerFunds
(referred to as "Advisors Portfolio" funds) offer Class C shares:
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Cash Reserves (Class C and B shares are available only
by exchange)
Oppenheimer Strategic Diversified Income Fund
Class A shares of OppenheimerFunds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
OppenheimerFunds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
OppenheimerFunds subject to a contingent deferred sales charge). Shares
of this Fund acquired by reinvestment of dividends or distributions from
any other of the OppenheimerFunds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may
be exchanged at net asset value for shares of any of the OppenheimerFunds.
No contingent deferred sales charge is imposed on exchanges of shares of
either class purchased subject to a contingent deferred sales charge.
However, when Class A shares acquired by exchange of Class A shares of
other OppenheimerFunds purchased subject to a Class A contingent deferred
sales charge are redeemed within 18 months of the end of the calendar
month of the initial purchase of the exchanged Class A shares, the Class
A contingent deferred sales charge is imposed on the redeemed shares (see
"Class A Contingent Deferred Sales Charge" in the Prospectus). The Class
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. The following other OppenheimerFunds
offer Class B shares:
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only available by
exchange)
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B and Class C contingent deferred sales charges
will be followed in determining the order in which the shares are
exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any contingent deferred sales
charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of both classes must specify whether
they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain and acknowledge receipt of a prospectus
of, the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the dividends-received deduction
for corporate shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends paid by
the Fund which may qualify for the deduction is limited to the aggregate
amount of qualifying dividends that the Fund derives from its portfolio
investments that the Fund has held for a minimum period, usually 46 days.
A corporate shareholder will not be eligible for the deduction on
dividends paid on Fund shares held for 45 days or less. To the extent the
Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or
dividends from foreign corporations, those dividends will not qualify for
the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board of Trustees and the Manager might
determine in a particular year that it would be in the best interest of
shareholders for the Fund not to make such distributions at the required
levels and to pay the excise tax on the undistributed amounts. That would
reduce the amount of income or capital gains available for distribution
to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other OppenheimerFunds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. Class B
and Class C shareholders should be aware that as of the date of this
Statement of Additional Information, not all of the OppenheimerFunds offer
Class B and/or Class C shares. The names of the funds that do as of the
date of this document can be obtained by referring to "How To Exchange
Shares," above or by calling the Distributor at 1-800-525-7048. To elect
this option, a shareholder must notify the Transfer Agent in writing and
either have an existing account in the fund selected for reinvestment or
must obtain a prospectus for that fund and an application from the
Distributor to establish an account. The investment will be made at the
net asset value per share in effect at the close of business on the
payable date of the dividend or distribution. Dividends and/or
distributions from certain of the OppenheimerFunds may be invested in
shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to and
from the Fund. The Manager has represented to the Fund that the banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager
and its affiliates.
<PAGE>
Appendix A
DESCRIPTION OF RATINGS
Ratings of Investments
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and to
carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal
is secure. While the various protective elements are likely to change,
the changes that can be expected are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds
because margins of protection may not be as large as with "Aaa" securities
or fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than those of "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated "Baa" are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and have speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered well-assured. Often the protection of
interest and principal payments may be very moderate and not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are speculative
in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" can be regarded as having extremely poor
prospects of ever retaining any real investment standing.
Description of Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to adverse effects of change
in circumstances and economic conditions.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this category than for bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds rated
"D" are in default and payment of interest and/or repayment of principal
is in arrears.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
Oppenheimer
Main Street California Tax-Exempt Fund
Prospectus dated October 1, 1994
Oppenheimer Main Street California Tax-Exempt Fund, formerly named "Main
Street Funds, Inc. - California Tax-Exempt Fund," is a series of
Oppenheimer Main Street Funds, Inc. (the "Corporation"). The Fund seeks
as high a level of current income which is exempt from Federal and
California personal income taxes as is available from investing in
municipal securities while attempting to preserve capital. Please refer
to "Investment Policies and Strategies" for more information about the
types of securities the Fund invests in and the risks of investing in the
Fund.
The Fund offers two classes of shares: (1) Class A shares, which are
sold at a public offering price that includes a front-end sales charge,
and (2) and Class B, which are sold without a front-end sales charge,
although you may pay a sales charge when you redeem your shares, depending
on how long you hold them. Class B shares are also subject to an annual
"asset-based sales charge." Each class of shares bears different expenses.
In deciding which class of shares to buy, you should consider how much you
plan to purchase, how long you plan to keep your shares, and other factors
discussed in "How to Buy Shares" starting on page ___.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the October 1, 1994, Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
Page
ABOUT THE FUND
Expenses
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are reflected in the Fund's net asset value per share. As
a shareholder, you pay those expenses indirectly. Shareholders pay other
expenses directly, such as sales charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's operating expenses that you might expect
to bear indirectly. The calculations are based on the Fund's expenses
during its fiscal year ended June 30, 1994.
-- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to pages _____ through _____ for
an explanation of how and when these charges apply.
<TABLE>
<S> <C> <C>
Class A Class B
Shares Shares
- --------------------------------------------------------------------------
Maximum Sales
Charge on Purchases
(as a % of offering price) 4.75% None
- -------------------------------------------------------------------------
Sales Charge on
Reinvested Dividends None None
- -------------------------------------------------------------------------
Deferred Sales Charge
(as a % of the lower of the
original purchase price or
redemption proceeds None 5% in the first year,
declining to 1% in
the sixth year and
None(1) eliminated thereafter
- -------------------------------------------------------------------------
Exchange Fee $5.00(2) $5.00(2)
</TABLE>
(1)If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares," below.
(2)Fee is waived for automated exchanges on PhoneLink, described in "How
to Buy Shares."
-- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (the "Manager"), and other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal and other
expenses. The following numbers are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The "12b-1 Distribution and Service
Plan Fees" for Class B shares are the Distribution and Service Plan Fees
(maximum of 0.25%) and the asset-based sales charges of 0.75%. The actual
expenses for each class of shares in future years may be more or less,
depending on a number of factors, including the actual amount of the
assets represented by each class of shares.
<TABLE>
<S> <C> <C>
Class A Class B
Shares Shares
- -------------------------------------------------------------------------
Management Fees .22% .22%
- -------------------------------------------------------------------------
12b-1 Distribution
and Service Plan Fees None 1.00%
- -------------------------------------------------------------------------
Other Expenses .17% .17%
- -------------------------------------------------------------------------
Total Fund Operating Expenses .39% 1.39%
</TABLE>
-- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the chart above.
If you were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each
period shown:
<TABLE>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years(1)
- -------------------------------------------------------------------------
Class A Shares $ $ $ $
- -------------------------------------------------------------------------
Class B Shares $ $ $ $
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $ $ $ $
- -------------------------------------------------------------------------
Class B Shares $ $ $ $
</TABLE>
(1)Because of the asset-based sales charge imposed on Class C shares of
the Fund, long-term shareholders of Class C shares could bear expenses
that would be the economic equivalent of an amount greater than the
maximum front-end sales charges permitted under applicable regulatory
requirements.
The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class B shares after 6 years. Because of the asset-based
sales charge and contingent deferred sales charge, long-term Class B
shareholders could pay the economic equivalent of an amount greater than
the maximum front-end sales charge permitted under applicable regulatory
requirements. The automatic conversion is designed to minimize the
likelihood that this will occur. Please refer to "How to Buy Shares -
Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
Deloitte & Touche, the Fund's independent auditors, whose report on the
Fund's financial statements for the fiscal year ended June 30, 1994, is
included in the Statement of Additional Information. Class B shares were
publicly offered only during a portion of that period, commencing October
29, 1993.
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Investment Objective and Policies
Objective. The Fund's investment objective is to seek as high a level of
current income which is exempt from Federal and California personal income
taxes as is available from investing in Municipal Securities (defined
below), while attempting to preserve capital. The Fund is not intended
to be a complete investment program, and there is no assurance that it
will achieve its objective.
Investment Policies and Strategies. As a fundamental policy, the Fund
will normally make no investment that will reduce the portion of its total
assets which are invested in California Municipal Securities to less than
80%. The balance of the Fund's assets may be invested in Municipal
Securities and in investments the income from which may be taxable,
including: (i) repurchase agreements (explained below); (ii) Municipal
Securities issued to benefit a private user ("Private Activity Municipal
Securities"), the interest from which may be subject to Federal
alternative minimum tax (see "Dividends, Distributions and Taxes"); (iii)
debt obligations rated "A-3" or better by Standard & Poor's Corporation
("Standard & Poor's"), "Prime-3" or better by Moody's Investors Service,
Inc. ("Moody's"), or "F-2" or better by Fitch Investors Service, Inc.
("Fitch"), which mature in one year or less ("short-term debt
obligations"); (iv) bankers' acceptances, certificates of deposit, time
deposits and U.S. Treasury bills ("cash equivalents"); and (v) Hedging
Instruments. See Appendix A of the Additional Statement for a description
of these ratings. However, in times of unstable economic or market
conditions, when the Manager determines it appropriate to do so, the Fund
may assume a temporary defensive position and invest an unlimited amount
of its assets in temporary defensive investments.
Dividends paid by the Fund derived from interest attributable to
California Municipal Securities will be exempt from Federal individual
income taxes. Such dividends will also be exempt from California
individual income taxes provided that at the close of each quarter, at
least 50% of the value of the Fund's assets are invested in obligations
the interest of which is exempt from taxation under California law when
held by an individual. Dividends derived from interest on Municipal
Securities of other governmental issuers will be exempt from Federal
individual income tax, but will be subject to California individual income
taxes. Any net interest income on taxable investments and repurchase
agreements will be taxable as ordinary income when distributed to
shareholders.
-- Municipal Securities. Municipal securities are municipal bonds,
municipal notes (including tax anticipation notes, bond anticipation
notes, revenue anticipation notes, construction loan notes and other
loans), tax-exempt commercial paper, certificates of participation,
participation interests and other debt obligations issued by or on behalf
of the State of California, other states and the District of Columbia,
their political subdivisions, or any commonwealth, territory or possession
of the United States, or their respective agencies, instrumentalities or
authorities, the interest from which, in the opinion of bond counsel for
the respective issuer, is not includable in gross income for purposes of
Federal individual income tax. California Municipal Securities are
obligations of the state of California and its political subdivisions, and
their respective agencies, authorities or instrumentalities, the interest
from which, in the opinion of bond counsel for the respective issuer, is
not includable in gross income for purposes of the California individual
income tax. No independent investigation has been made by Oppenheimer
Management Corporation (the "Manager") as to the users of proceeds of bond
offerings or the application of such proceeds.
"Municipal bonds" are Municipal Securities that have a maturity when
issued of one year or more and "municipal notes" are Municipal Securities
that have a maturity when issued of less than one year. The two principal
classifications of Municipal Securities are "general obligations" (secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest) and "revenue obligations" (payable only
from the revenues derived from a particular facility or class of
facilities, or specific excise tax or other revenue source). The Fund may
invest in Municipal Securities of both classifications.
-- Municipal Lease Obligations. The Fund may invest in certificates
of participation that represent a proportionate interest in or right to
the lease-purchase payment made under municipal lease obligations. While
some municipal lease securities may be deemed to be "illiquid" securities
(the purchase of which would be limited as described above in "Illiquid
and Restricted Securities"), from time to time the Fund may invest more
than 5% of its net assets in municipal lease obligations that the Manager
has determined to be liquid under guidelines set by the Corporation's
Board of Directors. Those guidelines require the Manager to evaluate: (1)
the frequency of trades and price quotations for such securities; (2) the
number of dealers or other potential buyers willing to purchase or sell
such securities; (3) the availability of market-makers; and (4) the nature
of the trades for such securities. The Manager will also evaluate the
likelihood of a continuing market for such securities throughout the time
they are held by the Fund and the credit quality of the instrument.
-- Floating Rate/Variable Rate Obligations. Some of the Municipal
Securities the Fund may purchase may have variable or floating interest
rates. Variable rates are adjusted at stated periodic intervals.
Floating rates are automatically adjusted according to a specified market
rate for such investments, such as the percentage of the prime rate of a
bank, or the 91-day U.S. Treasury bill rate. Such obligations may be
secured by bank letters of credit or other credit support arrangements.
-- Inverse Floaters and Other Derivative Instruments. The Fund may
invest in variable rate bonds. These bonds pay interest at a rate that
varies as the yields generally available on short-term tax-exempt bonds
change. When the yields on those bonds increase, the interest rate on the
inverse variable rate bond goes down. When the yields on short-term tax-
exempt bonds go down, the interest rate on the inverse variable rate bond
goes up. These variable rate bonds are known as "inverse floaters." As
interest rates rise, inverse floaters produce less current income.
Inverse floaters are a type of "derivative security," which is a specially
designed investment whose performance is linked to the performance of
another security or investment. The risks of investing in derivative
securities include not only the ability of the issuer of the security to
pay the amount due on the maturity of the security, but also the risk that
the underlying security or investment might not perform the way the
Manager expected it to perform. That can mean that the Fund will realize
less income than expected or none.
The Fund may also invest in municipal "derivative" securities that pay
interest that depends on an external pricing mechanism. Examples are
interest rate swaps or caps and municipal bond or swap indices. Another
risk of derivative securities is that their market value could be expected
to vary to a much greater extent than the market value of municipal
securities that are not derivatives but have similar credit quality,
redemption provisions and maturities.
-- Ratings of Municipal Securities. Municipal Securities purchased by
the Fund must be rated at the time of purchase within the four highest
rating categories assigned by Moody's, Standard & Poor's or Fitch or, if
unrated, judged by the Manager to be of comparable quality to Municipal
Securities rated within such grades. (See Appendix A of the Additional
Statement for a description of these ratings.) Investment in unrated
Municipal Securities will not exceed 20% of the Fund's total assets. Not
more than 25% of the Fund's total assets will be invested in Municipal
Securities that are (a) municipal bonds rated either "Baa" by Moody's or
"BBB" by either Standard & Poor's or Fitch, (b) municipal notes rated "SP-
2" by Standard & Poor's, "MIG2" by Moody's or "F-2" by Fitch, or (c) if
unrated Municipal Securities, judged by the Manager to be of comparable
quality to Municipal Securities rated within the grades described in (a)
or (b) above. Although such Municipal Securities are investment grade,
they may be subject to greater market fluctuations and risks of loss of
income and principal than higher-rated Municipal Securities, and may be
considered to have some speculative characteristics.
A reduction in the rating of a security after its purchase by the Fund
will not require the Fund to dispose of such security. Securities that
have fallen below investment grade entail a greater risk that the ability
of the issuers of such securities to meet their debt obligations will be
impaired. It is anticipated that under normal market conditions, the
Fund's portfolio will have an average weighted maturity of approximately
7 to 30 years. During periods when the Fund is defensively invested in
municipal notes and municipal commercial paper, the average weighted
maturity of the Fund's portfolio may decline to 3 to 4 years.
-- Credit Risk and Interest Rate Risk. The values of Municipal
Securities will vary as a result of changing evaluations by rating
services and investors of the ability of the issuers of such securities
to meet interest and principal payments. Such values will also change in
response to changes in interest rates. Should interest rates rise, the
values of outstanding Municipal Securities will probably decline and (if
purchased at principal amount) would sell at a discount. If interest
rates fall, the values of outstanding Municipal Securities will probably
increase and (if purchased at principal amount) would sell at a premium.
Changes in the value of Municipal Securities held in the Fund's portfolio
arising from these or other factors will not affect interest income
derived from these securities but will affect the Fund's net asset value
per share.
-- Portfolio Turnover. A change in the securities held by the Fund is
known as "portfolio turnover." The Fund generally will not engage in the
trading of securities to realize short-term gains, but the Fund may sell
securities as the Manager deems advisable to take advantage of
differentials in yield. The "Financial Highlights," above, show the
Fund's portfolio turnover rate during past fiscal years. While short-term
trading increases portfolio turnover, the Fund incurs little or no
brokerage costs because most of the Fund's portfolio transactions are
principal trades without brokerage commissions.
-- Non-diversification. The Fund is a "non-diversified" investment
company under the Investment Company Act. As a result, it may invest its
assets in a single issuer or limited number of issuers without limitation
by the Investment Company Act. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), pursuant to which: (1) not more than 25% of the market
value of the Fund's total assets will be invested in the securities of a
single issuer, and (2) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total assets may
be invested in the securities of a single issuer and the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
An investment in the Fund therefore will entail greater risk than an
investment in a diversified investment company because a higher percentage
of investments among fewer issuers may result in greater fluctuation in
the total market value of the Fund's portfolio, and economic, political
or regulatory developments may have a greater impact on the value of the
Fund's portfolio than would be the case if the portfolio were diversified
among more issuers.
-- Special Considerations - California Municipal Securities. Because
the Fund concentrates its investments in California Municipal Securities,
the market value and marketability of such California Municipal Securities
and the interest income to the Fund from them could be adversely affected
by a default or a financial crisis relating to any of such issuers.
Currently, California is experiencing its worst recession in over fifty
years which has resulted in declining income and employment, retail sales,
production and home prices. Contraction in California's defense related
industries, overbuilding in commercial real estate, and consolidation in
the State's financial services industry is expected to produce slower
growth for several years. The severity of the economic recession has
caused the State to endure several years of budgetary imbalance where
expenditures have exceeded revenues. Investors should consider these
matters as well as economic trends in California, summarized in the
Additional Statement under "Special Investment Considerations - California
Municipal Securities." In addition, the Fund's portfolio securities are
affected by general changes in interest rates. Changes in interest rates
result in changes in the value of portfolio securities held by the Fund,
which values can be expected to vary inversely to changes in prevailing
interest rates.
-- Special Risk Considerations - Borrowing. From time to time, the
Fund may increase its ownership of securities by borrowing from banks on
an unsecured basis and investing the borrowed funds (on which it will pay
interest). Interest on borrowed money is an expense the Fund would not
otherwise incur, so that it may have substantially reduced net investment
income during periods of substantial borrowings. The Fund may not borrow
in excess of 10% of the value of its assets, and then only as a temporary
measure for extraordinary or emergency purposes.
-- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, which is described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those policies. The Fund's investment policies and
practices are not "fundamental" unless the Prospectus or Statement of
Additional Information says that a particular policy is "fundamental."
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's
investment objective is a fundamental policy. The Fund's Board of
Directors may change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below, which involve
certain risks. The Statement of Additional Information contains more
information about these practices, including limitations designed to
reduce some of the risks.
-- Temporary Defensive Investment. In times of unstable market or
economic conditions, when the Manager determines it appropriate to do so,
the Fund may assume a temporary defensive position and invest an unlimited
amount of assets in: (i) obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; (ii) cash equivalents;
(iii) commercial paper rated in the highest category by an established
rating agency; (iv) short-term debt obligations; (v) certificates of
deposit of domestic banks with assets of $1 billion or more; or (vi)
repurchase agreements (explained below). To the extent the Fund assumes
a temporary defensive position, a significant portion of its distributions
may be subject to Federal and state income taxes and, to the extent the
Fund generates taxable income, it will not be meeting its investment
objective.
-- When-Issued Securities. The Fund may invest in securities offered
on a "when-issued" or "delayed delivery" basis. In those transactions,
the Fund obligates itself to purchase or sell securities with delivery and
payment to occur at a later date to secure what is considered to be an
advantageous price and yield at the time the obligation is entered into.
The price, which on debt securities is generally expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
payment for when-issued securities take place at a later date (normally
within 45 days of purchase). During the period between purchase and
settlement, no payment is made by the Fund for the security, and no
interest accrues to the Fund from the investment. Although the Fund is
subject to the risk of adverse market fluctuation between purchase and
settlement, the Manager does not believe that the Fund's net asset value
or income will be materially adversely affected by its purchase of
securities on a "when-issued" or "delayed delivery" basis. See "When-
Issued and Delayed Delivery Transactions" in the Additional Statement for
more details.
-- Repurchase Transactions. The Fund may acquire securities subject
to repurchase agreements to generate income and for liquidity purposes to
meet anticipated redemptions, or pending the investment of proceeds from
sales of Fund shares or settlement of purchases of portfolio investments.
The Fund's repurchase agreements will be fully collateralized. However,
if the seller of the securities fails to pay the agreed-upon repurchase
price on the delivery date, the Fund's risks may include any costs of
disposing of the collateral for the agreement, and losses that might
result from any delays in foreclosing on the collateral. Income earned
on repurchase transactions is not tax-exempt and, accordingly, under
normal market conditions, the Fund will limit its investments in
repurchase transactions to 20% of its total assets. When the Fund assumes
a temporary defensive position, there is no limit on the amount of its
assets that may be subject to repurchase agreements maturing in seven days
or less. See "Repurchase Transactions" in the Additional Statement for
more details.
-- Illiquid and Restricted Securities. The Fund will not purchase or
otherwise acquire any security if, as a result, more than 15% of its net
assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or because
their disposition would be subject to legal or contractual restrictions
on resale. Such securities include repurchase agreements maturing in more
than seven days, over-the-counter options held by the Fund and a portion
of assets used to cover such options and certain municipal lease
obligations that are considered illiquid securities. However, this policy
is not a fundamental policy and does not include municipal lease
obligations that the Manager determines are liquid (see below), or
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), that are
determined to be liquid by the Board of Directors, or by the Manager under
Board-approved guidelines. Such guidelines take into account trading
activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest
in particular Rule 144A securities, the Fund's holdings of such securities
may be illiquid. The Fund currently intends to invest no more than 10%
of its net assets in illiquid and restricted securities, excluding
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act that are determined to be liquid by the Board of Directors
or by the Manager under Board-approved guidelines. If due to changes in
relative market values of the Fund's portfolio securities, more than 15%
of the value of the Fund's net assets consisted of illiquid securities,
the Manager would consider appropriate steps to protect the Fund's maximum
flexibility. There may be undesirable delays in selling such securities
at prices representing their fair values.
-- Certificates of Participation. The Fund may invest in certificates
of participation, which are tax-exempt obligations that evidence the
holder's right to share in lease, installment loan or other financing
payments by a public entity. Projects financed with certificates of
participation generally are not subject to state constitutional debt
limitations or other statutory requirements that may be applicable to
Municipal Securities. Payments by the public entity on the obligation
underlying the certificates are derived from available revenue sources;
such revenue may be diverted to the funding of other municipal service
projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of the
State of California or any of its political subdivisions.
-- Puts and Stand-By Commitments. For liquidity purposes, the Fund may
purchase Municipal Securities with puts from banks, brokers, dealers or
other institutions. The put gives the Fund the right to sell the
underlying security within a specified time at a stated price. Under a
stand-by commitment, a dealer agrees to purchase, at the Fund's option,
specified Municipal Securities at a stated price on same-day settlement.
The aggregate price of a security subject to a put or a stand-by
commitment may be higher than the price which otherwise would be paid for
the security without such put or stand-by commitment, thus increasing the
cost of such security and reducing its yield.
-- Loans of Portfolio Securities. To attempt to increase its income,
the Fund may lend its portfolio securities (other than in repurchase
transactions) subject to certain restrictions. In connection with
securities lending, the Fund might experience risks of delay in receiving
additional collateral, or risks of delay in recovery of the securities,
or loss of rights in the collateral should the borrower fail financially.
To the extent the Fund engages in securities lending, the income from such
loans, when distributed, will be taxable. The Fund presently does not
intend that the value of securities loaned will exceed 5% of the value of
its total assets.
-- Writing Covered Calls. The Fund may write (i.e., sell) call options
(calls) to raise cash for liquidity purposes (for example, to meet
redemption requirements) or for defensive reasons. The Fund may write
calls only if certain conditions are met: (i) after writing any call, not
more than 25% of the Fund's total assets are subject to calls; (ii) the
calls are listed on a domestic securities or commodities exchange or
quoted on the automated quotation system of the National Association of
Securities Dealers, Inc. (NASDAQ); in addition, calls on debt securities
may be written in the over-the-counter market; and (iii) each call must
be "covered" (while it is outstanding, that is, the Fund must own the
securities on which the call is written or it must own other securities
that are acceptable for the escrow arrangements required for calls. If
a covered call written by the Fund is exercised on a security that has
increased in value, the Fund will be required to sell the security at the
call price and will not be able to realize any profit on the security
above the call price.
-- Hedging With Options and Futures Contracts. The Fund may purchase
certain put and call options, certain futures and options on such futures
and broadly-based indices and engage in interest rate swap transactions,
all of which are referred to as "Hedging Instruments." In general, the
Fund may use Hedging Instruments to attempt to: (i) protect against
declines in the market values of the Fund's portfolio securities, and thus
protect the Fund's net asset value per share against downward market
trends; (ii) protect unrealized gains in the value of the Fund's
securities which have appreciated; (iii) facilitate selling securities for
investment reasons; or (iv) establish a position in the securities markets
as a temporary substitute for the purchase of individual securities. The
Fund will not use Hedging Instruments for speculation. The Hedging
Instruments the Fund may use are described below and in greater detail
under "Other Investment Techniques and Strategies" in the Statement of
Additional Information.
The Fund may purchase puts which relate to: (i) securities held by it;
(ii) Interest Rate Futures or Municipal Bond Index Futures (as discussed
below) (whether or not it holds such Futures in its portfolio); or (iii)
municipal bond indices. It may purchase calls only (a) as to debt
securities, Interest Rate Futures or Municipal Bond Index Futures, or (b)
to effect a "closing purchase transaction." If the Fund could not effect
a closing purchase transaction due to a lack of a market, it would have
to hold the callable securities until the call lapsed or was exercised.
A put or call may be purchased only if, after any such purchase, the value
of all puts and calls held by the Fund would not exceed 5% of its total
assets.
The Fund may buy and sell futures contracts only if they relate to debt
securities ("Interest Rate Futures") and municipal bond indices
("Municipal Bond Index Futures"). A municipal bond index assigns relative
values to the Municipal Securities included in that index, and is used as
the basis for trading long-term municipal bond futures contracts. The
Fund will not enter into Interest Rate Futures and Municipal Bond Index
Futures (collectively, "Futures") and options thereon for which the sum
of margin deposits and premiums paid exceed 5% of the fair market value
of its total assets, with certain exclusions.
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies. Under these fundamental policies the Fund
cannot: (1) lend money except in connection with the acquisition of debt
securities which the Fund's investment policies and restrictions permit
it to purchase; the Fund may also make loans of portfolio securities,
subject to the restrictions stated under "Loans of Portfolio Securities";
or (2) concentrate investments to the extent of 25% of its assets in any
industry; however, there is no limitation as to investment in U.S.
Government Securities, Municipal Securities or as to investment in
obligations issued by the State of California or its subdivisions,
agencies, authorities or instrumentalities; the Fund cannot invest in
securities or any other investment other than Municipal Securities,
temporary investments and Hedging Instruments.
All of the percentage restrictions described above and elsewhere in
this Prospectus above, apply only at the time the Fund purchases a
security, and the Fund need not dispose of a security merely because the
Fund's assets have changed or the security has increased in value relative
to the size of the Fund. There are other fundamental policies discussed
in the Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund is one of two investment portfolios
or "series" of Oppenheimer Main Street Funds, Inc. (the "Corporation"),
an open-end, management investment company organized as a Maryland
corporation in 1987. The Fund commenced operations on May 18, 1990.
The Fund is governed by a Board of Directors, which is responsible for
protecting the interests of shareholders under Maryland corporate law.
The Directors meet throughout the year to oversee the Fund's activities,
review its performance, and review the actions of the Manager. "Directors
and Officers of the Fund" in the Statement of Additional Information names
the Directors and provides more information about them and the officers
of the Fund. Although the Fund is not required by law to hold annual
meetings, it may hold shareholder meetings from time to time on important
matters, and shareholders have the right to call a meeting to remove a
Trustee or to take other action described in the Fund's Articles of
Incorporation.
The Board of Directors has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes, each having
its own dividends, distributions and expenses. Each class may have a
different net asset value. The Board has done so, and the Fund currently
has two classes of shares, Class A and Class B. Each share has one vote
at shareholder meetings, with fractional shares voting proportionally.
Only shares of a class vote together on matters that affect that class
alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager, which
chooses the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established by the
Board of Directors, under an Investment Advisory Agreement which states
the Manager's responsibilities and its fees, and describes the expenses
that the Fund pays to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $___ billion
as of _________________, and with more than 1.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company, a mutual
life insurance company.
-- Portfolio Manager. The Portfolio Manager of the Fund (who is also
a Vice President of the Fund) is Robert E. Patterson, a Senior Vice
President of the Manager. He has been responsible for the day-to-day
management of the Fund's portfolio since May 18, 1990, the date the Fund
commenced operations. During the past five years, Mr. Patterson has also
served as an officer and portfolio manager for other OppenheimerFunds.
-- Fees and Expenses. Under the Agreement, the Fund pays a management
fee to the Manager monthly, computed on the aggregate net asset value of
the Fund as of the close of business each day, at the annual rate of 0.55%
of net assets. Pursuant to the Agreement, the Manager has agreed to waive
a portion of the fee when the Fund's net assets are less than $100
million. The fee rate, reflecting this waiver, is 0.40% when net assets
are $75 million or more but less than $100 million, 0.25% when net assets
are $50 million or more but less than $75 million, 0.15% when net assets
are $25 million or more but less than $50 million, and 0% when net assets
are less than $25 million. When asset level breakpoints are reached, the
fee applies to total net assets of the Fund, not only to assets in excess
of such breakpoint. The Fund's management fee for its last fiscal year
was ____% of average annual net assets for Class A shares and ____% for
Class B shares, which may be higher than the rate paid by some other
mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Directors' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses affect the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
-- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Distributor. The
Distributor also distributes the shares of other mutual funds managed by
the Manager (the "OppenheimerFunds") and is sub-distributor for funds
managed by a subsidiary of the Manager.
-- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries to the
Transfer Agent at the address and toll-free numbers shown below in this
Prospectus or on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses certain terms to
illustrate its performance: "total return" and "yield." These terms are
used to show the performance of each class of shares separately, because
the performance of each class of shares will usually be different, as a
result of the different kinds of expenses each class bears. This
performance information may be useful to help you see how well your
investment has done and to compare it to other funds or market indices,
as we have done below.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns and yields
are calculated is contained in the Statement of Additional Information,
which also contains information about other ways to measure and compare
the Fund's performance. The Fund's investment performance will vary,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
-- Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, they reflect the
payment of the maximum initial sales charge. Total returns may also be
quoted "at net asset value," without considering the effect of the sales
charge, and those returns would be reduced if sales charges were deducted.
When total returns are shown for a one-year period for Class C shares,
they reflect the effect of the contingent deferred sales charge. They may
also be shown based on the change in net asset value, without considering
the effect of the contingent deferred sales charge.
-- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a
30-day period by the maximum offering price on the last day of the period.
Tax-equivalent yield is the equivalent yield that would be earned in the
absence of taxes. It is calculated by dividing that portion of the yield
that is tax-exempt by a factor equal to one minus the applicable tax rate.
The yield of each Class will differ because of the different expenses of
each Class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares do not
reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended June 30, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
-- Management's Discussion of Performance. ...
-- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in each Class
of shares of the Fund from the inception of the class held through June
30, 1994, with all dividends and capital gains distributions reinvested
in additional shares. The graph reflects the deduction of the ____%
maximum initial sales charge on Class A shares and the 5% maximum
contingent deferred sales charge on Class B shares.
The Fund's performance is compared to the performance of the Lehman
Brothers Municipal Bond Index, an unmanaged index of a broad range of
investment grade municipal bonds widely regarded as a measure of the
performance of the general municipal bond market. Index performance
reflects the reinvestment of dividends but does not consider the effect
of capital gains or transaction costs, and none of the data below shows
the effect of taxes. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the securities in any one index and the
index data does not reflect any assessment of the risk of the investments
included in the index.
Comparison of Change
in Value of $10,000
Hypothetical Investments in:
Oppenheimer Main Street
Income & Growth Fund and
Lehman Brothers Municipal Bond Index
[Graph]
Past performance is not predictive of future performance.
Avg. Annual Total Return of the Fund at 6/30/94
A Shares 1 Year Life*
% %
Cumulative Total Return of the Fund at 6/30/94
B Shares Life**
%
*The Fund (Class A shares) commenced operations on May 18, 1990.
**Class B shares of the Fund were first publicly offered on October 29,
1993.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
-- Class A Shares. If you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, and you sell any of those shares within 18
months after your purchase, you will pay a contingent deferred sales
charge, which will vary depending on the amount you invested.
-- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 6
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisors:
-- How Much Do You Plan to Invest? If you plan to invest a
substantial amount over the long term, the reduced sales charges available
for larger purchases of Class A shares may be more beneficial to you and
for purchases over $1 million, the contingent deferred sales charge on
Class A shares may be more beneficial. The Distributor will not accept any
order for $1 million or more for Class B shares on behalf of a single
investor for that reason.
-- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, investors who prefer
not to pay an initial sales charge and who plan to hold their shares for
more than six years might consider Class B shares. Investors who plan to
redeem shares within seven years might consider whether the front-end
sales charge on Class A shares would result in higher net expenses after
redemption.
-- Are There Differences in Account Features That Matter to You?
Because some account features may not be available for Class B
shareholders, such as checkwriting, you should carefully review how you
plan to use your investment account before deciding which class of shares
is better for you. Additionally, the dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B shares
are subject, as described below and in the Statement of Additional
Information.
-- How Does It Affect Payments to My Broker? A salesperson or any
other person who is entitled to receive compensation for selling Fund
shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the contingent deferred sales charge and asset-based sales
charge for Class B shares is the same as the purpose of the front-end
sales charge on sales of Class A shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
-- With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments of as
little as $25; and subsequent purchases of at least $25 can be made by
telephone through AccountLink.
-- There is no minimum investment requirement if you are buying
shares by reinvesting dividends from the Fund or other OppenheimerFunds
(a list of them appears in the Statement of Additional Information, or you
can ask your dealer or call the Transfer Agent), or by reinvesting
distributions from unit investment trusts that have made arrangements with
the Distributor.
-- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure
to specify Class A or Class B shares. If you do not choose, your
investment will be made in Class A shares.
-- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
-- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the application,
the Distributor will act as your agent in buying the shares.
-- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions. Shares
are purchased for your account on the regular business day the Distributor
is instructed by you to initiate the ACH transfer to buy shares. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You must request AccountLink privileges
on the application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink" below for more details.
-- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
-- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value that is next determined after
the Distributor receives the purchase order in Denver. In most cases, to
enable you to receive that day's offering price, the Distributor must
receive your order by 4:00 P.M., New York time (all references to time in
this Prospectus mean "New York time"). The net asset value of each class
of shares is determined as of that time on each day The New York Stock
Exchange is open (which is a "regular business day"). If you buy shares
through a dealer, the dealer must receive your order by 4:00 P.M., on a
regular business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which is
normally 5:00 P.M. The Distributor may reject any purchase order for the
Fund's shares, in its sole discretion.
Class A Shares. Class A shares are sold at their offering price, which
is normally net asset value plus an initial sales charge. However, in
some cases, described below, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer. The current sales charge rates
and commissions paid to dealers and brokers are as follows:
- -------------------------------------------------------------------------
Front-End
Front-End Sales
Sales Charge as
Charge as Approximate
Percentage Percentage Commission as
of Offering of Amount Percentage of
Amount of Purchase Price Invested Offering Price
- -------------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
- -------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.50% 4.71% 4.00%
- -------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.50% 3.63% 3.00%
- -------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.25%
- -------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.80%
- -------------------------------------------------------------------------
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
-- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. However, that
commission will be paid only on the amount of those purchases in excess
of $1 million that were not previously subject to a front-end sales charge
and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge. In determining whether a contingent
deferred sales charge is payable, the Fund will first redeem shares that
are not subject to the sales charge, including shares purchased by
reinvestment of dividends and capital gains, and then will redeem other
shares in the order that you purchased them. The Class A contingent
deferred sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
-- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of OppenheimerFunds (other
than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
The Distributor sponsors an annual sales conference to which a dealer firm
is eligible to send, with a guest, a registered representative who sells
more than $2.5 million of Class A shares of OppenheimerFunds (other than
money market funds) in a calendar year, or the dealer may, at its option,
receive the equivalent cash value of that award as additional commission.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
-- Right of Accumulation. You and your spouse can cumulate Class A
shares you purchase for your own accounts, or jointly, or on behalf of
your children who are minors, under trust or custodial accounts. A
fiduciary can cumulate shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can cumulate current purchases of Class A shares
of the Fund and other OppenheimerFunds with Class A shares of
OppenheimerFunds you previously purchased subject to a sales charge,
provided that you still hold your investment in one of the
OppenheimerFunds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the aggregate
amount of the intended purchases, including purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
-- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following investors: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party, or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than the Cash Reserves Funds) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge is also waived if shares
are redeemed in the following cases: (1) retirement distributions or loans
to participants or beneficiaries from qualified retirement plans, deferred
compensation plans or other employee benefit plans ("Retirement Plans"),
(2) returns of excess contributions made to Retirement Plans, (3)
Automatic Withdrawal Plan payments that are limited to no more than 12%
of the original account value annually, and (4) involuntary redemptions
of shares by operation of law or under the procedures set forth in the
Fund's Declaration of Trust or adopted by the Board of Trustees.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. That sales charge will not
apply to shares purchased by the reinvestment of dividends or capital
gains distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed on the
amount of your account value represented by the increase in net asset
value over the initial purchase price (including increases due to the
reinvestment of dividends and capital gains distributions). The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Years Since Beginning Contingent Deferred Sales Charge
of Month in which On Redemptions in That Year
Purchase Order Was Made (As % of Amount Subject to Charge)
0-1 5.0%
- -----------------------------------------------------------------
1-2 4.0%
- -----------------------------------------------------------------
2-3 3.0%
- -----------------------------------------------------------------
3-4 3.0%
- -----------------------------------------------------------------
4-5 2.0%
- -----------------------------------------------------------------
5-6 1.0%
- -----------------------------------------------------------------
6 and following None
- -----------------------------------------------------------------
In the table, a "year" is a 12-month period. All purchases are considered
to have been made on the first regular business day of the month in which
the purchase was made.
-- Waivers of Class B Sales Charge. The Class B contingent deferred
sales charge will be waived if the shareholder requests it for a
redemption following the death or disability of the shareholder (as
evidenced by a determination of disability by the Social Security
Administration).
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described above. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
-- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A and Class
B Shares" in the Statement of Additional Information.
-- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal service for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
Because the Distributor's actual expenses in selling Class B shares
may be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class B shares, those expenses may be
carried over and paid in future years. If the Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for certain expenses it
incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions, including purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
-- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
-- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
-- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
-- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
-- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
-- Automatic Withdrawal Plans. If your Fund account is $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
-- Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or
annual basis under an Automatic Exchange Plan. The minimum purchase for
each other OppenheimerFunds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying
sales charge. This privilege applies to Class A shares that you sell, and
Class C shares on which you paid a contingent deferred sales charge when
you redeemed them. You must be sure to ask the Distributor for this
privilege when you send your payment. Please consult the Statement of
Additional Information for more details.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
-- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations (there
may be other situations also requiring a signature guarantee):
-- You wish to redeem more than $50,000 worth of shares and receive
a check
-- The check is not payable to all shareholders listed on the account
statement
-- The check is not sent to the address of record on your statement
-- Shares are being transferred to a Fund account with a different
owner or name
-- Shares are redeemed by someone other than the owners (such as an
Executor)
-- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing as a fiduciary or on behalf of a corporation, partnership
or other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
-- Your name
-- The Fund's name
-- Your Fund account number (from your statement)
-- The dollar amount or number of shares to be redeemed
-- Any special payment instructions
-- Any share certificates for the shares you are selling, and
-- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholders Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by 4:00 P.M. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
-- To redeem shares through a service representative, call 1-800-852-
8457
-- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds wired to that account.
-- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, once in each 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account. This service is not available within 30 days of changing the
address on an account.
-- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be wired.
Checkwriting. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact
the Transfer Agent for signature cards, which must be signed (with a
signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner.
-- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
-- Checkwriting privileges are not available for accounts holding
Class B shares or Class A shares that are subject to a contingent deferred
sales charge.
-- Checks must be written for at least $100.
-- Checks cannot be paid if they are written for more than your
account value.
Remember: your shares fluctuate in value and you should not write a
check close to the total account value.
-- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments within
the prior 15 days.
-- Don't use your checks if you changed your Fund account number.
The Fund will charge a $10 fee for any check that is not paid because
(1) the owners of the account told the Fund not to pay the check, or (2)
the check was for more than the account balance, or (3) the check did not
have the proper signatures, or (4) the check was written for less than
$100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges between already established
accounts on PhoneLink described below. To exchange shares, you must meet
several conditions:
-- Shares of the fund selected for exchange must be available for
sale in your state of residence
-- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
-- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
-- You must meet the minimum purchase requirements for the fund you
purchase by exchange
-- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. In some
cases, sales charges may be imposed on exchange transactions. Certain
OppenheimerFunds offer Class A shares and either Class B or Class C
shares, and a list can be obtained by calling the Distributor at 1-800-
525-7048. Please refer to "How to Exchange Shares" in the Statement of
Additional Information for more details.
Exchanges may be requested in writing or by telephone:
-- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
-- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling the
Transfer Agent at 1-800-525-7048. Exchanges of shares involve a redemption
of the shares of the fund you own and a purchase of shares of the other
fund.
There are certain exchange policies you should be aware of:
-- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request by 4:00 P.M. that
is in proper form, but either fund may delay the purchase of shares of the
fund you are exchanging into if it determines it would be disadvantaged
by a same-day transfer of the proceeds to buy shares. For example, the
receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might require the disposition of securities at a time or price
disadvantageous to the Fund.
-- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
-- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
-- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
-- Net Asset Value Per Share is determined for each class of shares
as of 4:00 P.M. each day The New York Stock Exchange is open by dividing
the value of the Fund's net assets attributable to a class by the number
of shares of that class that are outstanding. The Fund's Board of
Directors has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities, obligations for which market values cannot be
readily obtained, and call options and hedging instruments. These
procedures are described more completely in the Statement of Additional
Information.
-- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Directors at any time the Board believes it
is in the Fund's best interest to do so.
-- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
-- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise it will not be liable for losses or expenses
arising out of telephone instructions reasonably believed to be genuine.
If you are unable to reach the Transfer Agent during periods of unusual
market activity, you may not be able to complete a telephone transaction
and should consider placing your order by mail.
-- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
-- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously.
-- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
-- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 15 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
-- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $500 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
-- Under unusual circumstances, shares of the fund may be redeemed
"in kind", which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to the Statement of
Additional Information for more details.
-- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or taxpayer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
-- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A and Class B shares.
-- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report and
updated prospectus to shareholders having the same address on the Fund's
records. However, each shareholder may call the Transfer Agent at 1-800-
525-7048 to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
B shares from net investment income on each regular business day and pays
those dividends to shareholders monthly. Normally, dividends are paid on
or about the tenth business day of every month, but the Board of Directors
can change that date. However, the amount of dividends and distributions
may vary from time to time, depending upon market conditions, the
composition of the Fund's portfolio, and expenses borne by that class.
It is expected that distributions paid with respect to Class A shares will
generally be higher than for Class B shares because expenses allocable to
Class B shares will generally be higher.
Capital Gains. Although the Fund does not seek capital gains, the Fund
may realize capital gains on the sale of portfolio securities. If it
does, it may make distributions annually in December out of any net short-
term or long-term capital gains. The Fund may also make supplemental
distributions of dividends and capital gains following the end of its
fiscal year. Long-term capital gains will be separately identified in the
tax information the Fund sends you after the end of the year. Short-term
capital gains are treated as dividends for tax purposes.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have four
options:
-- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
-- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
-- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
-- Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. Long-term capital gains are taxable as long-term capital gains
when distributed to shareholders. Dividends paid from short-term capital
gains are taxable as ordinary income. Dividends paid from net investment
income earned by the Fund on Municipal Securities will be excludable from
your gross income for Federal income tax purposes. A portion of the
dividends paid by the Fund may be an item of tax preference if you are
subject to alternative minimum tax. Distributions are subject to federal
income tax and may be subject to state or local taxes. 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 as well as the amount of your tax-exempt income.
-- "Buying a Dividend": When a fund goes ex-dividend, its share price
is reduced by the amount of the distribution. If you buy shares on or
just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a tax-exempt dividend or a
taxable capital gain.
-- Taxes on Transactions: Even though the Fund seeks tax-exempt
income for distribution to shareholders, 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.
-- Returns of Capital: In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER MAIN STREET CALIFORNIA TAX-EXEMPT FUND
Graphic material included in Prospectus of Oppenheimer Main Street
California Tax-Exempt Fund: "Comparison of Total Return of Oppenheimer
Main Street California Tax-Exempt Fund and the Lehman Brothers Municipal
Bond Index - Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Main
Street California Tax-Exempt Fund (the "Fund") depicting the initial
account value and subsequent account value of a hypothetical $10,000
investment in the Fund. In the case of the Fund's class A shares, that
graph will cover the commencement of the Fund's operations (5/18/90) to
the end of each of the Fund's most recently completed fiscal years and in
the case of the Fund's Class B shares will cover the period from the
inception of the class (October 29, 1993) through June 30, 1994. The
graph will compare such values with hypothetical $10,000 investments over
the same time periods in the Lehman Brothers Municipal Bond Index. Set
forth below are the relevant data points that will appear on the linear
graph. Additional information with respect to the foregoing, including
a description of the Lehman Brothers Municipal Bond Index, is set forth
in the Prospectus under "Fund Information - Management's Discussion of
Performance."
Fiscal Year Oppenheimer Main Street Lehman Brothers
(Period) Ended California Tax-Exempt Fund A Municipal Bond Index
5/18/90 $ $
6/30/90 $ $
6/30/91 $ $
6/30/92 $ $
6/30/93 $ $
Fiscal Oppenheimer Main Street Lehman Brothers
Period Ended California Tax-Exempt Fund A Municipal Bond Index
<PAGE>
Oppenheimer Main Street California Tax-Exempt Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Oppenheimer
Transfer and Shareholder Servicing Agent Main Street California
Oppenheimer Shareholder Services Tax-Exempt Fund
P.O. Box 5270 Prospectus
Denver, Colorado 80217 Effective October 1, 1994
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202 OppenheimerFunds
No dealer, salesperson or any other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus or the Additional Statement, and
if given or made, such information and
representation must not be relied upon as having
been authorized by the Corporation, Oppenheimer
Management Corporation, Oppenheimer Funds
Distributor, Inc., or any affiliate thereof. This
Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the
securities offered hereby in any state to any
person to whom it is unlawful to make such offer
in such state.
California Federal Savings is the exclusive dealer for Oppenheimer Main
Street California Tax-Exempt Fund
PR701 (10/93) Printed on recycled paper
<PAGE>
Oppenheimer Main Street California Tax-Exempt Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated October 1, 1994
Oppenheimer Main Street California Tax-Exempt Fund (the "Fund"),
formerly named "Main Street Funds, Inc. - California Tax-Exempt Fund," is
a series of Oppenheimer Main Street Funds, Inc. (the "Corporation"). This
Statement of Additional Information of Oppenheimer Main Street California
Tax-Exempt Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus
dated October 1, 1994. It should be read together with the .... which may
be obtained by writing to the Fund's Transfer Agent, Oppenheimer
Shareholder Services, at P.O. Box 5270, Denver, Colorado 80217, or by
calling the Transfer Agent at the toll-free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies. . . . . . . . . . . . . . . . . . . .
Investment Policies and Strategies. . . . . . . . . . . . . . . . .
Other Investment Techniques and Strategies. . . . . . . . . . . . .
Other Investment Restrictions . . . . . . . . . . . . . . . . . . .
How the Fund is Managed . . . . . . . . . . . . . . . . . . . . . . . .
Organization and History. . . . . . . . . . . . . . . . . . . . . .
Directors and Officers of the Corporation . . . . . . . . . . . . .
The Manager and Its Affiliates. . . . . . . . . . . . . . . . . . .
Brokerage Policies of the Fund . . . . . . . . . . . . . . . . . . . . .
Performance of the Fund. . . . . . . . . . . . . . . . . . . . . . . . .
Distribution and Service Plans . . . . . . . . . . . . . . . . . . . . .
About Your Account . . . . . . . . . . . . . . . . . . . . . . . . . . .
How To Buy Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . .
How To Sell Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
How To Exchange Shares . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends, Capital Gains and Taxes . . . . . . . . . . . . . . . . . . .
Additional Information About the Fund. . . . . . . . . . . . . . . . . .
Financial Information About the Fund . . . . . . . . . . . . . . . . . .
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A: Ratings of Investments . . . . . . . . . . . . . . . . . . . A-1
Appendix B: Tax Equivalent Yield Table . . . . . . . . . . . . . . . . . B-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Capitalized terms used in this Statement
of Additional Information have the same meaning as those terms have in the
Prospectus.
Municipal Securities. There are variations in the security of Municipal
Securities, both within a particular classification and between
classifications, depending on numerous factors. The yields of Municipal
Securities depend on, among other things, general money market conditions,
general conditions of the Municipal Securities market, size of a
particular offering, the maturity of the obligation and rating of the
issue. The market value of Municipal Securities will vary as a result of
changing evaluations of the ability of their issuers to meet interest and
principal payments, as well as changes in the interest rates payable on
new issues of Municipal Securities.
-- Municipal Bonds. The principal classifications of long-term
municipal bonds are "general obligation" and "revenue" or "industrial
development" bonds. In California, municipal bonds may also be funded by
property taxes in specially created districts, (Mello-Roos or Special
Assessment Bonds), tax allocations based on increased property tax
assessments over a specified period (frequently for redevelopment
projects) or specified redevelopment area sales allocations.
-- General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns, and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways and
roads, and water and sewer systems. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and
taxing power for the payment of principal and interest. The taxes that
can be levied for the payment of debt service may be limited or unlimited
as to the rate or amount of special assessments.
-- Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Although the principal security
behind these bonds may vary, many provide additional security in the form
of a debt service reserve fund whose money may be used to make principal
and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, and/or
the net revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
-- Industrial Development Bonds. Industrial development bonds, which
are considered municipal bonds if the interest paid is exempt from federal
income tax, are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business and
manufacturing, housing, sports, and pollution control. These bonds are
also used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, or real and
personal property so financed as security for such payment.
-- Mello-Roos Bonds. Bonds issued pursuant to the California Mello-
Roos Community Facilities Act ("Mello-Roos bonds") are used to finance
infrastructure projects (such as roads or sewage treatment plants) and are
primarily secured by real estate taxes levied on property located in the
same community as that project. Mello-Roos bond financing arose in
response to limitations contained in California's statutory limitations
on real property taxes (see "Special Investment Considerations --
California Municipal Securities" below), and do not constitute obligations
of a municipality. Timely payment of such bonds depends on the developer
or other property owners' ability to pay their real estate taxes, which
could be adversely affected by a declining economy and/or real estate
market.
-- Municipal Notes. Municipal Securities having a maturity when
issued of less than one year are generally known as municipal notes.
Municipal notes generally are used to provide for short-term working
capital needs and include:
-- Tax Anticipation Notes. Tax anticipation notes are issued to
finance working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenue, such as income,
sales, use or business taxes, and are payable from these specific future
taxes.
-- Revenue Anticipation Notes. Revenue anticipation notes are issued
in expectation of receipt of other types of revenue, such as federal
revenues available under the Federal revenue sharing programs.
-- Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In
most cases, the long-term bonds then provide the money for the repayment
of the notes.
-- Construction Loan Notes. Construction loan notes are sold to
provide construction financing. After successful completion and
acceptance, many projects receive permanent financing through the Federal
Housing Administration.
-- Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation with a stated maturity of 365 days or less. It is
issued by state and local governments or their agencies to finance
seasonal working capital needs or as short-term financing in anticipation
of longer-term financing.
-- Floating Rate/Variable Rate Obligations. Floating rate and
variable rate demand notes are tax-exempt obligations which may have a
stated maturity in excess of one year, but may include features that
permit the holder to recover the principal amount of the underlying
security at specified intervals not exceeding one year and upon no more
than 30 days' notice. The issuer of such notes normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the note plus accrued interest upon a
specified number of days notice to the holder. The interest rate on a
floating rate demand note is based on a stated prevailing market rate,
such as a bank's prime rate, the 90-day U.S. Treasury Bill rate, or some
other standard, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at
specified intervals of no less than one year. Generally, the changes in
the interest rate on such securities reduce the fluctuation in their
market value. As interest rates decrease or increase, the potential for
capital appreciation or depreciation is less than that for fixed-rate
obligations of the same maturity. The Fund's investment manager,
Oppenheimer Management Corporation (the "Manager"), may determine that an
unrated floating rate or variable rate demand obligation meets the Fund's
quality standards by reason of being backed by a letter of credit or
guarantee issued by a bank that meets the Fund's quality standards. There
is no limit on the amount of the Fund's assets that may be invested in
floating rate and variable rate obligations. Floating rate or variable
rate obligations which do not provide for recovery of principal and
interest within 30 days will be subject to the limitations applicable to
illiquid securities described in "The Fund and Its Investment Policies -
Repurchase Agreements" in the Prospectus.
-- Inverse Floaters and Other Derivative Investments. Some inverse
floaters have a feature known as an interest rate "cap" as part of the
terms of the investment. Investing in inverse floaters that have interest
rate caps might be part of a portfolio strategy to try to maintain a high
current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuation.
Embedded caps hedge a portion of the Fund's exposure to rising interest
rates. When interest rates exceed the pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates
on the inverse floater, and the hedge is successful. However, the Fund
bears the risk that if interest rates do not rise above the pre-determined
rate, the cap (which is purchased for additional cost) will not provide
additional cash flows and will expire worthless.
-- Municipal Lease Obligations. From time to time the Fund may
invest more than 5% of its net assets in municipal lease obligations that
the Manager has determined to be liquid under guidelines set by the Board
of Trustees. Municipal leases may take the form of a lease or an
installment purchase contract issued by a state or local government
authority to obtain funds to acquire a wide variety of equipment and
facilities. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power
is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the
lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. In
addition to the risk of "non-appropriation," municipal lease securities
do not yet have a highly developed market to provide the degree of
liquidity of conventional municipal bonds. Municipal leases, like other
municipal debt obligations, are subject to the risk of non-payment. The
ability of issuers of municipal leases to make timely lease payments may
be adversely affected in general economic downturns and as relative
governmental cost burdens are reallocated among federal, state and local
governmental units. Such non-payment would result in a reduction of
income to the Fund, and could result in a reduction in the value of the
municipal lease experiencing non-payment and a potential decrease in the
net asset value of the Fund.
-- Puts and Stand-by Commitments. When the Fund buys Municipal
Securities, it may obtain a stand-by commitment to repurchase the
securities that entitles it to achieve same-day settlement from the
purchaser and to receive an exercise price equal to the amortized cost of
the underlying security plus accrued interest, if any, at the time of
exercise. A put purchased in conjunction with a Municipal Security
enables the Fund to sell the underlying security within a specified period
of time at a fixed exercise price. The Fund may pay for a stand-by
commitment or put either separately in cash or by paying a higher price
for the securities acquired subject to the stand-by commitment or put.
The Fund will enter into these transactions only with banks and dealers
which, in the Manager's opinion, present minimal credit risks. The Fund's
ability to exercise a put or stand-by commitment will depend on the
ability of the bank or dealer to pay for the securities if the put or
stand-by commitment is exercised. If the bank or dealer should default
on its obligation, the Fund might not be able to recover all or a portion
of any loss sustained from having to sell the security elsewhere. Puts
and stand-by commitments are not transferable by the Fund, and therefore
terminate if the Fund sells the underlying security to a third party. The
Fund intends to enter into these arrangements to facilitate portfolio
liquidity, although such arrangements may enable the Fund to sell a
security at a pre-arranged price which may be higher than the prevailing
market price at the time the put or stand-by commitment is exercised.
However, the Fund might refrain from exercising a put or stand-by
commitment if the exercise price is significantly higher than the
prevailing market price, to avoid imposing a loss on the seller which
could jeopardize the Fund's business relationships with the seller. Any
consideration paid by the Fund for the put or stand-by commitment (which
increases the cost of the security and reduces the yield otherwise
available from the security) will be reflected on the Fund's books as
unrealized depreciation while the put or stand-by commitment is held, and
a realized gain or loss when the put or commitment is exercised or
expires. Interest income received by the Fund from Municipal Securities
subject to puts or stand-by commitments may not qualify as tax-exempt in
its hands if the terms of the put or stand-by commitment cause the Fund
to not be treated as the tax owner of the underlying Municipal Securities.
-- Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules
governing tax exemption for interest on Municipal Securities. The Tax
Reform Act generally does not change the tax treatment of bonds issued to
finance governmental operations. Thus, interest on obligations issued by
or on behalf of state or local governments, the proceeds of which are used
to finance the operations of such governments (e.g., general obligation
bonds) continues to be tax-exempt. However, the Tax Reform Act further
limited the use of tax-exempt bonds for non-governmental (private)
purposes. More stringent restrictions were placed on the use of proceeds
of such bonds. Interest on certain private activity bonds (other than
those specified as "qualified" tax-exempt private activity bonds, e.g.,
exempt facility bonds including certain industrial development bonds,
qualified mortgage bonds, qualified Section 501(c)(3) bonds, qualified
student loan bonds, etc.) is taxable under the revised rules.
Interest on certain private activity bonds issued after August 7,
1986, which continues to be tax-exempt will be treated as a tax preference
item subject to the alternative minimum tax (discussed below) to which
certain taxpayers are subject. Furthermore, a private activity bond which
would otherwise be a qualified tax-exempt private activity bond will not,
under Internal Revenue Code Section 147(a), be a qualified bond for any
period during which it is held by a person who is a "substantial user" of
the facilities or by a "related person" of such a substantial user. This
"substantial user" provision is applicable primarily to exempt facility
bonds, including industrial development bonds. The Fund may not be an
appropriate investment for entities which are "substantial users" (or
persons related thereto) of such exempt facilities, and such persons
should consult their own tax advisers before purchasing shares. A
"substantial user" of such facilities is defined generally as a "non-
exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be
a "related person" under the Internal Revenue Code unless such investor
or the investor's immediate family (spouse, brothers, sisters and
immediate descendants) own directly or indirectly in the aggregate more
than 50% in value of the equity of a corporation or partnership which is
a "substantial user" of a facility financed from the proceeds of exempt
facility bonds. In addition, limitations as to the amount of private
activity bonds which each state may issue were revised downward, which
will reduce the supply of such bonds. The value of the Fund's portfolio
could be affected if there is a reduction in the availability of such
bonds. That value may also be affected by a 1988 U.S. Supreme Court
decision upholding the constitutionality of the imposition of a Federal
tax on the interest earned on Municipal Securities issued in bearer form.
A Municipal Security is treated as a taxable private activity bond
under a test for: (a) a trade or business use and security interest, or
(b) a private loan restriction. Under the trade or business use and
security interest test, an obligation is a private activity bond if: (i)
more than 10% of bond proceeds are used for private business purposes and
(ii) 10% or more of the payment of principal or interest on the issue is
directly or indirectly derived from such private use or is secured by the
privately used property or the payments related to the use of the
property. For certain types of uses, a 5% threshold is substituted for
this 10% threshold. (The term "private business use" means any direct or
indirect use in a trade or business carried on by an individual or entity
other than a state or municipal governmental unit.) Under the private
loan restriction, the amount of bond proceeds which may be used to make
private loans is limited to the lesser of 5% or $5.0 million of the
proceeds. Thus, certain issues of Municipal Securities could lose their
tax-exempt status retroactively if the issuer fails to meet certain
requirements as to the expenditure of the proceeds of that issue or use
of the bond-financed facility. The Fund makes no independent
investigation of the issuers of such bonds or their use of proceeds.
Should the Fund hold a bond that loses its tax-exempt status
retroactively, there might be an adjustment to the tax-exempt income
previously paid to shareholders.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference
items in arriving at alternative minimum taxable income. The Tax Reform
Act, which makes tax-exempt interest from certain private activity bonds
a tax preference item for purposes of the alternative minimum tax,
specifically states that any exempt-interest dividend paid by a regulated
investment company will be treated as interest on a specific private
activity bond to the extent of its proportionate share of the interest on
such bonds received by the regulated investment company. The Treasury is
authorized to issue regulations implementing this provision. The Fund may
hold Municipal Securities the interest on which (and thus a proportionate
share of the exempt-interest dividends paid by the Fund) will be subject
to the Federal alternative minimum tax. In addition, corporate taxpayers
subject to the alternative minimum tax may, under some circumstances, have
to include exempt-interest dividends in calculating their alternative
minimum taxable income in situations where the "adjusted current earnings"
of the corporation exceeds its alternative minimum taxable income.
Changes in Ratings. Subsequent to its purchase by the Fund, a
Municipal Security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event
requires the Fund to sell the security, but the Manager will consider such
events in determining whether the Fund should continue to hold the
security. To the extent that ratings given by Moody's, Standard & Poor's
or Fitch change as a result of changes in such organizations or their
rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the Fund's investment
policies.
Special Investment Considerations - California Municipal Securities. As
stated in the Prospectus, the values of the Fund's California Municipal
Securities are highly sensitive to the fiscal stability of California and
its subdivisions, agencies, instrumentalities or authorities, which issue
the Municipal Bonds in which the Fund concentrates its investments.
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives that could adversely
affect the ability of California issuers to pay interest and principal on
Municipal Securities are described below. The following constitutes only
a summary, and is based on information drawn from the relevant statutes
and certain other publicly available information. The Fund has not
independently verified such information.
State Economic and Budgetary Considerations. California has
substantial size, wealth and a diverse economy. California's economy is
the eighth largest in the world and the state ranks number one among the
50 states in manufacturing, foreign trade, agriculture, construction and
tourism. It is the largest in population of the states, and accounts for
about 11% of the total national income and about 13% of personal income
in the U.S. Through the 1980's, the rate of state population growth was
more than twice that for the country. However, California is experiencing
its deepest recession since the 1930's. The State's tax revenue
experience reflects sharp declines in employment, income and retail sales
on a scale not seen in over 50 years.
During the past year, declining income, sales, and production
strained an already weak economy. In California, the recessionary trend
was reinforced by sharp declines in defense-related manufacturing and
commercial office construction. Home prices and sales have continued to
decline. Median home prices in July 1993 were 2.9% lower than a year
earlier. Unemployment in California in June 1993 exceeded 9.0% by most
estimates, versus 6.9% for the nation. Figures have been revised to show
approximately 800,000 jobs lost from a labor force of approximately 15
million since the peak in June of 1990. For the first time in its
history, in 1993 more people will move out of California than will move
to the state. Employment numbers are not expected to improve in the near
term. The state's budget deficit also looms large with regards to
employment, with the probability of a hiring freeze and layoffs. The
government sector is California's largest employer and little or no growth
is expected. The severe economic recession in California has caused the
State to endure several consecutive years of budgetary imbalance, where
expenditures exceeded revenues.
The state experienced a budget deficit for its 1991 fiscal year of
over $14 billion. In January 1992, the estimated deficit for the year
ended June 30, 1992, was $1.3 billion. By the May revision of the budget
plan, the estimated deficit had grown to $4 billion, with a budget year
funding gap of $10.7 billion. California entered its 1992-93 fiscal year
with no budget agreement. Accordingly, scrip (IOUs) had to be used to pay
the State's bills. As of September 2, 1992, the State had issued and
outstanding over $3 billion of such scrip. Effective July 1, the rating
on the State's outstanding debt obligations had been downgraded by both
major bond rating services. On September 2, 1992, 79 days after the
budget adoption deadline of June 15, and 64 days into the State's fiscal
year, the California legislature adopted, and the Governor signed a $57.6
billion State budget for 1992-93, along with certain accompanying enabling
legislation. With the budget in place, the State's largest banks returned
to accepting the State's IOUs. The banks had stopped accepting IOUs in
early August.
The 1993-94 Budget Act estimates General Fund revenues and transfers
at $40.6 billion, about $400 million below 1992-93 (and the second
consecutive year of actual decline). It assumes Special Fund revenues of
$11.9 billion, an increase of 2.9% over 1992-93. The 1993-94 Budget Act
includes General Fund expenditures of $38.5 billion (a $6.3% reduction
from projected 1992-93 expenditures), in order to keep a balanced budget
within the available revenues. It also includes Special Fund expenditures
of $12.1 billion, a 4.2% increase. The largest single budget action taken
in the 1993-94 budget is a $2.6 billion property tax shift from counties
to schools, which has the effect of relieving the State of an equivalent
amount of state school funding and reflecting the termination of the
State's subsidizing of local governments following the property tax cuts
of Proposition 13 in 1978. This most recent shift is in addition to a
$1.3 billion shift during fiscal 1992-93. The property tax revenue losses
for cities and counties are offset in part by additional sales tax
revenues and mandate relief. The temporary 0.5% sales tax has been
extended through December 31, 1993, for public safety programs. In
November, a statewide election will be held to authorize new sales taxes
at the county level. If enacted statewide, half of the $2.6 billion in
revenue shifted to schools would be replaced, but distributed differently
across counties. Depending on the outcome of the November election, more
widespread pressure to fund local government responsibilities may emerge,
potentially during the current budget year.
Constitutional and Statutory Restrictions. Certain California
Municipal Securities may be obligations of issuers who rely in whole or
in part on ad valorem real property taxes as a source of revenue. On June
6, 1978, California voters approved an amendment to the California
Constitution known as Proposition 13, which added Article XIII A to the
California Constitution. The effect of Article XIII A is to limit ad
valorem taxes on real property, and to restrict the ability of taxing
entities to increase real property tax revenues.
In response, the State of California attempted to compensate for the
significant reduction in local property tax revenues by providing local
governments with increased expenditures from the General Fund. The State
also enacted legislation indexing personal income tax rates to account for
the effects of inflation, eliminating certain inheritance and gift taxes
and increasing exemption levels for certain other gift and other taxes,
all of which had a moderating effect on State revenues. On November 7,
1978, California voters approved Proposition 8 and on June 3, 1986,
California voters approved Proposition 46, both of which amended Article
XIII A.
Section 1 of Article XIII A limits the maximum ad valorem tax on real
property to 1% of full cash value to be collected by the counties and
apportioned according to law; provided that the 1% limitation does not
apply to ad valorem taxes or special assessments to pay the interest and
redemption charges on (i) any indebtedness approved by the voters prior
to July 1, 1978, or (ii) any bonded indebtedness for the acquisition or
improvement of real property approved on or after July 1, 1978, by
two-thirds of the votes cast by the voters voting on the proposition.
"Full cash value" means "the county assessor's valuation of real property
as shown on the 1975/76 tax bill under 'full cash value' or, thereafter,
the appraised value of real property when purchased, newly constructed,
or a change in ownership has occurred after the 1975 assessment." Full
cash value may be adjusted annually to reflect inflation at a rate not to
exceed 2% per year, or reduction in the Consumer Price Index or comparable
local data, or reduced in the event of declining property value caused by
substantial damage, destruction or other factors. The California
Legislature has enacted statutes, and the California State Board of
Equalization has adopted regulations, interpreting the meaning of "change
in ownership" and "new construction" for purposes of determining full cash
value of property under Article XIII A.
Legislation enacted by the California Legislature to implement
Article XIII A (Statutes of 1978, Chapter 292, as amended) provides that,
for the 1978/79 fiscal year only, the tax levied by each county was to be
apportioned among all taxing agencies within the county in proportion to
their average share of taxes levied in certain previous years. The
apportionment of property taxes for fiscal years after 1978/79 has been
revised pursuant to Statutes of 1979, Chapter 282 which provides relief
funds from state monies beginning in fiscal year 1979/80 and is designed
to provide a permanent system for sharing state taxes and budget funds
with local agencies.
The U.S. Supreme Court has struck down as a violation of equal
protection certain property tax assessment practices in West Virginia that
had resulted in vastly different assessments of similar properties.
Because Proposition 13 provides that property may only be reassessed up
to 2% per year, except upon change of ownership or new construction,
recent purchasers may pay substantially higher property taxes than
long-time owners of comparable property in a community. The U.S. Supreme
Court expressly declined to comment in any way on the constitutionality
of Proposition 13. This decision led to the filing of several lawsuits
renewing attack on the validity of Proposition 13. In all such cases, the
California Supreme Court upheld the constitutionality of Proposition 13.
The U.S. Supreme Court held in Nordlinger v. Hahn that notwithstanding the
disparate property tax burdens that Proposition 13 might place on
otherwise comparable properties, those provisions of Proposition 13 did
not violate the Equal Protection Clause of the United States Constitution.
The California Supreme Court recently ruled that California's unitary
method of taxation, as applied to the worldwide income from the operations
of a foreign corporation and its subsidiaries, did not violate the Foreign
Commerce Clause of the United States Constitution. The taxpayer in that
case, however, has filed a petition with the U.S. Supreme Court requesting
review of the California Supreme Court's decision. At this time, it is
uncertain whether the U.S. Supreme Court will agree to hear the case. In
addition, the California Supreme Court has recently affirmed another
ruling which upheld the "unitary" method of taxation as applied to the
worldwide income from the operations of a domestic corporation and its
subsidiaries. If the courts ultimately determine that California's
"unitary" method of taxation is unconstitutional, California might be
required to make significant tax refund payments to corporate taxpayers.
On November 6, 1979, an initiative known as "Proposition 4" or the
"Gann Initiative" was approved by the California voters, which added
Article XIII B to the California Constitution. Under Article XIII B,
state and local governmental entities have an annual "appropriations
limit" and are not able to spend certain monies called "appropriations
subject to limitation" in an amount higher than the "appropriations
limit." Article XIII B does not affect the appropriation of monies that
are excluded from the definition of "appropriations subject to
limitation," including debt service on indebtedness existing or authorized
as of January 1, 1979, or bonded indebtedness subsequently approved by the
voters. In general terms, the "appropriations limit" is based on certain
1986/87 expenditures, and is adjusted annually to reflect changes in
consumer prices, population and certain services provided by these
entities. Article XIII B also provides that if these entities' revenues
in any year exceed the amounts permitted to be spent, the excess would
have to be returned (i) in the case of the state, 50% to the public
through a revision of tax rates or fee schedules over the subsequent two
years and 50% to the State School Fund for allocation to elementary
schools, high schools, and community colleges, and (ii) in the case of
local governmental entities, to the public through a revision of tax rates
or fee schedules over the subsequent two years.
At the November 8, 1988 general election, California voters approved
an initiative known as Proposition 98, and on June 5, 1990, California
voters approved Proposition 111. These initiatives amended Article XIII
B to require that (i) the California Legislature establish a prudent state
reserve fund in an amount as it shall deem reasonable and necessary and
(ii) 50% of revenues in excess of amounts permitted to be spent and which
would otherwise be returned pursuant to Article XIII B by revision of tax
rates or fee schedules, be transferred and allocated to the State School
Fund and be expended solely for purposes of instructional improvement and
accountability. Any excess revenues so allocated are not added to the
base when computing the minimum funding guarantee in future years. Any
funds allocated to the State School Fund shall cause the appropriation
limits established in Article XIII B to be annually increased for any such
allocation made in the prior year.
These initiatives also amended Article XVI to require that the State
of California provide a minimum level of funding for public school
districts and community colleges. State monies to support school
districts and community college districts shall equal or exceed the
greater of (i) an amount equalling the percentage of state General Fund
revenue for school and community college districts in fiscal year 1986-87
(40.3%), (ii) an amount equal to the prior fiscal year's proceeds of taxes
appropriated under Article XIII B plus allocated local proceeds of taxes,
after adjustment for changes in enrollment and the change in the cost of
living, or (iii) in any year in which the percentage growth in California
per capita personal income exceeds the percentage growth in per capita
state General Fund revenues plus one-half of one percent, an amount equal
to the prior fiscal year's proceeds of taxes appropriated under Article
XIII B plus allocated local proceeds of taxes, after adjustment for
changes in enrollment and the change in per capita General Fund revenues.
The initiatives generally permit the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.
Under the 1992-93 Budget Act, $17.9 billion of General Fund revenues
were allocated to K-12 schools and community colleges to satisfy the
minimum funding guarantee stated above. In any event, the Governor and
other fiscal observers expect the guarantee to place increasing pressure
on the State's budget over future years, potentially reducing resources
available for other State programs, especially to the extent the Article
XIII B spending limit would restrain the State's ability to fund such
other programs by raising taxes.
Article XIII A, Article XIII B, Proposition 98 and Proposition 111
were adopted as measures that qualified for the ballot pursuant to
California's initiative process. Other initiatives or similar measures
affecting the availability of revenue to pay certain Municipal California
Obligations could be adopted in the future.
In June 1982 the voters of California passed two initiative measures
to repeal the California gift and inheritance tax laws and to enact, in
lieu thereof, a California death tax. California voters also passed an
initiative measure to increase, for taxable years commencing on or after
January 1, 1982, the amount by which personal income tax brackets will be
adjusted annually in an effort to index tax brackets to account for the
effects of inflation. The voters also passed an initiative measure,
subsequently amended, affecting for taxation purposes the valuation of
real property taken through eminent domain proceedings. Decreases in
state and local revenues in future fiscal years as a consequence of these
initiatives may result in reductions in allocations of state revenues to
California municipal issuers or in the ability of such California issuers
to pay their obligations.
On November 4, 1986, California voters approved an initiative statute
known as Proposition 62. This initiative (i) requires that any tax for
general governmental purposes imposed by local governments be approved by
resolution or ordinance adopted by a two-thirds vote of the governmental
entity's legislative body and by a majority vote of the electorate of the
governmental entity, (ii) requires that any special tax (defined as taxes
levied for other than general governmental purposes) imposed by a local
governmental entity be approved by a two-thirds vote of the voters within
that jurisdiction, (iii) restricts the use of revenues from a special tax
to the purposes or for the service for which the special tax is imposed,
(iv) prohibits the imposition of ad valorem taxes on real property by
local governmental entities except as permitted by Article XIII A, (v)
prohibits the imposition by local governments of transaction taxes and
sales taxes on the sale of real property, (vi) requires that any tax
imposed by a local government on or after August 1, 1985 be ratified by
a majority vote of the electorate within two years of the adoption of the
initiative or be terminated by November 15, 1988, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction in the amount of property tax revenue allocated to
such local government occurs in an amount equal to the revenues received
by such entity attributable to the tax levied in violation of the
initiative, and (viii) permits these provisions to be amended exclusively
by the voters of the State of California. These decisions may continue
to cast some doubt on other projects around the state that have been
financed with sales tax increases imposed without two-thirds voter
approval.
The effect of these constitutional and statutory changes and of
budget developments on the ability of California issuers to pay interest
and principal on their obligations remains unclear, and may depend on
whether a particular bond is a general or limited obligation bond (limited
obligation bonds being generally less affected).
Certain California Municipal Securities may be obligations that are
payable solely from the revenues of health care institutions. Certain
provisions under California law may adversely affect such revenues and,
consequently, payment on those municipal obligations.
Certain California Municipal Securities may be obligations that are
secured in whole or in part by a mortgage or deed of trust on real
property. California has statutory provisions that limit the remedies of
a creditor secured by a mortgage or deed of trust. In addition, upon the
default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power
of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title of real
property by private power of sale. These rights may result in time delays
in collections which could disrupt the flow of revenues available to an
issuer for the payment of debt service on the outstanding obligations if
such defaults occur with respect to a substantial number of mortgages or
deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement
of the issuer in the nonjudicial sale of property securing a home mortgage
for such private sale to constitute "state action," and could hold that
the private-right-of-sale proceedings violate the due process requirements
of the federal or state constitutions, consequently preventing an issuer
from using the nonjudicial foreclosure remedy described above.
Certain California Municipal Securities may be obligations that
finance the acquisition of single family home mortgages for low and
moderate income mortgagors. These obligations may be payable solely from
revenues derived from the home mortgages, and are subject to California's
statutory limitations applicable to obligations secured by real property.
Under California anti-deficiency legislation, there is no personal
recourse against a mortgagor of a single family residence purchased with
the loan secured by the mortgage, regardless of whether the creditor
choose judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single-family, owner-
occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments
made during the first five years during the term of the mortgage loan, and
cannot in any event exceed six months' advance interest on the amount
prepaid in excess of 20% of the original principal amount of the mortgage
loan. This limitation could affect the flow of revenues available to an
issuer for debt service on the outstanding debt obligations that financed
such home mortgages.
Other Investment Techniques and Strategies
-- When-Issued and Delayed Delivery Transactions. As stated in the
Prospectus, the Fund may invest in securities on a "when-issued" or
"delayed delivery" basis. Payment for and delivery of the securities
generally settles within 45 days of the date the offer is accepted. The
purchase price and yield are fixed at the time the buyer enters into the
commitment. 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. However, the Fund intends to be as fully invested as
possible and will not invest in when-issued securities if its income or
net asset value will be materially adversely affected. At the time the
Fund makes the commitment to purchase a Municipal Security on a when-
issued basis, it will record the transaction on its books and reflect the
value of the security in determining its net asset value. It will also
segregate cash or other high quality liquid Municipal Securities equal in
value to the commitment for the when-issued securities. While when-issued
securities may be sold prior to settlement date, the Fund intends to
acquire the securities upon settlement unless a prior sale appears
desirable for investment reasons. There is a risk that the yield
available in the market when delivery occurs may be higher than the yield
on the security acquired.
-- Repurchase Transactions. In a repurchase transaction, the Fund
acquires a security from, and simultaneously resells it to, an approved
vendor that meets certain credit requirements established from time to
time by the Board. The resale price exceeds the purchase price in that
it reflects an agreed upon interest rate effective for the period of time
during which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to the resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act of 1940
(the "Investment Company Act"), collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the value of the collateral must equal
or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will continuously monitor the
collateral's value and impose creditworthiness requirements to confirm
that the vendor is financially sound.
-- Illiquid and Restricted Securities. Restricted securities that
are illiquid (excluding securities that may be resold by the Fund pursuant
to Rule 144A, as explained in the Prospectus) are purchased in direct
placements and are subject to statutory or contractual restrictions and
delays on resale. Such securities may generally be resold only in
privately-negotiated transactions with a limited number of purchasers or
in a public offering registered under the Securities Act of 1933 and are,
therefore, unlike publicly-traded securities which can be expected to be
sold immediately if the market demand is adequate. The right to have such
securities registered and the expenses of registration usually are
negotiated upon the purchase of such securities. There may be undesirable
delays in selling such securities at prices representing fair value.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions meeting
specified credit conditions if the loan is collateralized in accordance
with applicable regulatory requirements and if, after any such loan, the
value of the securities loaned does not exceed 25% of the total value of
the Fund's assets. In connection with securities lending, the Fund might
experience risks of delay in receiving additional collateral, or risks of
delay in recovery of the securities, or loss of rights in the collateral
should the borrower fail financially. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on
each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government Securities, or other cash equivalents in which the Fund is
permitted to invest. To be accepted as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets
the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees that the Fund pays in arranging the loan.
The Fund may share the interest it receives on the collateral securities
with the borrower as long as it realizes at least a minimum amount of
interest required by the lending guidelines established by the
Corporation's Board of Directors. The Fund will not lend its portfolio
securities to any officer, director, trustee, employee or affiliate of the
Fund or the Manager. The terms of the Fund's loans must meet applicable
tests under the Internal Revenue Code and permit the Fund to reacquire
loaned securities on five business days' notice or in time to vote on any
important matter. Income from securities loans is not included in the
exempt-interest dividends paid by the Fund.
-- Portfolio Turnover. The Fund may purchase or sell Municipal
Securities without regard to the length of time the security has been
held, to take advantage of short-term differentials in yields consistent
with the Fund's investment objective. While short-term trading increases
portfolio turnover, the execution cost for such securities is
substantially less than for equivalent dollar values of equity securities.
However, short-term trading may affect the Fund's status as an investment
company under the Internal Revenue Code (see "Dividends, Distributions and
Taxes" in the Prospectus).
-- Covered Call Options and Hedging. As described in the Prospectus,
the Fund may write covered calls or employ one or more types of Hedging
Instruments to generate income or for defensive purposes. When hedging
to attempt to protect against declines in the market value of the Fund's
portfolio, to permit the Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling
securities for investment reasons, the Fund may: (i) sell Futures, (ii)
buy puts on such Futures or securities, or (iii) write covered calls on
securities or Futures. When hedging to permit the Fund to establish a
position in the securities market as a temporary substitute for purchasing
individual securities (which the Fund will normally purchase, and then
terminate the hedging position), the Fund may: (i) buy Futures, or (ii)
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 on the underlying cash market. Additional information
about the Hedging Instruments the Fund may use is provided below.
-- Writing Covered Call Options. When the Fund writes a call, it
receives a premium and agrees to sell the underlying security to a
purchaser of a corresponding call on the same security during the call
period (usually not more than nine months) at a fixed exercise price
(which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium previously received
on the call written is more or less than the price of the call
subsequently purchased. A profit may also be realized if the call expires
unexercised, because the Fund retains the underlying security and the
premium received. Any such profits are considered short-term capital
gains for Federal income tax purposes, and when distributed by the Fund
are taxable as ordinary income. If the Fund could not effect a closing
purchase transaction due to lack of a market, it would have to hold the
callable securities until the call expired or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice 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.
-- Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and has the
right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise
price. The Fund benefits only if the call is sold at a profit or if,
during the call period, the market price of the underlying investment is
above the sum of the call price plus the transaction costs and the premium
paid for the call and the call is exercised. If the call is not exercised
or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right
to purchase the underlying investment. When the Fund purchases a call or
put (discussed below) on an index or Future, it pays a premium, but
settlement is in cash rather than by delivery of the underlying investment
to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather
than on price movements in individual securities or futures contracts.
When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a
seller of a put on a corresponding 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 and the Fund will lose its premium payment and the right
to sell the underlying investment; the put may, however, be sold prior to
expiration (whether or not a profit).
-- Interest Rate Futures. The Fund may buy and sell futures
contracts relating to debt securities ("Interest Rate Futures") and
municipal bond indices ("Municipal Bond Index Futures," discussed below).
Interest Rate Futures obligates the seller to deliver and the purchaser
to take a specific debt security at a specified price on a specified date.
No price is paid or received upon the purchase or sale of an Interest Rate
Future. Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment, equal to a specified
percentage of the contract amount, with the futures commission merchant
(the "futures broker"). The initial margin will be deposited with the
Fund's Custodian in an account registered in the futures broker's name;
however, the futures broker can gain access to that account only under
specified conditions. As the Future is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be made to and from the futures broker on a daily basis.
At any time prior to the expiration of the Future, the Fund may elect
to close out its position by taking an opposite position, at which time
a final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund and any gain or loss is
then realized for tax purposes. Although Interest Rate Futures by their
terms call for settlement by the delivery of debt securities, in most
cases the obligation is fulfilled by entering into an offsetting
transaction. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are
traded.
-- Municipal Bond Index Futures. Municipal Bond Index Futures are
similar to Interest Rate Futures except that settlement is made in cash.
The obligation under such contracts may also be satisfied by entering into
an offsetting contract to close out the futures position. Net gain or
loss on options on Municipal Bond Index Futures depends on the price
movements of the securities included in the index. The strategies which
the Fund employs regarding Municipal Bond Index Futures are similar to
those described above with regard to Interest Rate Futures.
-- Additional Information About Hedging Instruments and Their Use.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Fund has
written options or as to other acceptable escrow securities, so that no
margin will be required for such transactions. OCC will release the
securities on the expiration of the option or upon the Fund's entering
into a closing transaction. An option position may be closed out only on
a market which provides secondary trading for options of the same series,
and there is no assurance that a liquid secondary market will exist for
any particular option.
When the Fund writes an over-the-counter ("OTC") option, it will
enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would have
the absolute right to repurchase that OTC option. This formula price
would generally be based on a multiple of the premium received for the
option, plus the amount by which the option is exercisable below the
market price of the underlying security ("in-the-money"). For any OTC
option a Fund writes, it will treat as illiquid (for purposes of the
restriction on illiquid securities, stated in the Prospectus) a portion
of the assets used to cover written OTC options, equal to the formula
price for the repurchase of the OTC option less the amount by which the
OTC option is "in-the-money." That Fund will also treat as illiquid any
OTC option held by it. The SEC is evaluating the general issue of whether
or not OTC options should be considered as liquid securities, and the
procedure described above could be affected by the outcome of that
evaluation.
An option position may be closed out only in a market which provides
secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular
option. The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate in a manner beyond the Fund's control. The exercise by the
Fund of puts on securities or Futures may cause the sale of related
investments, also increasing portfolio turnover. Although such exercise
is within the Fund's control, holding a put might cause the Fund to sell
the underlying investment for reasons which would not exist in the absence
of the put. The Fund will pay a brokerage commission each time it buys
or sells a call, buys a put or an underlying investment in connection with
the exercise of a put or call. Such commissions may be higher, on a
relative basis, than those which would apply to direct purchases or sales
of the underlying investments. Premiums paid for options are small in
relation to the market value of such investments and consequently, put and
call options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investment.
-- Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
-- Regulatory Aspects of Hedging Instruments. The use of Futures and
options thereon to attempt to protect against the market risk of a decline
in the value of portfolio securities is referred to as having a "short
futures position," and the use of such instruments to attempt to protect
against the market risk that portfolio securities are not fully included
in an increase in value of the market as a whole is referred to as having
a "long futures position." The Fund must operate within certain
restrictions as to its long and short hedging positions in Futures and
options thereon under a rule ("CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange Act (the
"CEA"), which excludes the Fund and the Corporation from registration with
the CFTC as a "commodity pool operator" (as defined under the CEA) if they
comply with the CFTC Rule. Under these restrictions, the Fund will not,
as to any positions, whether long, short or a combination thereof, enter
into Futures and options thereon for which the aggregate initial margins
and premiums exceed 5% of the fair market value of its assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert regardless of whether the options were written
or purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options which the Fund may write or hold may
be affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund or an affiliated
investment adviser. Position limits also apply to Futures. An exchange
may order the liquidation of positions found to be in violation of these
limits and may impose certain other sanctions. Due to requirements under
the Investment Company Act of 1940 (the "Investment Company Act"), when
the Fund purchases a Future, the Fund will maintain in a segregated
account or accounts with its Custodian, cash or readily marketable short-
term (maturing in one year or less) debt instruments in an amount equal
to the market value of the securities underlying such Future, less the
margin deposit applicable to it.
-- Tax Aspects of Hedging Instruments. The Fund qualified during its
last fiscal quarter as a "regulated investment company" under the Internal
Revenue Code of 1986 (the "Internal Revenue Code") and intends to continue
to so qualify in current and future fiscal years, but reserves the right
not to do so. One of the tests for such qualification is that less than
30% of its gross income must be derived from gains realized on the sale
of securities held for less than three months. Due to that limitation,
the Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including Futures, held for less than three months, whether or not they
were purchased on the exercise of a call held by the Fund; (ii) writing
calls on investments held for less than three months; (iii) purchasing
calls or puts which expire in less than three months; (iv) effecting
closing transactions with respect to calls or puts purchased less than
three months previously; and (v) exercising puts held by the Fund for less
than three months.
-- Possible Risk Factors in Hedging. In addition to the risks
discussed in the Prospectus and above, there is a risk in using short
hedging by: (i) selling Futures or (ii) purchasing puts on Futures to
attempt to protect against declines in the value of the Fund's portfolio
securities, that the prices of such Futures or the applicable index will
correlate imperfectly with the behavior of the cash (i.e., market value)
prices of the Fund's securities. The ordinary spreads between prices in
the cash and futures markets are subject to distortions, due to
differences in the natures of those markets. First, all participants in
the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities markets. Therefore, increased
participation by speculators in the futures market may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the index
applicable to its Hedging Instruments. To compensate for the imperfect
correlation of movements in the price of the portfolio securities being
hedged and movements in the price of the Hedging Instruments, the Fund may
use Hedging Instruments in a greater dollar amount than the dollar amount
of portfolio securities being hedged if the historical volatility of the
prices of such portfolio securities being hedged is more than the
historical volatility of the applicable index. It is also possible that
where the Fund has used Hedging Instruments in a short hedge, the market
may advance and the value of portfolio securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose money on the
Hedging Instruments and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio of securities will tend to move in the same direction as the
indices upon which the Hedging Instruments are based.
If the Fund uses Hedging Instruments to establish a position in the
securities markets as a temporary substitute for the purchase of
individual securities (long hedging) by buying Futures and/or calls on
such Futures or securities, it is possible that the market may decline.
If the Fund then concludes not to invest in securities at that time
because of concerns as to possible further market decline or for other
reasons, it will realize a loss on the Hedging Instruments that is not
offset by a reduction in the price of the securities purchased. In the
future, the Fund may employ hedging instruments and strategies that are
not presently contemplated but which may be developed, to the extent such
investment methods are consistent with the Fund's investment objective,
are legally permissible and adequately disclosed.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the
Fund must follow that are also fundamental policies. Fundamental policies
and the Fund's investment objective cannot be changed without the vote of
a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a majority vote is defined as the vote of the
holders of the lesser of: (i) 67% or more of the shares present or
represented by proxy at such meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy, or (ii) more
than 50% of the outstanding shares.
Under these additional restrictions the Fund cannot: (1) invest in
interests in oil or gas exploration or development programs or in
commodities; however, the Fund may buy and sell any of the Hedging
Instruments that it may use as permitted by any of its other policies,
whether or not such Hedging Instrument is considered to be a commodity or
commodity contract; (2) invest in real estate or in interests in real
estate; however, the Fund may purchase securities of issuers holding real
estate or interests therein (including securities of real estate
investment trusts); (3) purchase securities on margin; however, the Fund
may make margin deposits in connection with the use of Hedging Instruments
as permitted by any of its other policies; (4) invest in companies for the
purpose of acquiring control or management thereof; (5) underwrite
securities of other companies, except insofar as it might be deemed to be
an underwriter for purposes of the Securities Act of 1933 in the resale
of any securities held in its own portfolio; (6) invest or hold securities
of any issuer if those officers and directors of the Corporation or its
adviser owning individually more than 1/2 of 1% of the securities of such
issuer together own more than 5% of the securities or such issuer; (7)
invest in other open-end investment companies, or invest more than 5% of
its net assets through open market purchases in closed-end investment
companies, including small business investment companies, nor make any
such investments at commission rates in excess of normal brokerage
commissions; or (8) pledge, mortgage or otherwise encumber, transfer or
assign any of its assets to secure a debt; collateral arrangements for
premium and margin payments in connection with Hedging Instruments are not
deemed to be a pledge of assets.
-- Diversification. For purposes of diversification under the
Investment Company Act, the identification of the "issuer" of a Municipal
Security depends on the terms and conditions of the security. When the
assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating
the subdivision and the security is backed only by the assets and revenues
of the subdivision, such subdivision would be deemed to be the sole
issuer. Similarly, in the case of an industrial development bond, if that
bond is backed only by the assets and revenues of the nongovernmental
user, then such nongovernmental user would be deemed to be the sole
issuer. However, if in either case the creating government or some other
entity guarantees the security, such guarantee would be considered a
separate security and would be treated as an issue of such government or
other agency.
In applying restriction (3) in the Prospectus, the Manager will
consider a nongovernmental user of facilities financed by industrial
development bonds as being in a particular industry, despite the fact that
there is no industry concentration limitation as to Municipal Securities.
Although this application of the restriction is not technically a
fundamental policy of the Fund, it will not be changed without shareholder
approval. The Fund has no present intention of investing more than 25%
of its assets in securities of issuers (see above) located in the same
state, or in securities the interest on which is paid from revenues of
similar types of projects, or in industrial development bonds. This is
not a fundamental policy, and therefore may be changed without shareholder
approval. Should any such change be made, the Prospectus and/or this
Additional Statement will be supplemented to reflect such change. With
respect to investment restriction (2) above, the Fund has undertaken in
connection with the qualification for sale of its shares in one or more
states not to invest in real estate limited partnerships unless such
securities are determined by the Board to be readily marketable; should
its shares no longer be offered in such states, the Fund would not be
subject to the foregoing undertaking.
How the Fund is Managed
Organization and History.
Directors and Officers of the Corporation. The Corporation's Directors
and officers and their principal occupations and business affiliations
during the past five years are listed below. All of the Directors are
also trustees, directors or managing general partners of Centennial
America Fund, L.P., Oppenheimer Limited-Term Government Fund, Oppenheimer
Insured Tax-Exempt Bond Fund, Oppenheimer Intermediate Tax-Exempt Bond
Fund, Oppenheimer Equity Income Fund, Oppenheimer Variable Account Funds,
Oppenheimer Cash Reserves, Oppenheimer High Yield Fund, Oppenheimer
Strategic Income Fund, Oppenheimer Strategic Short-Term Income Fund,
Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer Strategic
Income & Growth Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer
Champion High Yield Fund, Oppenheimer Investment Grade Bond Fund,
Oppenheimer Value Stock Fund and The New York Tax-Exempt Income Fund, Inc.
Each Director other than Mr. Fossel is also a Trustee or Director of
Centennial Government Trust, Centennial Money Market Trust, Centennial
California Tax Exempt Trust, Centennial Tax Exempt Trust, Centennial New
York Tax Exempt Trust and Daily Cash Accumulation Fund, Inc. Messrs.
Bishop, Bowen, Farrar and Zack hold similar positions as officers of all
such funds. Mr. Fossel is President and Mr. Swain is Chairman of the
Denver-based OppenheimerFunds. As of _____________, the Directors and
officers in the aggregate owned less than 1% of the Fund's and the
Corporation's respective outstanding shares.
Robert G. Avis, Director*
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
William A. Baker, Director
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, JR., Director
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Aero Space Systems Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Director*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a Director of the Manager;
President and director of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company; President and a Director of
HarbourView Asset Management Corp. ("HarbourView"), subsidiary of the
Manager; a Director of Shareholder Financial Services, Inc. ("SFSI")
and Shareholder Services, Inc. ("SSI"), transfer agent subsidiaries
of the Manager; formerly President of the Manager.
Raymond J. Kalinowski, Director
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a Director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc., (a broker-dealer), of
which he was a Senior Vice President.
C. Howard Kast, Director
2552 East Alameda, Denver, Colorado 80209
Formerly a Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Director
7500 East Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Director
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a Director of the Van Gilder Insurance Corp. (insurance
brokers).
James C. Swain, Chairman and Director*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and a Director of Centennial
Asset Management Corporation ("Centennial"), an investment adviser
subsidiary of the Manager; formerly President and a Director of
Oppenheimer Asset Management Corporation ("OAMC"), an investment
adviser which was a subsidiary of the Manager, and Chairman of the
Board of SSI.
Robert E. Patterson, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
Andrew J. Donohue, Vice President
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer
of other OppenheimerFunds; formerly Senior Vice President and
Associate General Counsel of the Manager and the Distributor; Partner
in, Kraft & McManimon (a law firm); an officer of First Investors
Corporation (a broker-dealer) and First Investors Management Company,
Inc. (broker-dealer and investment adviser); director and an officer
of First Investors Family of Funds and First Investors Life Insurance
Company.
George C. Bowen, Vice President, Secretary and Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a Director of
Centennial; Vice President, Treasurer and Secretary of SSI and SFSI;
an officer of other OppenheimerFunds; formerly Senior Vice
President/Comptroller and Secretary of OAMC.
Robert Bishop, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an Accountant for Yale & Seffinger,
P.C., an accounting firm, and previously an Accountant and
Commissions Supervisor for Stuart James Company Inc., a broker-
dealer.
Scott Farrar, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers, Harriman Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company,
before which he was a sales representative for Central Colorado
Planning
Robert G. Zack, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
[FN]
*A Director who is an "interested person" as defined in the Investment
Company Act.
-- Remuneration of Directors. The officers of the Corporation
(including Messrs. Fossel and Swain) are affiliated with the Manager and
receive no salary or fee from the Corporation. During the Fund's fiscal
year ended June 30, 1994, the remuneration (including expense
reimbursements) attributable to the Fund paid to all Directors of the
Corporation (excluding Messrs. Fossel and Swain) for services as Directors
and as members of one or more committees totaled $___. The Corporation
has an Audit Committee, comprised of William A. Baker (Chairman), Charles
Conrad, Jr. and Robert M. Kirchner. This Committee meets regularly to
review audits, audit procedures, financial statements and other financial
and operational matters of the Fund.
-- Major Shareholders. as of ______________, no person owned
beneficially 5% or more of the respective outstanding shares of the Fund
or the Corporation.
The Manager and Its Affiliates. The Manager is wholly-owned by OAC, a
holding company controlled by Massachusetts Mutual Life Insurance Company.
OAC is also owned in part by certain of the Manager's directors and
officers, some of whom may also serve as officers of the Corporation and
two of whom (Messrs. Fossel and Swain) serve as directors of the
Corporation.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Corporation on behalf of the Fund
(the "Agreement") requires the Manager, at its expense, to provide the
Fund with adequate office space, facilities and equipment and to provide
and supervise the activities of all administrative and clerical personnel
required to provide effective corporate administration for the Fund,
including the compilation and maintenance of records with respect to its
operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous
public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or the Distributor under the General Distributors Agreement are
paid by the Corporation. Expenses with respect to the Corporation's two
series, including the Fund, are allocated in proportion to the net assets
of the respective funds except where allocations of direct expenses could
be made. Certain expenses are further allocated to certain classes of
shares of a series as explained in the Prospectus and under "How to Buy
Shares" below. The advisory agreement lists examples of expenses paid by
the Corporation, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Directors, legal and audit
expenses, transfer agent and custodian expenses, certain registration
expenses and non-recurring expenses, including litigation. During the
Fund's fiscal years ended June 30, 1992, 1993 and 1994, the management
fees paid by the Corporation on behalf of the Fund to the Manager were
$26,681, $120,465 and $_______, respectively.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has voluntarily undertaken that the total expenses of the Fund in any
fiscal year, including the management fee, but excluding taxes, interest,
brokerage commissions, distribution assistance payments and extraordinary
expenses such as litigation costs, shall not exceed the most stringent
expense limitation imposed under state law applicable to the Fund.
Pursuant to the undertaking, the Manager fee will be reduced at the end
of a month so that there will not be any accrued but unpaid liability
under this undertaking. currently, the most stringent state expense
limitation is imposed by California, and limits expenses (with specified
exclusions) to 2.5% of the first $30 million of average annual net assets,
2.0% of the next $70 million, and 1.5% of the average annual net assets
in excess of $100 million. Any assumption of the Fund's expenses under
this limitation lowers the Fund's overall expense ratio and increases its
total return during the time such expenses are limited. The Manager
reserves the right to terminate or amend the undertaking at any time.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties under the advisory agreement, the Manager is not
liable for any loss resulting from a good faith error or omission on its
part with respect to any of its duties thereunder. The advisory agreement
permits the Manager to act as investment adviser for any other person,
firm or corporation, and to use the name "Oppenheimer" and "Main Street"
in connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer
act as investment adviser to the Fund, the right of the Corporation to use
the name "Oppenheimer" as part of its name and the name of the Fund may
be withdrawn.
-- The Distributor. Under its General Distributor's Agreement with
the Corporation, the Distributor acts as the Corporation's principal
underwriter in the continuous public offering of shares of the Fund's
Class A, Class B and Class C shares, but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales (other
than those paid under the Class B Plan), including advertising and the
cost of printing and mailing prospectuses, other than those furnished to
existing shareholders, are borne by the Distributor. During the Fund's
fiscal years ended June 30, 1992, 1993 and 1994, the aggregate amount of
sales charges on sales of the Fund's Class A shares was $903,656,
$1,139,735 and $_________, respectively, of which the Distributor retained
in the aggregate $149,657, $183,933 and $________ in those respective
years.
-- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions of the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors, implement
the policy of the Fund to obtain, at reasonable expense, the "best
execution" (prompt and reliable execution at the most favorable price
obtainable) of such transactions. The Manager need not seek competitive
commission bidding, but is expected to minimize the commissions paid to
the extent consistent with the interests and policies of the Fund as
established by the Board of Directors.
Under the advisory agreement, the Manager is authorized to select
brokers other than affiliates that provide brokerage and/or research
services for the Fund and/or the other accounts over which the Manager or
its affiliates have investment discretion. The commissions paid to such
brokers may be higher than another qualified broker would have charged if
a good faith determination is made by the Manager that the commission is
fair and reasonable in relation to the services provided. Subject to the
foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager and its
affiliates as a factor in the selection of brokers for the Fund's
portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are made by portfolio managers
of the Manager under the supervision of the Manager's executive officers.
As most purchases made by the Fund are principal transactions at net
prices, the Fund incurs little or no brokerage costs. The Fund usually
deals directly with the selling or purchasing principal or market makers
without incurring charges for he services of a broker on its behalf unless
it is determined that better price or execution can be obtained by
utilizing the services of a broker. Purchases of securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and asked price. The Fund seeks to obtain prompt execution of orders at
the most favorable net pace. When possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by the
Manager or it affiliates are combined. Transactions effected pursuant to
such combined orders are averaged as to price and allocated in accordance
with the purchase or sale orders actually placed for each account. Option
commissions may be relatively higher than those which would apply to
direct purchases and sales of portfolio securities.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid for in
commission dollars.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolios or being considered for purchase. The Board,
including the "independent Directors" (those Directors who are not
"interested persons" as defined in the Investment Company act, and who
have no direct or indirect financial interest in the operation of the
advisory agreement or the Distribution Plans described below) annually
reviews information furnished by the Manager as to the commissions paid
to brokers furnishing such services so that the Board may ascertain
whether the amount of such commissions was reasonably related to the value
or the benefit of such services.
Performance of the Fund
As described in the Prospectus, from time to time the "standardized
yield," "tax-equivalent yield," "dividend yield," "average annual total
return," "total return" and "total return at net asset value" of an
investment in each class of Fund shares may be advertised. An explanation
of how standardized yield, tax-equivalent yield, dividend yield, average
annual total return and total return are calculated for each class and the
components of those calculations is set forth below. Class B shares were
first publicly offered on October 29, 1993.
-- Standardized Yields.
-- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
(a-b) 6
Standardized Yield = 2 ((---) + 1) - 1)
(cd )
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last
day of the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The SEC formula assumes that
the yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This
standardized yield is not based on actual distributions paid by the Fund
to shareholders in the 30-day period, but is a hypothetical yield based
on the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended June 30, 1994, the standardized yields for the
Fund's Class A and Class B shares were _____ and ________, respectively.
-- Tax-Equivalent Yield. The Fund's "tax-equivalent yield" adjusts
the Fund's current yield, as calculated above, by a stated combined
Federal and state tax rate. The tax equivalent yield is based on a 30-day
period, and is computed by dividing the tax-exempt portion of the Fund's
current yield (as calculated above) by one minus a stated income tax rate
and adding the result to the portion (if any) of the Fund's current yield
that is not tax-exempt. The tax-equivalent yield may be used to compare
the tax effects of income derived from the Fund with income from taxable
investments at the tax rates stated. Appendix B includes a tax equivalent
yield table, based on various effective tax brackets for individual
taxpayers. Such tax brackets are determined by a taxpayer's Federal and
state taxable income (the net amount subject to Federal and state income
tax after deductions and exemptions). The tax-equivalent yield tables
assume that the investor is taxed at the highest bracket, regardless of
whether a switch to non-taxable investments would cause a lower bracket
to apply. For taxpayers with income above certain levels, otherwise
allowable itemized deductions are limited. The Fund's tax-equivalent
yield for its Class a and Class B shares for the 30-day period ended June
30, 1994 were _____ and _____, respectively, for an individual in the
______% tax bracket.
-- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the Class A or Class B share dividends
derived from net investment income during a stated period. Distribution
return includes dividends derived from net investment income and from
realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions for that class declared
during a stated period of one year or less (for example, 30 days) are
added together, and the sum is divided by the maximum offering price per
share of that class on the last day of the period. When the result is
annualized for a period of less than one year, the "dividend yield" is
calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
----------------------------------------------------
Max. Offering Price of the Class (las day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class a shares includes the maximum
front-end sales charge. for Class B shares, the maximum offering price
is the net asset value per share, without considering the effect of
contingent deferred sales charges.
From time to time, similar calculations may also be made using the
net Class A asset value (instead of its respective maximum offering price)
at the end of the period. The dividend yields on Class A shares for the
30-day period ended June 30, 1994 was ____% and ____% when calculated at
maximum offering price and net asset value, respectively.
-- Total Return Information.
-- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
-- Cumulative Total Return. The "cumulative total return"
calculation change in the value of a hypothetical investment of $1,000
over an entire period of years. Its calculation uses some of the same
factors as average annual total return, but it does not average the rate
of return on an annual basis. Cumulative total return is determined as
follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") unless the return is shown at net asset
value, as described below). For Class B shares, the payment of the
contingent deferred sales charge of 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 is applied as described in the
Prospectus. Total return also assume that all dividends and capital gains
distributions during the period are reinvested to buy additional at net
asset value per share, and that the investment is redeemed at the end of
the period. The "total return" on an investment in Class A shares of the
Fund (using the methods described above) for the period from May 18, 1990
(commencement of operations) through June 30, 1994, was _____%. During
a portion of the periods for which total returns are shown for Class A
shares, the Fund's maximum initial sales charge rate was higher; as a
result, performance returns on actual investments during those periods may
be lower than the results shown. The cumulative total return on Class B
shares for the period from October 29, 1993 (the commencement of the
offering of the shares) through June 30, 1994 was _____%.
Distribution and Service Plan
The Corporation has adopted a Distribution and Service Plan for Class
B shares of the Fund (the "Class B Plan") under Rule 12b-1 of the
Investment Company Act pursuant to which the Corporation will reimburse
the Distributor quarterly with respect to Class B shares for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of shares of that class, as described in the Prospectus. Class
A shares of the Fund do not have a plan of distribution. The Plan has
been approved by a vote of (i) the Board of Directors of the Corporation,
including a majority of the "Independent Directors" (those Directors of
the Corporation who are not "interested persons," as defined in the
Investment Company Act, and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements relating to the
Plan), cast in person at a meeting called for the purpose of voting on the
Plan, and (ii) the holders of a "majority" (as defined in the Investment
Company Act) of the Class B shares of the Fund, such vote having been cast
by the Manager as the sole initial holder of Class B shares of the Fund.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make from their own resources to
Recipients.
Unless terminated as described below, the Plan shall continue in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Corporation's Board of
Directors and its Independent Directors by a vote cast in person at a
meeting called for the purpose of voting on such continuance. The Plan
may be terminated at any time by the vote of a majority of the Independent
Directors or by the vote of the holders of a "majority" (as defined in the
Investment Company Act) of the outstanding Class B shares. The Class B
Plan may not be amended to increase materially the amount of payments to
be made, unless such amendment is approved by shareholders of Class B
shares. All material amendments must be approved by the Independent
Directors.
While the Class B Plan is in effect, the Treasurer of the Corporation
shall provide a written report to the Corporation's Board of Directors at
least quarterly on the amount of all payments made pursuant to the Class
B Plan, the purpose for which each payment was made and the identity of
each Recipient of a payment. The report for the Class B Plan shall also
include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the cost allocations on
which they are based, will be subject to the review and approval of the
Independent Directors in the exercise of their fiduciary duty. The Class
B Plan further provides that while it is in effect, the selection and
nomination of those Directors of the Corporation who are not "interested
persons" of the Corporation is committed to the discretion of the
Independent Directors. This does not prevent the involvement of others
in such selection and nomination if the final decision on any such
selection or nomination is approved by a majority of the Independent
Directors.
Under the Class B Plan, no payment will be made to any Recipient in
any quarter if the aggregate net asset value of all Fund shares held by
the Recipient for itself and its customers does not exceed a minimum
amount, if any, that may be determined from time to time by a majority of
the Corporation's Independent Directors. Initially, the Board of
Directors has set the fee at the maximum rate and set no minimum amount.
For the fiscal period October 25, 1993 through June 30, 1994, payments
under the Class B Plan totaled ___________.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor.
Although the Class B Plan permits the Distributor to retain both the
asset-based sales charges and the service fee on Class B shares, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor intends to pay the service fee to Recipients in
the manner described above. A minimum holding period may be established
from time to time under the Class B Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B
Plan are subject to the limitations imposed by the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. The asset-based sales
charge paid to the Distributor by the Corporation under the Class B Plan
is intended to allow the Distributor to recoup the cost of sales
commissions paid to authorized brokers and dealers at the time of sale,
plus financing costs, as described in the Prospectus. Such payments may
also be used to pay for the following expenses in connection with the
distribution of Class B shares: (i) financing the advance of the service
fee payment to Recipients under the Class B Plan, (ii) compensation and
expenses of personnel employed by the Distributor to support distribution
of Class B shares, and (iii) costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders).
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of 4:00
P.M. (all references to time mean New York time) on each day The New York
Stock Exchange (the "NYSE") is open (a "regular business day") by dividing
the value of the Fund's net assets attributable to that class by the
number of shares of that class outstanding. The NYSE's most recent annual
holiday schedule (which is subject to change) states that it will close
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day; it may also close on
other days. Dealers other than NYSE members may conduct trading in
Municipal Securities on certain days on which the NYSE is closed (e.g.,
Good Friday), so that securities of the same type held by the Fund may be
traded, and the net asset values per share of Class A and Class B shares
of the Fund may be significantly affected, on such days when shareholders
will not have the ability to purchase or redeem shares.
The Corporation's Board of Directors has established procedures for
the valuation of the Fund's securities, generally, as follows: (i) equity
securities traded on a securities exchange or on the NASDAQ for which last
sale information is regularly reported are valued at the last sales prices
on their primary exchange or the NASDAQ that day (or, in the absence of
sales that day, at values based on the last sale prices of the preceding
trading day or closing bid and asked prices); (ii) NASDAQ and other
unlisted equity securities for which last sale prices are not regularly
reported but for which over-the-counter market quotations are readily
available are valued at the highest closing bid price at the time of
valuation, or, if no closing bid price is reported, on the basis of a
closing bid price obtained from a dealer who maintains an active market
in that security; (iii) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under
the Board's procedures; (iv) long-term debt securities, and short-term
debt securities having a remaining maturity in excess of 60 days, are
valued at the mean between the asked and bid prices determined by a
portfolio pricing service appointed by the Corporation's Board of
Directors or obtained from active market makers in the security; and (v)
short-term debt securities having a remaining maturity of 60 days or less
are valued at cost, adjusted for amortization of premiums and accretion
of discounts.
In the case of U.S. Government Securities, mortgage-backed securities
and Municipal Securities, where last sale information is not generally
available, such pricing procedures may include "matrix" comparisons to the
prices for comparable debt instruments on the basis of quality, yield,
maturity and other special factors involved. The Directors will monitor
the accuracy of pricing services by comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Puts, calls and Futures are valued at the last sale prices on the
principal exchanges (or the NASDAQ National Market System) on which they
are traded. If there are no sales that day, in accordance with (i) above.
When the Fund writes an option, an amount equal to the premium received
by the Fund is included in its Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability
section. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option.
Dual Class Methodology. The methodology for calculating the net asset
value, dividends and distributions of the Fund's Class A and Class B
shares recognizes two types of expenses. General expenses that do not
pertain specifically to either class are allocated pro rata to the shares
of each class, based on the percentage of the net assets allocable to such
class to the Fund's total net assets, and then equally to each outstanding
share within a given class. Such general expenses include (i) management
fees, (ii) legal, bookkeeping and audit fees, (iii) printing and mailing
costs of shareholder reports, Prospectuses, Additional Statements and
other materials for current shareholders, (iv) fees to unaffiliated
Directors, (v) custodian expenses, (vi) share issuance costs, (vii)
organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a class are allocated
equally to each outstanding share within that class. Such expenses
include (i) Distribution Plan fees, (ii) incremental transfer and
shareholder servicing agent fees and expenses, (iii) registration fees and
(iv) shareholder meeting expenses, to the extent that such expenses
pertain to a specific class rather than to the Fund as a whole.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Rights of
Accumulation and Letters of Intent because of the economies of sales
efforts and reduction of expenses realized by the Distributor and dealers
making such sales. No sales charge is imposed in certain circumstances
described in the Prospectus because the Distributor incurs little or no
selling expenses. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents-in-law, sons- and
daughters-in law, parents, siblings, a spouse's siblings and a sibling's
spouse.
Redemptions. Information on how to redeem shares of the Fund is stated
in the Prospectus. The Prospectus states that payment for shares tendered
for redemption is ordinarily made in cash. If, however, the Board of
Directors determines that it would be detrimental to the best interests
of the remaining shareholders of the Fund to make payment wholly or partly
in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in kind of securities from the portfolio of the Fund, in
lieu of cash, in conformity with applicable SEC rules. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage or other
costs in converting the assets to cash. Any securities issued by the Fund
pursuant to an "in kind" redemption will be readily marketable. The
method of valuing securities used to make redemptions in kind will be the
same as the method of valuing the Fund's portfolio securities described
above under "Determination of Net Asset Value Per Share," and such
valuation will be made as of the same time the redemption price is
determined.
Cancellation of Purchase Orders. Cancellation of purchase orders for Fund
shares (for example, when checks submitted to purchase shares are returned
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the date of cancellation is less than on the purchase
date. That loss is equal to the difference in net asset value multiplied
by the number of shares in the purchase order. The investor is
responsible for such loss. If the investor fails to compensate the
Corporation for the loss, the Distributor will do so. The Corporation may
reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or by seeking other redress.
Transfer of Shares. Shareholders owning shares of both classes must
specify whether they intend to transfer Class A or Class B shares. Shares
are not subject to the payment of a CDSC of either class at the time of
transfer (by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain subject
to the CDSC, 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 not all shares in the account would be subject to a CDSC
if redeemed at the time of transfer, then the shares will be transferred
in the order described in "How To Buy Shares - Class B Contingent Deferred
Sales Charge" in the Prospectus for the imposition of the Class B CDSC on
redemptions.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or distributions in shares of the same class
of any of the other funds listed in the Prospectus as "Eligible Funds" at
net asset value without sales charge. Class B shareholders should be
aware that as of the date of this Additional Statement, only a limited
number of Eligible Funds offer Class B shares. To elect this option, a
shareholder must notify the Transfer Agent in writing and either must have
an existing account in the fund selected for investment or must obtain a
prospectus for that fund and an application from the Distributor to
establish an account. The investment will be made at the net asset value
per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and distributions from other Eligible
Funds may be invested in shares of this Fund on the same basis.
Yield, Total Return and Tax Information
Yield and Total Return Information. From time to time the Fund may also
quote a "total return at net asset value" for Class A or Class B shares.
It is based on the difference in net asset value per share at the
beginning and the end of the period for that class of shares (without
considering sales charge) and takes into consideration the reinvestment
of dividends and capital gains (as with total return, described above).
The "total return at net asset value" on the Fund's Class A shares for the
one-year period ended June 30, 1993, was 12.53%.
From time to time, the Fund may publish the ranking of the
performance of its Class A or Class B shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent service.
Lipper monitors the performance of regulated investment companies,
including the Fund, and ranks their performance for various periods based
on categories relating to investment objectives. The performance of the
Fund is ranked against (i) all other fixed-income funds, other than money
market funds, and (ii) all other California municipal bond funds. The
Lipper performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales charge or taxes
into consideration.
From time to time, the Fund may publish the ranking of the
performance of its Class A or Class B shares by Morningstar, Inc.
("Morningstar"), an independent mutual fund monitoring service that ranks
various mutual funds, including the Fund, based upon the Fund's three,
five and ten-year average annual total returns (when available) and a risk
factor that reflects fund performances relative to three-month U.S.
Treasury bill monthly returns. Such returns are adjusted for fees and
sales loads. There are five ranking categories with a corresponding
number of stars: highest (5), above average (4), neutral (3), below
average (2) and lowest (1). Morningstar ranks the Fund in relation to
other municipal bond funds. From time to time, the Fund may include in
advertisements and sales literature performance information about the Fund
cited in other periodicals, which may include performance quotations from
other sources, including Lipper and Morningstar.
From time to time the Fund may include in its advertisement and sales
literature performance information about the Fund cited in other
newspapers and periodicals, such as The New York Times, which may include
performance quotations from other sources, including the Lipper and
Morningstar.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. However, a number of factors should be
considered before using such information as a basis for comparison with
other investments. An investment in the Fund is not insured; its yield
and total return are not guaranteed and normally will fluctuate on a daily
basis. Yields and total return for any given period will not be an
indication or representation by the Fund of future yields or rates of
return on its shares. The yields and returns of the Class A and Class B
shares of the Fund are affected by portfolio quality, portfolio maturity,
type of investments held and operating expenses. When comparing the
yields, returns and investment risks of an investment in Class A or Class
B shares of the Fund with those of other investments, investors should
understand that certain other investment alternatives such as certificates
of deposit, U.S. Government Securities, money market instruments or bank
accounts provide fixed yields, and also that bank accounts may be insured
and U.S. Government Securities may be guaranteed. In order to compare the
Fund's dividends to the rate of return on taxable investments, federal
income taxes on such investments should be considered.
Distributions and Taxes. The Corporation intends for the Fund to qualify
as a "regulated investment company" under Subchapter M of the Internal
Revenue Code. While the Fund intends to conduct its business and its
investment policies in a manner that will permit it to qualify for the
special tax treatment afforded regulated investment companies under the
Internal Revenue Code, unforeseen circumstances may occur under which the
Fund would not be able to comply with such requirements. If the Fund did
not qualify as a regulated investment company with respect to any
particular year or years, it would be treated for federal tax purposes as
an ordinary corporation for that year and distributions to shareholders
would be taxed in the same way as distributions by an ordinary
corporation.
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and distributions to shareholders is
explained in the Prospectus under the caption "Dividends, Distributions
and Taxes." 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 that year or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund's
distributions will meet those requirements, the Manager and the Board
might determine in a particular year that it might be in the best interest
of shareholders not to distribute income or capital gains at the mandated
levels and to pay the excise tax on the undistributed amounts, which would
reduce the amount available for distribution to shareholders.
A shareholder who sells shares held for six months or less at a loss
must treat that loss as a long-term capital loss to the extent that the
shareholder received (or was treated as receiving) a capital-gain dividend
on the shares. If a shareholder sells shares held for six months or less
at a loss and received exempt-interest dividends on the shares, the loss
is not allowed to the extent of the exempt-interest dividends. These six-
month periods may be extended in certain circumstances.
Distributions by the Fund from investment income and long-term and
short-term capital gains will generally not be excludable from taxable
income in determining the California corporate franchise or income tax for
corporate shareholders of the Fund. Based upon a California court
decision and statements by the California Franchise Tax Board, it is
possible that shareholders subject to the California corporation income
tax may be allowed to exclude certain of the Fund's exempt-interest
dividends from income. Certain distributions may also be includable in
income subject to the corporate alternative minimum tax.
Additional Information
Description of the Fund. It is not contemplated that regular annual
shareholder meetings will be held. The Fund will hold meetings when
required to do so by the Investment Company Act or other applicable law,
or when a shareholder meeting is called by the Directors or upon proper
request of the shareholders. A meeting of shareholders will be called for
a specified purpose (which may include removal of a Director) upon the
written request of the record holders of at least 25% of the outstanding
shares eligible to be voted at that meeting. The Fund has undertaken that
it will then either give the applicants access to the Fund's shareholder
list or mail the applicants' communication to all other shareholders at
the applicants' expense.
The Custodian and the Transfer Agent. The Bank of New York is the
custodian of the Fund's assets. The Custodian's responsibilities include
safeguarding and controlling the Fund's portfolio securities and handling
the delivery of portfolio securities to and from the Fund. The Manager
has represented to the Fund that its banking relationships with the
Custodian have been and will continue to be unrelated to and unaffected
by the relationship between the Fund and the Custodian. It will be the
practice of the Fund to deal with the Custodian in a manner uninfluenced
by any banking relationship the Custodian may have with the Manager and
its affiliates.
The Transfer Agent is responsible for maintaining the Fund's
shareholder registry and accounting records, and for shareholder servicing
and administrative functions.
Independent Auditors. The independent auditors of the Fund audit its
financial statements and perform other related audit services. They also
act as auditors for the Manager and certain other funds advised by the
Manager.
Distribution Agreement. Under the Distribution Agreement between the
Corporation and the Distributor, the Distributor acts as the Corporation's
principal underwriter in the continuous public offering of shares of the
Fund's Class A and Class B shares, but is not obligated to sell a specific
number of shares. Expenses normally attributable to sales (other than
those paid under the Class B Plan), are borne by the Distributor. During
the Fund's fiscal years ended June 30, 1991, 1992 and 1993, the aggregate
amount of sales charges on sales of the Fund's Class A shares was
$457,676, $903,656 and $1,139,735, respectively, of which the Distributor
retained in the aggregate $72,978, $149,657 and $183,933 in those
respective years.
<PAGE>
Appendix A
RATINGS OF INVESTMENTS
Municipal Bonds
Moody's Investors Service, Inc.. The four highest ratings of Moody's
Investors Service, Inc. ("Moody's") for Municipal Bonds are Aaa, Aa, A
and Baa. Municipal Bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds which are of "high
quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat larger than Aaa rated
Municipal Bonds. The Aaa and Aa rated bonds comprise what are generally
known as "high grade bonds." Municipal Bonds which are rated A by Moody's
possess many favorable investment attributes and are considered "upper
medium grade obligations." Factors giving security to principal and
interest of A rated bonds are considered adequate, but elements may be
present which suggest a susceptibility to impairment at some time in the
future. Municipal Bonds rated Baa are considered "medium grade"
obligations. 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. Those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
attributes are designated Aa1, A1 and Baa1, respectively.
In addition to the alphabetic rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that provides
the holder with the ability to periodically tender ("put") the portion of
the debt covered by the demand feature, may also have a short-term rating
assigned to such demand feature. The short-term rating uses the symbol
VMIG to distinguish characteristics which include payment upon periodic
demand rather than fund or scheduled maturity dates and potential reliance
upon external liquidity, as well as other factors. The highest investment
quality is designated by the VMIG 1 rating and the lowest by VMIG 4.
Standard & Poor's Corporation. The four highest ratings of Standard &
Poor's Corporation ("S&P") for Municipal Bonds are AAA (Prime), AA (High
Grade), A (Good Grade), and BBB (Medium Grade). Municipal Bonds rated AAA
are "obligations of the highest quality." The rating of AA is accorded
issues with investment characteristics "only slightly less marked than
those of the prime quality issues." The category of A describes "the
third strongest capacity for payment of debt service." Principal and
interest payments on bonds in this category are regarded as safe. It
differs from the two higher ratings because, with respect to general
obligations bonds, there is some weakness, either in the local economic
base, in debt burden, in the balance between revenues and expenditures,
or in quality of management. Under certain adverse circumstances, any one
such weakness might impair the ability of the issuer to meet debt
obligations at some future date. With respect to revenue bonds, debt
service coverage is good, but not exceptional. Stability of the pledged
revenues could show some variations because of increased competition or
economic influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appears
adequate.
The BBB rating is the lowest "investment grade" security rating. The
difference between A and BBB ratings is that the latter shows more than
one fundamental weakness, or one very substantial fundamental weakness,
whereas the former shows only one deficiency among the factors considered.
With respect to revenue bonds, debt coverage is only fair. Stability of
the pledged revenues could show variations, with the revenue flow possibly
being subject to erosion over time. Basic security provisions are no more
than adequate. Management performance could be stronger. The ratings AA,
A, and BBB may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Fitch. The four highest ratings of Fitch for Municipal Bonds are AAA, AA,
A, and BBB. Municipal Bonds rated AAA are judged to be of the "highest
credit quality." The rating of AA is assigned to bonds of "very high
credit quality." Municipal Bonds which are rated A by Fitch are
considered to be of "high credit quality." The rating of BBB is assigned
to bonds of "satisfactory credit quality." The A and BBB rated bonds are
more vulnerable to adverse changes in economic conditions than bonds with
higher ratings.
Corporate Debt
The "other debt securities" included in the definition of temporary
investments are corporate (as opposed to municipal) debt obligations rated
Aaa, Aa or A by Moody's, AAA, AA or A by S&P or F+1-, F-1, F-2 or F-1 by
Fitch. The Moody's corporate debt ratings shown do not differ materially
from those set forth above for Municipal Bonds. Corporate debt
obligations rated AAA by S&P are "highest grade obligations." Obligations
bearing the rating of AA also qualify as "high grade obligations" and "in
the majority of instances differ from AAA issues only in small degrees."
Corporate debt obligations rated A by S&P are regarded as "upper medium
grade" and have considerable investment strength, but are not entirely
free from adverse effects of changes in economic and trade conditions.
The Fitch ratings shown do not differ from those set forth below for tax-
exempt municipal notes.
Commercial Paper
The commercial paper ratings of A-1 by S&P, P-1 by Moody's, and F-1+
by Fitch are the highest commercial paper ratings of the respective
agencies. The issuer's earnings, quality of long-term debt, management
and industry position are among the factors considered in assigning such
ratings.
Tax-Exempt Municipal Notes
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG"). Notes bearing the
designation MIG-1 are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established
and broad-based access to the market for financing. Notes bearing the
designation "MIG-2" are of high quality with ample margins of protection,
although not as large as notes rated "MIG." Such short-term notes which
have demand features may also carry a rating using the symbol VMIG as
described above, with the designation MIG-1/VMIG 1 denoting best quality,
with superior liquidity support in addition to those characteristics
attributable to the designation MIG-1.
S&P's rating for Municipal Notes due in three years or less are SP-1
and SP-2. SP-1 describes issues with a very strong capacity to pay
principal and interest and compares with bonds rated A by S&P; if modified
by a plus sign, it compares with bonds rated AA or AAA by S&P. SP-2
describes issues with a satisfactory capacity to pay principal and
interest, and compares with bonds rated BBB by S&P.
Fitch's rating for Municipal Notes due in three years or less are F-
1+, F-1, F-2 and F-3. F-1+ describes notes with an exceptionally strong
credit quality and the strongest degree of assurance for timely payment.
F-1 describes notes with a very strong credit quality and assurance of
timely payment is only slightly less in degree than issues rated F-1+.
F-2 describes notes with a good credit quality and a satisfactory
assurance of timely payment, but the margin of safety is not as great for
issues assigned F-1+ or F-1 ratings. F-3 describes notes with a fair
credit quality and an adequate assurance of timely payment, but near-term
adverse changes could cause such securities to be rated below investment
grade.
<PAGE>
APPENDIX B
TAX-EQUIVALENT YIELDS
The equivalent yield tables below compare tax-free income with taxable
income under Federal individual income tax rates effective January 1,
1993, and California state individual income tax rates effective January
1, 1993 (California tax brackets are adjusted for inflation sometime
between June 1 and August 1 of the current year). "Combined Taxable
Income" refers to the net amount subject to Federal and California income
taxes after deductions and exemptions. The tables assume that an
investor's highest tax bracket applies to the change in taxable income
resulting from a switch between taxable and non-taxable investments, and
that state tax payments are currently deductible for Federal tax purposes
and that the investor is not subject to Federal or state alternative
minimum tax. The income tax brackets are subject to indexing in future
years to reflect changes in the Consumer Price Index. The brackets do not
reflect the phaseout of itemized deductions and personal exemptions at
higher income levels, resulting in higher effective tax rates (and tax
equivalent yields).
<TABLE>
<CAPTION>
Combined Taxable Income
A Tax-Exempt Yield of:
Joint Return Effective Tax Bracket 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
5.0% 5.5% 6.0% 6.5% 7.0%
But
Over Not Over Federal Cal. Combined Is Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 21,578$ 34,054 15.00% 4.00% 18.40% 1.23% 1.84% 2.45% 3.06% 3.68% 4.29% 4.90% 5.51%
6.13% 6.74% 7.35% 7.97% 8.58%
$ 34,054$ 36,900 15.00% 6.00% 20.10% 1.25% 1.88% 2.50% 3.13% 3.75% 4.38% 5.01% 5.63%
6.26% 6.88% 7.51% 8.14% 8.76%
$ 36,900$ 47,274 28.00% 6.00% 32.32% 1.48% 2.22% 2.96% 3.69% 4.43% 5.17% 5.91% 6.65%
7.39% 8.13% 8.87% 9.60% 10.34%
$ 47,274$ 59,746 28.00% 8.00% 33.76% 1.51% 2.26% 3.02% 3.77% 4.53% 5.28% 6.04% 6.79%
7.55% 8.30% 9.06% 9.81% 10.57%
$ 59,746$ 89,150 28.00% 9.30% 34.70% 1.53% 2.30% 3.06% 3.83% 4.59% 5.36% 6.13% 6.89%
7.66% 8.42% 9.19% 9.95% 10.72%
$ 89,150$140,000 31.00% 9.30% 37.42% 1.60% 2.40% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19%
7.99% 8.79% 9.59% 10.39% 11.19%
$140,000$207,200 36.00% 9.30% 41.95% 1.72% 2.58% 3.45% 4.31% 5.17% 6.03% 6.89% 7.75%
8.61% 9.47% 10.34% 11.20% 12.06%
$207,200$250,000 36.00% 10.00% 42.40% 1.74% 2.60% 3.47% 4.34% 5.21% 6.08% 6.94% 7.81%
8.68% 9.55% 10.42% 11.28% 12.15%
$250,000$414,400 39.60% 10.00% 45.64% 1.84% 2.76% 3.68% 4.60% 5.52% 6.44% 7.36% 8.28%
9.20% 10.12% 11.04% 11.96% 12.88%
$414,400 39.60% 11.00% 46.24% 1.86% 2.79% 3.72% 4.65% 5.58% 6.51% 7.44% 8.37%
9.30% 10.23% 11.16% 12.09% 13.02%
Single return:
But
Over Not Over
$ 17,027$ 22,100 15.00% 6.00% 20.10% 1.25% 1.88% 2.50% 3.13% 3.75% 4.38% 5.01% 5.63%
6.26% 6.88% 7.51% 8.14% 8.76%
$ 22,100$ 23,637 28.00% 6.00% 32.32% 1.48% 2.22% 2.96% 3.69% 4.43% 5.17% 5.91% 6.65%
7.39% 8.13% 8.87% 9.60% 10.34%
$ 23,637$ 29,873 28.00% 8.00% 33.76% 1.51% 2.26% 3.02% 3.77% 4.53% 5.28% 6.04% 6.79%
7.55% 8.30% 9.06% 9.81% 10.57%
$ 29,873$ 53,500 28.00% 9.30% 34.70% 1.53% 2.30% 3.06% 3.83% 4.59% 5.36% 6.13% 6.89%
7.66% 8.42% 9.19% 9.95% 10.72%
$ 53,500$103,600 31.00% 9.30% 37.42% 1.60% 2.40% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19%
7.99% 8.79% 9.59% 10.39% 11.19%
$103,600$115,000 31.00% 10.00% 37.90% 1.61% 2.42% 3.22% 4.03% 4.83% 5.64% 6.44% 7.25%
8.05% 8.86% 9.66% 10.47% 11.27%
$115,000$207,200 36.00% 10.00% 42.40% 1.74% 2.60% 3.47% 4.34% 5.21% 6.08% 6.94% 7.81%
8.68% 9.55% 10.42% 11.28% 12.15%
$207,200$250,000 36.00% 11.00% 43.04% 1.76% 2.63% 3.51% 4.39% 5.27% 6.14% 7.02% 7.90%
8.78% 9.66% 10.53% 11.41% 12.29%
$250,000 39.60% 11.00% 46.24% 1.86% 2.79% 3.72% 4.65% 5.58% 6.51% 7.44% 8.37%
9.30% 10.23% 11.16% 12.09% 13.02%
</TABLE>
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
OPPENHEIMER MAIN STREET FUNDS, INC.
(Formerly named: MAIN STREET FUNDS, INC.)
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial Highlights (See Part A, Prospectus): To be filed by
amendment.
(2) Independent Auditors' Report (See Part B, Statement of
Additional Information): To be filed by amendment.
(3) Statements of Investments (See Part B, Statement of
Additional Information): To be filed by amendment.
(4) Statements of Assets and Liabilities (See Part B, Statement
of Additional Information): To be filed by amendment.
(5) Statements of Operations (See Part B, Statement of
Additional
Information): To be filed by amendment.
(6) Statements of Changes in Net Assets (See Part B, Statement
of Additional Information): To be filed by amendment.
(7) Notes to Financial Statements (See Part B, Statement of
Additional Information): To be filed by amendment.
(8) Independent Auditors' Consent: To be filed by amendment.
(b) Exhibits
(1) (i) Articles of Incorporation dated 10/5/87: Filed with
Registrant's Post-Effective Amendment No. 12, 10/25/93, and
incorporated herein by reference.
(ii) Amended Articles of Incorporation dated 12/9/87: Filed with
Registrant's Post-Effective Amendment No. 12, 10/25/93, and
incorporated herein by reference.
(iii) Articles Supplementary to the Articles of Incorporation
dated 8/18/88: Filed with Registrant's Post-Effective
Amendment No. 12, 10/25/93, and incorporated herein by
reference.
(iv) Articles Supplementary to the Articles of Incorporation
dated 1/20/89: Filed with Registrant's Post-Effective
Amendment No. 12, 10/25/93, and incorporated herein by
reference.
(v) Articles Supplementary to the Articles of Incorporation
dated 4/16/90: Filed with Registrant's Post-Effective
Amendment No. 12, 10/25/93, and incorporated herein by
reference.
(vi) Amendment to the Articles of Incorporation dated 8/27/93:
Filed with Registrant's Post-Effective Amendment No. 12,
10/25/93, and incorporated herein by reference.
(vii) Amendment to the Articles of Incorporation dated
10/20/93: Filed with Registrant's Post-Effective
Amendment No. 12, 10/25/93, and incorporated herein by
reference.
(viii) Articles Supplementary to the Articles of Incorporation
dated 10/27/93: To be filed by amendment.
(ix) Articles Supplementary to the Articles of
Incorporation dated 11/29/93: To be filed by amendment.
(x) Articles Supplementary to the Articles of Incorporation
dated 4/28/94. To be filed by amendment.
(2) By-Laws as amended through 6/26/90: Previously filed with Post-
Effective Amendment No. 8, 10/22/91, to Registrant's Registration
Statement and incorporated herein by reference.
(3) Not applicable
(4) (i) Specimen Class A Stock Certificate - Oppenheimer Main Street
Income & Growth Fund: Filed with Registrant's Post-
Effective Amendment No. 12, 10/25/93, and incorporated
herein by reference.
(ii) Specimen Class B Stock Certificate - Oppenheimer Main Street
Income & Growth Fund: To be filed by amendment.
(iii) Specimen Class C Stock Certificate - Oppenheimer Main
Street Income & Growth Fund: Filed with Registrant's
Post-Effective Amendment No. 12, 10/25/93, and
incorporated herein by reference.
(iv) Specimen Class A Stock Certificate - Oppenheimer Main Street
California Tax-Exempt Fund: Filed with Registrant's Post-
Effective Amendment No. 12, 10/25/93, and incorporated
herein by reference.
(v) Specimen Class B Stock Certificate - Oppenheimer Main Street
California Tax-Exempt Fund: Filed with Registrant's Post-
Effective Amendment No. 12, 10/25/93, and incorporated
herein by reference.
(5) (i) Investment Advisory Agreement dated 10/22/90 for Oppenheimer
Main Street Income & Growth Fund: Filed with Registrant's
Post-Effective Amendment No. 6, 11/1/90, and incorporated
herein by reference.
(ii) Investment Advisory Agreement dated 10/22/90 for Oppenheimer
Main Street California Tax-Exempt Fund: Filed with
Registrant's Post-Effective Amendment No. 2 of Main Street
Funds, Inc./California Tax-Exempt Fund (Reg. No. 33-34270),
11/1/90, and incorporated herein by reference.
(6) (i) General Distributor's Agreement dated 10/13/92: Filed with
Post-Effective Amendment No. 11 to Registrant's Registration
Statement, 8/25/93, and incorporated herein by reference.
(ii) Form of Oppenheimer Fund Management, Inc. Dealer Agreement:
Filed with Post-Effective Amendment No. 12 of Oppenheimer
Government Securities Fund (Reg. No. 33-02769), 12/2/92, and
incorporated herein by reference.
(iii) Form of Oppenheimer Fund Management, Inc. Broker
Agreement: Filed with Post-Effective Amendment No. 12
of Oppenheimer Government Securities Fund (Reg. No. 33-
02769), 12/2/92, and incorporated by reference.
(iv) Form of Oppenheimer Fund Management, Inc. Agency Agreement:
Filed with Post-Effective Amendment No. 12 of Oppenheimer
Government Securities Fund (Reg. No. 33-02769), 12/2/92.
(v) Broker Agreement between Oppenheimer Fund Management, Inc.
and Newbridge Securities, Inc. dated 10/1/86: Filed with
Post-Effective Amendment No. 25 of Oppenheimer Special Fund
(Reg. No. 2-45272), 11/1/86, and incorporated herein by
reference.
(7) Not applicable
(8) Custody Agreement dated 8/5/92: Filed with Registrant's Post-
Effective Amendment No. 10, 10/19/92, and incorporated herein by
reference.
(9) (i) Agreement and Plan of Reorganization dated 4/28/92 between
Main Street Funds, Inc. - Asset Allocation Fund, and Main
Street Funds, Inc. - Income & Growth Fund: Filed with Post-
Effective Amendment No. 11 to Registrant's Registration
Statement, 8/25/93, and incorporated herein by reference.
(ii) Agreement and Plan of Reorganization dated 6/18/92 between
Main Street Funds, Inc. - Tax-Free Income Fund and
Oppenheimer Tax-Free Bond Fund: Filed with Post-Effective
Amendment No. 11 to Registrant's Registration Statement,
8/25/93, and incorporated herein by reference.
(iii) Agreement and Plan of Reorganization dated 8/20/93
between Main Street Funds, Inc. - Government Securities
Fund and Oppenheimer Government Securities Fund: Filed
with Post-Effective Amendment No. 11 to Registrant's
Registration Statement, 8/25/93, and incorporated
herein by reference.
(10) (i) Opinion and Consent of Counsel dated 2/1/88: Filed with
Registrant's Post-Effective Amendment No. 1, 6/28/88, and
incorporated herein by reference.
(ii) Opinion and Consent of Counsel dated 1/20/89: Filed with
Registrant's Post-Effective Amendment No. 4, 10/30/89, and
incorporated herein by reference.
(iii) Opinion and Consent of Counsel dated 4/23/90: Filed
with Pre-Effective Amendment No. 1 of Main Street
Funds, Inc./California Tax-Exempt Fund (Reg. No. 33-
34270), 4/26/90 and incorporated herein by reference.
(11) Not applicable
(12) Not applicable
(13) (i) Investment Letter dated 12/22/88 from Oppenheimer Management
Corporation to Registrant: Filed with Registrant's Post-
Effective Amendment No. 3, 1/17/89, and incorporated herein
by reference.
(14) (i) Form of Individual Retirement Account Plan Trust Agreement:
Filed with Post-Effective Amendment No. 21 of Oppenheimer
U.S. Government Trust (Reg. No. 2-76645), 8/25/93, and
incorporated herein by reference.
(ii) Form of Prototype Standardized and Non-Standardized Profit
Sharing Plan and Money Purchase Pension Plan for self-
employed persons and corporations: Filed with Post-Effective
Amendment No. 3 of Oppenheimer Global Growth & Income Fund
(File No. 33-33799), 1/31/92, and incorporated herein by
reference.
(iii) Form of Shareholder Services, Inc. Tax-Sheltered
Retirement Plan and Custody Agreement for employees of
public schools and tax-exempt organizations:
Previously filed with Post Effective Amendment No. 8,
10/22/92, to Registrant's Registration Statement and
incorporated herein by reference.
(iv) Form of Simplified Employee Pension IRA: Filed with Post-
Effective Amendment No. 36 of Oppenheimer Equity Income Fund
(Reg. No. 2-33043), 10/23/91, and incorporated herein by
reference.
(v) Form of SAR-SEP Simplified Employee Pension IRA: Filed with
Post-Effective Amendment No. 19 to the Registration
Statement for Oppenheimer Integrity Funds (File No. 2-
76547), 3/1/94, and incorporated herein by reference.
(15) (i) Amended and Restated Service Plan and Agreement for Class A
shares of Oppenheimer Main Street Income & Growth Fund:
Filed herewith with Registrant's Post-Effective Amendment
No. 12, 10/25/93, and incorporated herein by reference.
(ii) Distribution and Service Plan and Agreement for Class B
shares of Oppenheimer Main Street Income & Growth Fund:
Filed herewith.
(iii) Form of Distribution and Service Plan and Agreement for
Class C shares of Oppenheimer Main Street Income &
Growth Fund: To be filed by amendment.
(iv) Distribution and Service Plan and Agreement for Class B
shares of Oppenheimer Main Street California Tax-Exempt Fund
dated 10/25/93: To be filed by amendment.
(16) Performance Computation Schedule: To be filed by amendment.
(17) Powers of Attorney (including Certified Board resolutions): Filed
with Post-Effective Amendment No. 11 to Registrant's
Registration Statement, 8/25/93, and incorporated herein by
reference.
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
as of ____________________
Oppenheimer Main Street Income &
Growth Fund Class A Shares
Oppenheimer Mains Street Income &
Growth Fund Class B Shares
Oppenheimer Main Street Income &
Growth Fund Class C Shares
Oppenheimer Main Street California
Tax-Exempt Fund Class A Shares
Oppenheimer Main Street California
Tax-Exempt Fund Class B Shares
Item 27. Indemnification
Reference is made to paragraph (b) of Section 7 of Article SEVENTH of
Registrant's Articles of Incorporation filed as Exhibit 24(b)(1)
hereto.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Directors, officers and
controlling persons of Registrant pursuant to the foregoing provisions
or otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a Director, officer or
controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or
controlling person, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication
of such issue.
Item 28. (a) Business and Other Connections of Investment Adviser
Oppenheimer Management Corporation is the investment adviser of
the Registrant. Oppenheimer Management Corporation and certain
subsidiaries and affiliates act in the same capacity to other
registered investment companies as described in Part B of this
Registration Statement.
(b) For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and
directors of Oppenheimer Management Corporation, reference is
made to Part B of this Registration Statement and to the
registration on Form ADV by Oppenheimer Management Corporation
filed under the Investment Advisers Act of 1940, which is
incorporated herein by reference.
Item 29. Principal Underwriters
(a) Oppenheimer Funds Distributor, Inc. (formerly Oppenheimer Fund
Management, Inc.) is the Distributor of Registrant's shares. It
is also the Distributor of certain other registered open-end
investment companies for which Oppenheimer Management Corporation
is the investment adviser, as described in Parts A and B of this
Registration Statement.
(b) The information contained in the registration on Form BD of
Oppenheimer Funds Distributor Inc., filed under the Securities
Exchange Act of 1934, is incorporated herein by reference.
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of
Oppenheimer Management Corporation at its offices at 3410 South Galena
Street, Denver, Colorado 80231.
Item 31. Management Services
Not applicable.
Item 32. Undertaking
(a) Not applicable.
(b) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver and State
of Colorado on the 2nd day of August, 1994.
OPPENHEIMER MAIN STREET FUNDS, INC.
By: /s/ JAMES C. SWAIN
Attest: ------------------------------
James C. Swain, Chairman
/s/ GEORGE C. BOWEN
- ------------------------------
George C. Bowen, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signatures Title Date
/s/ JAMES C. SWAIN Chairman, Chief Executive
- ----------------------------- Officer and a Director
James C. Swain (Principal Executive Officer) August 2, 1994
/s/ GEORGE C. BOWEN Vice President, Secretary
- ----------------------------- and Treasurer (Principal
George C. Bowen Financial and Accounting August 2, 1994
Officer)
/s/ WILLIAM A. BAKER Director August 2, 1994
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William A. Baker
Director
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Charles Conrad, Jr.
/s/ JON S. FOSSEL Director August 2, 1994
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Jon S. Fossel
Director
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Raymond J. Kalinowski
/s/ C. HOWARD KAST Director August 2, 1994
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C. Howard Kast
/s/ ROBERT M. KIRCHNER Director August 2, 1994
- -----------------------------
Robert M. Kirchner
/s/ NED M. STEEL Director August 2, 1994
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Ned M. Steel
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT
BETWEEN OPPENHEIMER FUNDS DISTRIBUTOR, INC.
AND OPPENHEIMER MAIN STREET FUNDS, INC.
FOR CLASS B SHARES OF
OPPENHEIMER MAIN STREET CALIFORNIA TAX-EXEMPT FUND
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT (the "Plan") dated the 25th
day of October, 1993 by and between OPPENHEIMER MAIN STREET FUNDS, INC.
(the "Corporation"), on behalf of OPPENHEIMER MAIN STREET CALIFORNIA TAX-
EXEMPT FUND, a series of the Corporation (the "Fund"), and OPPENHEIMER
FUNDS DISTRIBUTOR, INC. (the "Distributor").
1. The Plan. This Plan is the Fund's written distribution and service
plan for Class B shares of the Fund (the "Shares"), contemplated by Rule
12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940
Act"), pursuant to which the Corporation will compensate the Distributor
for a portion of its costs incurred in connection with the distribution
of Shares, and the personal service and maintenance of shareholder
accounts that hold Shares ("Accounts"). The Corporation may act as
distributor of securities of which it is the issuer, pursuant to the Rule,
according to the terms of this Plan. The Distributor is authorized under
the Plan to pay "Recipients," as hereinafter defined, for rendering (1)
distribution assistance in connection with the sale of Shares and/or (2)
administrative support services with respect to Accounts. Such Recipients
are intended to have certain rights as third-party beneficiaries under
this Plan. The terms and provisions of this Plan shall be interpreted and
defined in a manner consistent with the provisions and definitions
contained in (i) the 1940 Act, (ii) the Rule, (iii) Article III, Section
26, of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., or its successor (the "NASD Rules of Fair
Practice") and (iv) any conditions pertaining either to distribution
related expenses or to a plan of distribution, to which the Fund is
subject under any order on which the Fund relies, issued at any time by
the Securities and Exchange Commission.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other
institution which: (i) has rendered assistance (whether direct,
administrative or both) in the distribution of Shares or has provided
administrative support services with respect to Shares held by
Customers (defined below) of the Recipient; (ii) shall furnish the
Distributor (on behalf of the Fund) with such information as the
Distributor shall reasonably request to answer such questions as may
arise concerning the sale of Shares; and (iii) has been selected by
the Distributor to receive payments under the Plan. Notwithstanding
the foregoing, a majority of the Corporation's Board of Directors
(the "Board") who are not "interested persons" (as defined in the
1940 Act) and who have no direct or indirect financial interest in
the operation of this Plan or in any agreements relating to this Plan
(the "Independent Directors") may remove any broker, dealer, bank or
other institution as a Recipient, whereupon such entity's rights as
a third-party beneficiary hereof shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all
Shares owned beneficially or of record by: (i) such Recipient, or
(ii) such customers, clients and/or accounts as to which such
Recipient is a fiduciary or custodian or co-fiduciary or co-custodian
(collectively, the "Customers"), but in no event shall any such
Shares be deemed owned by more than one Recipient for purposes of
this Plan. In the event that two entities would otherwise qualify
as Recipients as to the same Shares, the Recipient which is the
dealer of record on the Fund's books shall be deemed the Recipient
as to such Shares for purposes of this Plan.
3. Payments for Distribution Assistance and Administrative Support
Services.
(a) The Corporation will make payments to the Distributor, (i)
within forty-five (45) days of the end of each calendar quarter, in
the aggregate amount of 0.0625% (0.25% on an annual basis) of the
average during the calendar quarter of the aggregate net asset value
of the Shares computed as of the close of each business day (the
"Service Fee"), plus (ii) within ten (10) days of the end of each
month, in the aggregate amount of 0.0625% (0.75% on an annual basis)
of the average during the month of the aggregate net asset value of
Shares computed as of the close of each business day (the "Asset
Based Sales Charge") outstanding for six years or less (the "Maximum
Holding Period"). Such Service Fee payments received from the
Corporation will compensate the Distributor and Recipients for
providing administrative support services of the type approved by the
Board with respect to Accounts. Such Asset Based Sales Charge
payments received from the Fund will compensate the Distributor and
Recipients for providing distribution assistance in connection with
the sales of Shares.
The administrative support services in connection with the
Accounts to be rendered by Recipients may include, but shall not be
limited to, the following: answering routine inquiries concerning
the Fund, assisting in the establishment and maintenance of accounts
or sub-accounts in the Fund and processing Share redemption
transactions, making the Fund's investment plans and dividend payment
options available, and providing such other information and services
in connection with the rendering of personal services and/or the
maintenance of Accounts, as the Distributor or the Fund may
reasonably request.
The distribution assistance in connection with the sale of Shares
to be rendered by the Distributor and Recipients may include, but
shall not be limited to, the following: distributing sales
literature and prospectuses other than those furnished to current
holders of the Fund's Shares ("Shareholders"), and providing such
other information and services in connection with the distribution
of Shares as the Distributor or the Fund may reasonably request.
It may be presumed that a Recipient has provided distribution
assistance or administrative support services qualifying for payment
under the Plan if it has Qualified Holdings of Shares to entitle it
to payments under the Plan. In the event that either the Distributor
or the Board should have reason to believe that, notwithstanding the
level of Qualified Holdings, a Recipient may not be rendering
appropriate distribution assistance in connection with the sale of
Shares or administrative support services for Accounts, then the
Distributor, at the request of the Board, shall require the Recipient
to provide a written report or other information to verify that said
Recipient is providing appropriate distribution assistance and/or
services in this regard. If the Distributor still is not satisfied,
it may take appropriate steps to terminate the Recipient's status as
such under the Plan, whereupon such entity's rights as a third-party
beneficiary hereunder shall terminate.
(b) The Distributor shall make service fee payments to any
Recipient quarterly, within forty-five (45) days of the end of each
calendar quarter, at a rate not to exceed 0.0625% (0.25% on an annual
basis) of the average during the calendar quarter of the aggregate
net asset value of Shares computed as of the close of each business
day, constituting Qualified Holdings owned beneficially or of record
by the Recipient or by its Customers for a period of more than the
minimum period (the "Minimum Holding Period"), if any, to be set from
time to time by a majority of the Independent Directors.
Alternatively, the Distributor may, at its sole option, make service
fee payments ("Advance Service Fee Payments") to any Recipient
quarterly, within forty-five (45) days of the end of each calendar
quarter, at a rate not to exceed (i) 0.25% of the average during the
calendar quarter of the aggregate net asset value of Shares, computed
as of the close of business on the day such Shares are sold,
constituting Qualified Holdings sold by the Recipient during that
quarter and owned beneficially or of record by the Recipient or by
its Customers, plus (ii) 0.0625% (0.25% on an annual basis) of the
average during the calendar quarter of the aggregate net asset value
of Shares computed as of the close of each business day, constituting
Qualified Holdings owned beneficially or of record by the Recipient
or by its Customers for a period of more than one (1) year, subject
to reduction or chargeback so that the Advance Service Fee Payments
do not exceed the limits on payments to Recipients that are, or may
be, imposed by Article III, Section 26, of the NASD Rules of Fair
Practice. In the event Shares are redeemed less than one year after
the date such Shares were sold, the Recipient is obligated and will
repay to the Distributor on demand a pro rata portion of such Advance
Service Fee Payments, based on the ratio of the time such shares were
held to one (1) year. The Advance Service Fee Payments described in
part (i) of the preceding sentence may, at the Distributor's sole
option, be made more often than quarterly, and sooner than the end
of the calendar quarter. However, no such payments shall be made to
any Recipient for any such quarter in which its Qualified Holdings
do not equal or exceed, at the end of such quarter, the minimum
amount ("Minimum Qualified Holdings"), if any, to be set from time
to time by a majority of the Independent Directors. A majority of
the Independent Directors may at any time or from time to time
decrease and thereafter adjust the rate of fees to be paid to the
Distributor or to any Recipient, but not to exceed the rate set forth
above, and/or direct the Distributor to increase or decrease the
Maximum Holding Period, the Minimum Holding Period or the Minimum
Qualified Holdings. The Distributor shall notify all Recipients of
the Minimum Qualified Holdings, Maximum Holding Period and Minimum
Holding Period, if any, and the rate of payments hereunder applicable
to Recipients, and shall provide each Recipient with written notice
within thirty (30) days after any change in these provisions.
Inclusion of such provisions or a change in such provisions in a
revised current prospectus shall constitute sufficient notice. The
Distributor may make Plan payments to any "affiliated person" (as
defined in the 1940 Act) of the Distributor if such affiliated person
qualifies as a Recipient.
(c) The Distributor is entitled to retain from the payments
described in Section 3(a) the aggregate amount of (i) the Service Fee
on Shares outstanding for less than the Minimum Holding Period plus
(ii) the Asset-Based Sales Charge on Shares outstanding for not more
than the Maximum Holding Period, in each case computed as of the
close of each business day during that period and subject to
reduction or elimination of such amounts under the limits to which
the Distributor is, or may become, subject under Article III, Section
26, of the NASD Rules of Fair Practice. Such amount is collectively
referred to as the "Quarterly Limitation." The distribution
assistance and administrative support services in connection with the
sale of Shares to be rendered by the Distributor may include, but
shall not be limited to, the following: (i) paying sales commissions
to any broker, dealer, bank or other institution that sell Shares,
and\or paying such persons Advance Service Fee Payments in advance
of, and\or greater than, the amount provided for in Section 3(a) of
this Agreement; (ii) paying compensation to and expenses of personnel
of the Distributor who support distribution of Shares by Recipients;
(iii) paying of or reimbursing the Distributor for interest and
other borrowing costs on unreimbursed Carry Forward Expenses (as
hereafter defined) at the rate paid by the Distributor or, if such
amounts are financed by the Distributor from its own resources or by
an affiliate, at the rate of 1% per annum above the prime rate (which
shall mean the most preferential interest rate on corporate loans at
large U.S. money center commercial banks) then being reported in the
Eastern edition of the Wall Street Journal (or if such prime rate is
no longer so reported, such other rate as may be designated from time
to time by the Distributor with the approval of the Independent
Directors); (iv) other direct distribution costs of the type approved
by the Board, including without limitation the costs of sales
literature, advertising and prospectuses (other than those furnished
to current Shareholders) and state "blue sky" registration expenses;
and (v) any service rendered by the Distributor that a Recipient may
render pursuant to part (a) of this Section 3. The Distributor's
costs of providing the above-mentioned services are hereinafter
collectively referred to as "Distribution and Service Costs." "Carry
Forward Expenses" are Distribution and Service Costs that are not
paid in the fiscal quarter in which they arise because they exceed
the Quarterly Limitation. In the event that the Board should have
reason to believe that the Distributor may not be rendering
appropriate distribution assistance or administrative support
services in connection with the sale of Shares, then the Distributor,
at the request of the Board, shall provide the Board with a written
report or other information to verify that the Distributor is
providing appropriate services in this regard.
(d) The excess in any fiscal quarter of (i) the Quarterly
Limitation plus any contingent deferred sales charge ("CDSC")
payments recovered by the Distributor on the proceeds of redemption
of Shares over (ii) Distribution and Service Costs during that
quarter, shall be applied in the following order of priority: first
to interest on unreimbursed Carry Forward Expenses, second to reduce
any unreimbursed Carry Forward Expenses, third to reduce Distribution
and Service Costs during that quarter, and fourth, to reduce the
Asset Based Sales Charge payments by the Corporation to the
Distributor in that quarter. Carry Forward Expenses shall be carried
forward by the Corporation until payment can be made under the
Quarterly Limitation.
(e) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC),
from its own resources, from Asset Based Sales Charge payments or
from its borrowings.
4. Selection and Nomination of Directors. While this Plan is in effect,
the selection and nomination of those persons to be Directors of the
Corporation who are not "interested persons" of the Corporation
("Disinterested Directors") shall be committed to the discretion of such
Disinterested Directors. Nothing herein shall prevent the Disinterested
Directors from soliciting the views or the involvement of others in such
selection or nomination if the final decision on any such selection and
nomination is approved by a majority of the incumbent Disinterested
Directors.
5. Reports. While this Plan is in effect, the Treasurer of the
Corporation shall provide at least quarterly a written report to the
Corporation's Board for its review, detailing distribution expenditures
properly attributable to the Shares, including the amount of all payments
made pursuant to this Plan, the identity of the Recipient of each such
payment, the amount paid to the Distributor and the Distribution and
Service Costs and Carry Forward Expenses for that period. The report shall
state whether all provisions of Section 3 of this Plan have been complied
with. The Distributor shall annually certify to the Board the amount of
its total expenses incurred that year and its total expenses incurred in
prior years and not previously recovered with respect to the distribution
of Shares in conjunction with the Board's annual review of the
continuation of the Plan.
6. Related Agreements. Any agreement related to this Plan shall be in
writing and shall provide that: (i) such agreement may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
Independent Directors or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act); (iii) it shall go
into effect when approved by a vote of the Board and its Independent
Directors cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by a vote of the Board and its
Independent Directors cast in person at a meeting called for the purpose
of voting on such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board and its Independent Trustees cast
in person at a meeting called on June 22, 1993 for the purpose of voting
on this Plan, and takes effect October 25, 1993. Unless terminated as
hereinafter provided, it shall continue in effect from year to year
thereafter or as the Board may otherwise determine only so long as such
continuance is specifically approved at least annually by a vote of the
Board and its Independent Directors cast in person at a meeting called for
the purpose of voting on such continuance. This Plan may not be amended
to increase materially the amount of payments to be made without approval
of the Class B Shareholders, in the manner described above, and all
material amendments must be approved by a vote of the Board and of the
Independent Directors. This Plan may be terminated at any time by vote
of a majority of the Independent Directors or by the vote of the holders
of a "majority" (as defined in the 1940 Act) of the Fund's outstanding
voting securities of the Class. Notwithstanding any such termination, the
Distributor shall be entitled to payment from the Fund of all Carry
Forward Expenses properly incurred in respect of Shares sold prior to the
effective date of such termination, and the Fund shall continue to make
payment to the Distributor in the amount the Distributor is entitled to
retain under part (c) of Section 3 hereof, until such time as the
Distributor has been reimbursed for all such amounts by the Fund and by
retaining CDSC payments.
OPPENHEIMER MAIN STREET FUNDS, INC.
By: _______________________________________
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By: ________________________________________
Katherine P. Feld, Vice President & Secretary
